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