SEC repeatedly fumbled Bernie Madoff probes, agency watchdog says


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The Securities and Exchange Commission ‘never properly examined or investigated’ Bernie Madoff’s trading and ‘never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme,’ the SEC’s inspector general says in a report released today.

The agency, the report says, fumbled ‘numerous credible and detailed complaints’ that could have uncovered the $65-billion scheme, which mushroomed for 16 years until Madoff confessed in December.


The postmortem by Inspector General H. David Kotz paints a picture of SEC incompetence, and asserts that the agency’s repeated failures to expose Madoff -- even after undertaking three examinations and two investigations of the firm over the years -- allowed Madoff to suck in more victims.

‘We . . .found that investors who may have been uncertain about whether to invest with Madoff were reassured by the fact that the SEC had investigated and/or examined Madoff, or entities that did business with Madoff, and found no evidence of fraud,’ Kotz said in a summary of his report posted on the SEC’s website.

‘Moreover, we found that Madoff proactively informed potential investors that the SEC had examined his operations,’ Kotz said. ‘When potential investors expressed hesitation about investing with Madoff, he cited the prior SEC examinations to establish credibility and allay suspicions or investor doubts that may have arisen while due diligence was being conducted.’

SEC Chairwoman Mary L. Schapiro, who took over the helm of the agency in January, said in a statement that the report ‘makes clear that the agency missed numerous opportunities to discover the fraud. It is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors.’

Kotz’s report depicts the SEC as bumbling, but doesn’t find evidence of wrongdoing by agency staff in connection with Madoff.

The probe ‘did not find evidence that any SEC personnel who worked on an SEC examination or investigation of Bernard L. Madoff Investment Securities, LLC had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work,’ Kotz said.


The investigation ‘also did not find that former SEC Assistant Director Eric Swanson’s romantic relationship with Bernard Madoff’s niece, Shana Madoff, influenced the conduct of the SEC examinations of Madoff and his firm.’

Swanson, who worked at the SEC in the first half of this decade, married Shana Madoff in 2007. She was a compliance lawyer at Madoff Investment Securities.

The Kotz report on the SEC website today is the executive summary of the investigation. Schapiro said the full 450-page report would be released in the next few days.

-- Tom Petruno