People are wondering how the United States Securities and Exchange Commission failed to detect and deter Bernard Madoff’s massive Ponzi-like scheme – even in the face of numerous credible queries posed by those who were expert in the subject-matter area of finance.
According to published reports, the SEC received credible complaints from knowledgeable industry people since 1999 and yet did little or nothing to investigate Madoff other than a few cursory interviews.
“I am the original source for the information presented herein having first presented my
rationale, both verbally and in writing, to the SEC ' s Boston office in May, 1999 before any
public information doubting Madoff Investment Securities, LLC appeared in the press. There was no whistleblower or insider involved in compiling this report. I used the Mosaic Theory to assemble my set of observations. My observations were collected first-hand by listening to fund of fund investors talk about their investments in a hedge fund run by Madoff Investment
Securities, LLC, a SEC registered firm. I have also spoken to the heads of various Wall Street
equity derivative trading desks and every single one of the senior managers I spoke with told me that Bernie Madoff was a fraud. Of course, no one wants to take undue career risk by sticking their head up and saying the emperor isn't wearing any clothes but. . . .”“I am a derivatives expert and have traded or assisted in the trading of several billion $US in
options strategies for hedge funds and institutional clients. I have experience managing split-strike conversion products both using index options and using individual stock options, both with and without index puts. Very few people in the world have the mathematical background needed to manage these types of products but I am one of them. I have outlined a detailed set of Red Flags that make me very suspicious that Bernie Madoff's returns aren't real and, if they are real,
then they would almost certainly have to be generated by front-running customer order flow from the broker-dealer arm of Madoff Investment Securities. LLC.”“Due to the sensitive nature of the case I detail below, its dissemination within the SEC must
be limited to those with a need to know. The firm involved is located in the New York Region.”“As a result of this case, several careers on Wall Street and in Europe will be ruined.
Therefore, I have not signed nor put my name on this report. I request that my name not be
released to anyone other than the Branch Chief and Team Leader in the New York Region who
are assigned to the case, without my express written permission. The fewer people who know who wrote this report the better. I am worried about the personal safety of myself and my family. Under no circumstances is this report or its contents to be shared with any other regulatory body without my express permission. This report has been written solely for the SEC's internal use.” <Source>
Of course, as we now know, the source of the continuing series of complaints was Harry Markopolos who “testified before the House Financial subcommittee that his warnings in 2000 to the Securities and Exchange Commission about Bernie Madoff went unheeded.”
In his own words …
Was there an insider in the SEC subverting the investigation of Madoff?
The Washington Post is reporting …
“An investigator at the Securities and Exchange Commission warned superiors as far back as 2004 about irregularities at Bernard L. Madoff's financial management firm, but she was told to focus on an unrelated matter, according to agency documents and sources familiar with the investigation.”
“Genevievette Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations, sent e-mails to a supervisor, saying information provided by Madoff during her review didn't add up and suggesting a set of questions to ask his firm, documents show. Several of these questions directly challenged Madoff activities that much later turned out to be elements of his massive fraud.”
“Walker-Lightfoot's supervisors on the case were Mark Donohue, then a branch chief in her department, and his boss, Eric Swanson, an assistant director of the department, said two people familiar with the investigation. Swanson later married Madoff's niece, and their relationship is now under review by the agency's inspector general, who is examining the SEC's handling of the Madoff case.”
“In early March 2004, Walker-Lightfoot shared her concerns with her supervisors, said a former SEC official and another person aware of the conversation.”
“Donohue, who still works for the SEC, was not available to comment for this article, an agency spokesman said. Swanson, no longer with the agency, declined to comment.”
“Swanson married Shana Madoff in 2007. The SEC has said he worked on reviews related to Madoff in 1999 and 2004 but he never did while he was involved with his future wife. SEC officials are not permitted to work on matters that involve people with whom they're romantically linked.”
“Madoff boasted at a business roundtable discussion about his close relationship with SEC regulators, saying ‘my niece just married one.’"
Conspiracy, Confusion or Incompetence?
The investigation continues, with very little likelihood of sanctions and prosecutions of government employees who either shirked their duties or turned a blind-eye to the Madoff affair.
What we do know is that the SEC appeared to be highly-politicalized and was more intent in prosecuting Martha Stewart rather than investigating other matters of substance. Whether or not this same agency will only suffer a “facelift” reform under Obama or be substantially reformed is yet to be seen.
Of course, considering the massive failure of the SEC to perform its regulatory duties which may have served to prevent or mitigate the massive financial system meltdown, one wonders if any government employee or elected official will be brought to account for their complicit or complacent activities? It’s too bad that there can be no charges for stupidity.
-- steve
_______________________________________________
OneCitizenSpeaking: Saying out loud what you may be thinking …
Research Links …
SEC Investigator Raised Madoff Concerns Years Ago, Was Asked to Look Elsewhere
I think you are right. But there was something fishy going on and I will give Ms. Walker-Lightfoot credit she has some fight in her. Did you catch the latest article from the WSJ?
http://online.wsj.com/article/BT-CO-20090907-707237.html
Posted by: Jeff | September 07, 2009 at 05:56 PM
It seems to me that Ms. Walker-Lightfoot had a better handle on the issues than her supervisors and managers had.
The upper management must have hated the fact she knew more than they did and instead of pursuing her questions and trying to learn they preferred to mask their ignorance by moving her around.
Ms. Walker-Lightfoot should be appointed as a director to the new Consumer Protection Agency. We need people like her on watch. She is educated, experienced, qualified and knows what she is doing (unlike others in the regulatory industry), but most importantly she is dedicated to Public Service!!!!
=====================================
Dream on -- competence is not one of the criteria for heading a government agency -- political loyalty and contributions trump all. Especially if you are a lawyer/lobbyist/fundraiser. -- steve
Posted by: Jeff | September 07, 2009 at 11:30 AM