The Securities and Exchange Commission was hot on the trail of Bernard Madoff yet came up cold again and again, as it failed to identify the investment banker’s alleged $50 billion Ponzi scheme. According to the Journal, the SEC and other regulators investigated Madoff’s investment fund at least eight times over sixteen years, yet managed to discover nothing incriminating until Madoff’s own confession last month.
The SEC, including its offices in New York, Washington DC, and Boston, made a series of investigations into Bernard L. Madoff Investment Securities from 1992 onward, but were unable to determine any but the most lenient of errors on the part of the fund. In their investigations, SEC officials questioned whether Madoff’s fund was guilty of “front running,” obtaining better prices for premium clients, but determined no foul play.
An additional investigation by the Financial Industry Regulatory Authority (FINRA) found only minor technical violations, and did not pursue the possibility of greater abuses. FINRA’s current chairman, Mary Schapiro, has been nominated by President-elect Obama to fill the head position at the SEC in the new presidential administration.
The failure to properly assess what has recently turned out to be the largest Ponzi scheme in history is yet another black eye for the SEC, which has seen its credibility plummet through the credit crisis. SEC critics claim that the agency has been either un- or under-responsive in dealing with the movement of the market in the months leading to and within the economic downturn.
The SEC also ignored accusations by Harry Markopolos, a rival investment banker of Madoff’s, who claimed in 2005 that Madoff’s fund was “the world’s largest Ponzi scheme.” A subsequent investigation by the SEC uncovered no evidence to back up Markopolos’s allegations.
The SEC meets today with Congress to discuss the Madoff case.