The SEC missed many chances to expose Bernard Madoff’s giant Ponzi scheme because the staff either did not know what to do or failed to follow up on detailed complaints, the agency’s internal regulator has concluded. Despite eight credible complaints over the years, including one as recently as March 2008, “a thorough and competent investigation or examination was never performed,” said a summary of the findings. The SEC “never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.” According to the Financial Times, the report by David Kotz, the SEC’s inspector-general, offers the most exhaustive account yet of how the SEC failed to detect Mr Madoff’s Ponzi scheme during five probes conducted since 1992. It described an inexperienced staff that did not understand the significance of “red flags” and did not take steps to verify facts, including whether Mr Madoff actually engaged in trading. It also highlights internal communication problems, with different units conducting simultaneous probes into Madoff’s business without knowing of each other’s activities. Officials also approached examinations “too narrowly.’’ Even when they caught Madoff in contradictions, SEC staff accepted his “seemingly implausible” explanations at face value. Madoff, now serving a 150-year prison term, was himself “astonished” the SEC did not verify his claim that he cleared his trades through the Depository Trust Company. “I thought it was the end game, over,” he told Kotz. “Monday morning they’ll call DTC and this will be over… and it never happened.”
SEC Guilty of Multiple Failures over Madoff
Even when they caught Madoff in contradictions, SEC staff accepted his “seemingly implausible” explanations at face value.
September 3, 2009