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Did the SEC Miss the Obvious When It Came to Madoff?

December 16, 2008 8:28 PM

Abc_charles_herman_080812_mn ABC News' Charles Herman reports: If you are fascinated by the Madoff scandal, this makes for good reading.  The SEC released a statement on the case announcing that the inspector general for the agency will now do a review of the past allegations against Madoff made to the SEC and why those allegations were not found to be credible by SEC staff.

The Commission reports that it "has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action."

The SEC also directs any staff that had more than "insubstantial contact" with Madoff or his family to recuse themselves from the current investigation.

Here's the SEC's full statement:

"STATEMENT REGARDING MADOFF INVESTIGATION

"Washington, D.C., Dec. 16, 2008 – Securities and Exchange Commission Chairman Christopher Cox issued the following statement today concerning its ongoing investigation in the case of SEC v. Madoff:

"Since the Commission first took emergency action against Bernard Madoff and his firm, Bernard L. Madoff Investment Securities, LLC, on Thursday, December 11, every necessary resource at the SEC has been dedicated to pursuing the investigation, protecting customer assets and holding both Mr. Madoff and others who may have been involved accountable.

"SEC investigators are currently working with the trustee and other law enforcement agencies to review vast amounts of records and information involving Mr. Madoff and his firm.  Those records are increasingly exposing the complicated steps that Mr. Madoff took to deceive investors, the public and regulators.  Although the information I can share regarding an ongoing investigation is limited, progress to date indicates that Mr. Madoff kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.

"Since Commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff's vast scheme remained undetected by regulators and law enforcement for so long.  Our initial findings have been deeply troubling. The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action.  I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.  Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.

"In response, after consultation with the Commission, I have directed a full and immediate review of the past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General. The review will also cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the Commission level, whether those policies were followed, and whether improvements to those policies are necessary. The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.

"The Commission believes strongly that it is vital that SEC investigators, examiners, and enforcement staff be above reproach while conducting their duties, in order to ensure the integrity and effectiveness of the SEC.  In addition to the foregoing investigation, I have therefore directed the mandatory recusal from the ongoing investigation of matters related to SEC v. Madoff of any SEC staff who have had more than insubstantial personal contacts with Mr. Madoff or his family, under guidance to be issued by the Office of the Ethics Counsel.  These recusals will be in addition to those currently required by SEC rules and federal law."

December 16, 2008 | Permalink | User Comments (38)

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I would be simply astounding to me if his sons who turned him in had no knowledge of his crimes. My guess is that the money is in a foreign bank, his sons have access to it and he took the fall for them to get out before they were incriminated. The SEC and FBI should be going after them as well.

Posted by: Phil Ackerman | Dec 16, 2008 9:15:39 PM

Wall Strret as a whole is a ponzy scheme

Posted by: Scott | Dec 16, 2008 9:42:59 PM

The SEC has become an organized crime family. They had a good idea what he was doing and turned a blind eye. The same thing they've been doing to the gold and silver market. They've been letting a few select banks control the gold and silver market. Our trusted government is breaking the laws it wrote.

We wonder why the market is tanking. It's about one thing. Trust.

Ask yourself. Do I trust what's happening? Do I trust these people? Is the new coming administration doing anything different? If not, prepare for the worst. These people will not do a 180.

Replacing faces with new faces will not change a flawed system of finance.

Posted by: kennedy | Dec 16, 2008 9:52:01 PM

There is no way on earth Madoff pulled this off without the help or knowledge of many people. I use to think all the investment bankers and brokers on Wall Street were there because they were smarter than me. You want me to believe this guy got away with this because he intimidated anyone who asked questions. Two weeks ago I was worried about my country, now I am terrified.

Posted by: John Cook | Dec 16, 2008 9:57:01 PM

There really needs to be an example set here with this guy. Better yet, turn him loose on the streets of Manhattan....

Posted by: carter | Dec 16, 2008 10:24:42 PM

Why is this guy even out on bail? I've seen bail deneyed for lesser crimes.

Posted by: malibujimbo | Dec 16, 2008 10:31:03 PM

The stock market is basically a pyramid scheme. As long as people are investing, the stocks go up. It's always the guy who comes in last that gets burned. And then you got this piece of crap.

Posted by: Crazy Ivan | Dec 16, 2008 10:59:12 PM

So much for regulations. If you want stocks, go with a low fee index fund.

Posted by: Huh | Dec 16, 2008 11:04:08 PM

Lots of people need to go to jail for this one. Including those at the SEC with deliberate neglect.

Posted by: 1percenter | Dec 16, 2008 11:42:08 PM

"the agency will now do a review of the past allegations against Madoff made to the SEC and why those allegations were not found to be credible by SEC staff."

The airline inspectors say the Bush Admin. prevented them from doing inspections.

The EPA inspectors say the Bush Admin. prevented them from doing inspections.

The Coal Mine inspectors had their numbers drastically cut.

This administration has violated laws and gotten away with it in terms of not following laws requiring inspections and regulation in many areas.

That's why Osama bin Laden released a tape just before the 2004 elections: he wanted America to keep inflicting more damage on itself, through Bush, than al-Qaeda could ever have hoped to do.

Posted by: The_Mick | Dec 16, 2008 11:46:14 PM

oh yes dereglate------the republicans have deregulated this nation into the ditch. we must stop the rich and nasty(republicans)from taking away what our fore fathers worked so hard for. if obama who i voted for doesnt fix this nation and make it fair for all like it should be then we must start a revolution and take this nation back for we the people.

Posted by: T | Dec 17, 2008 12:00:10 AM

Sometimes I am ashamed being a Jew.

Posted by: Leo | Dec 17, 2008 12:38:36 AM

The election is over already (to idealist bush haters) This issue spans decades. This particular criminal got started in 1960. He was first reported to the SEC in 1999, during an administration which allowed the nasdaq to fill up with fake companies (dot-com bubble). The truth is, wall street was more powerful than any of our presidents. Obama will probably implement some good reform, but you can bet one thing; had this sh!t not imploded, Obama would NOT touch the markets with a ten foot pole, because if a president crosses this bunch of thugs, they'll kill the economy and blame him. It was a runaway train.

Posted by: Old_Blood_N_Guts | Dec 17, 2008 2:29:01 AM

So ABC suddenly cares about regulator cover-ups??? Send a reporter to Minnesota to look up the complaints filed against Gov Pawlenty's buddies Kent Gernander and Gary Evans. Good luck finding any legit investigative report about those complaints.

Posted by: Tor | Dec 17, 2008 3:18:05 AM

Now I know what that bull on Wall Street really represents. Bull-s-it!
The public should be demanding the hanging of this scoundrel and anyone connected to this. Now, they will take the money they stole and hire the best lawyers to get themselves off with a light sentence. And the bull will keep s-itting on people with new faces and new schemes taking the place of the old.
Enjoying the merry-go-round folks?

Posted by: Ronald Reegan Jr. | Dec 17, 2008 3:23:19 AM

The next ugly regulatory surprise will be the insurance industry. The only difference being insurance companies are regulated on the State, not Federal level therefore insurance company insovlencies will be regional, not national news.

Posted by: Jane Logan | Dec 17, 2008 3:45:47 AM

The body investigating the SEC needs to ask two questions of the SEC executives...."Who gave you your job ?" And "Have you been fired yet ?"

Posted by: rod-the-farmer | Dec 17, 2008 5:53:47 AM

History has always had its crooks, thieves and liars who bilk the public. They function as a group. The bail-out was a way to get the money back from the tax payer for their deceptions, lies, murder. The fat cats livedd high on the hog; and then stuck the citizens of the world with the tab. Each president is an independent business person who must concieve, execute, and fleece the world -- then pardon all involved before fleeing with the loot.

Posted by: olin tucker | Dec 17, 2008 6:22:09 AM

John McCain called for Christopher Cox's [head of SEC]resignation. Obama said. " Nah, let him stay. He's doin' a good job." The American people made the wrong choice. They'll find out more later.

Posted by: GroversCorners | Dec 17, 2008 6:27:43 AM

Lehman bankrupt due to Cox's lack of enforcement of SEC rules. 401Ks have been pillaged by this fool. All we need now is for GW to say "Heck of a job, Brownie".

Posted by: Common Sense | Dec 17, 2008 6:43:25 AM

Capitalism? Oh my, what a grand concept...on paper that is. There is not one iota of morality or that which is just within the corridors of wall street, the banking industry and all those corporations within the fortune 500. And our government tacitly (if not so very tacitly) enables all of this. But hey, greed is good--right? Fry this schmuck madoff AND all those who sat idly by, whether due to kick backs or otherwise.

Posted by: alan orr | Dec 17, 2008 7:37:14 AM

Miss the obvious? It's obvious the SEC was complicit! Some here should go to jail.

Posted by: LongT | Dec 17, 2008 10:14:38 AM

What needs to be determined is who in Washington, yes I mean the Congress and Senate, were involved. You can bet they were there.

Posted by: LongT | Dec 17, 2008 10:17:30 AM

With the number of lives ruined, the number of charities bilked, and the seemingly coldness of these people, a strong message must be sent. I know they did not kill anyone but for the reasons above I think the death sentence should be considered.

Posted by: hkdakota | Dec 17, 2008 10:23:24 AM

How was this scam ignored for so long? Three words: "greed" and "scam artist".

Posted by: MyFellowAmericans | Dec 17, 2008 10:30:09 AM

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