Most Recent
AdSurfDaily Agape agent American Integrity Aronson asset sales Attorney av bar reg baker bank bank of america Bankruptcy baumann bermudez black diamond blackwell bridge loan bull cattle CD celebrity cftc charity china China Voice church cityfund claims claims process clawback commission commodities commodity pool computer program congress Crown Forex currency death sentence denver diamond bar disgorgement Distribution Dodd-Frank donnan Dreier dunhill e-bullion elderly E-M Management SEC england Fairfield family FBI FDIC Fees female ponzi scheme financial advisor fine FINRA football forex fraud fufta fugitive Full Tilt gift card guilty plea GunnAllen hawaii Heckscher HSBC india invers forex janvey John Morgan JP Morgan kansas ken bell kenzie las vegas lawsuit lawyer libya Lifland machado Madoff Marian Morgan metro dream homes mets milberg millers a game Morgan European Holdings mortgage multiple schemes NCAA Net Winner new jersey notes objection Oxford Patrick Kiley paul burks PermaPave Pettengill Petters Picard poker Ponzi ponzi scheme ponzi scheme database ponzi scheme list Prime Rate profitable sunrise prosun pta puerto rico Rakoff real estate receiver receivership regulation relief defendants religion remission repeat offender restitution Rothstein RRA sec sentencing simmons sipa sipc snelling standing stanford stettin subpoena td bank telexfree treasury bonds treasury strip Tremont Trevor Cook UBS UFTA uga utah venture advisors Wachovia wilpon wire fraud woman zeek zeek rewards zeekler zeekrewards
Recent SEC Releases
« Bank Seeks Mistrial in Rothstein Case | Main | Texas Company Charged in $5.5 Million Forex Ponzi Scheme »

SEC Disciplines Eight Employees Over Failure to Detect Madoff Fraud

The Securities and Exchange Commission disclosed that it had disciplined eight employees in connection with their failure to detect the massive Ponzi scheme orchestrated by Bernard Madoff.  The employees received various forms of punishment over the past year that was made public by a Washington Post article that had obtained documents detailing the sanctions through a Freedom of Information Act.  The SEC had received strong criticism following widespread views that the agency had not done enough to uncover the fraud at an earlier time.  The most vocal of these proponents was Harry Markopolos, an independent financial fraud investigator who made repeated reports to the SEC claiming that Madoff was operating a Ponzi scheme.  These claims went largely unheeded, aided by an inter-office communication system that effectively impeded the flow of information between various SEC branch offices.  The sanctions meted out by the SEC over the past year ranged from "counseling memos" to a 30-day suspension.  No employee was ultimately terminated as a result of the investigation.

Following the discovery of Madoff's fraud, the SEC's internal watchdog carried out an investigation that culminated in a 456-page report concluding that the SEC had ample information to carry out a thorough and comprehensive investigation that would have uncovered Madoff's fraud years before Madoff confessed to his sons in December 2008.  Specifically, the report concluded that the SEC had adequate information to conduct an investigation as far back as 1992 - 16 years before the fraud was ultimately unraveled. Between 1992 and 2008, according to the report, the SEC received

 received six substantive complaints that raised significant red flags concerning Madof f s hedge fund operations and should have led to questions about whether Madoff actually engaged in trading.

While the SEC ultimately conducted two investigations and three examinations of Madoff's operations, the report notes that Madoff's trading was never verified through an independent third-party.  Additionally, while the SEC requested records from the Depository Trust Company that would have demonstrated the fact that Madoff was not doing the trading he advertised, it was Madoff himself who provided these records to the SEC - not the DTC. In New York Times writer Diana Henriques' book on the subject, Madoff himself noted several times that he was sure that the SEC had detected his scheme through their investigation.  However, Madoff's stature and long tenure in the investment community likely acted as a deterrent to any concerted effort by SEC employees - many of whom had neither the experience or acumen of Madoff.  

After the internal watchdog's report was filed, the SEC hired an outside Washington law firm to recommend disciplinary action against any employees associated with Madoff's fraud.  By law, the SEC is prohibited from disciplining former employees, and the decision to terminate any employee must come directly from the agency's human resource director.  The law firm's investigation ultimately recommended the termination of one employee unless that would have an adverse effect on the agency's work.  That employee was ultimately suspended for thirty days without pay, demoted, and had their pay decreased.  One other employee received a 30-day suspension, with other punishments ranging from a seven-day suspension to pay reductions.

A copy of the Report of Investigation conducted by the Office of Inspector General is here.

PrintView Printer Friendly Version

EmailEmail Article to Friend

References (3)

References allow you to track sources for this article, as well as articles that were written in response to this article.

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>