It has become quite apparent that the U.S. Securities and Exchange Commission missed “numerous” red flags that should have led it to discover Bernard Madoff’s $65 billion Ponzi scheme long before it did. It now appears that the SEC never did a “thorough and competent” probe despite complaints dating all the way back to 1992, a federal watchdog has concluded. The Inspector General for the SEC said in a blistering report that, despite five probes and having caught Madoff in “lies and misrepresentations,” the Commission failed to follow up on inconsistencies. In this regard, Inspector General David Kotz wrote:
Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.
The Inspector General said the SEC’s “most egregious” lapse was its failure to verify Madoff’s purported trading with any independent third parties, even after it took testimony from Madoff in May 2006. Even Madoff believed he was caught at that time. Madoff thought the “game was over” and said he was “astonished” that the SEC did not follow up. It certainly appears that the SEC dropped the ball. It knew Madoff was clearing his trades through the Depository Trust Co., part of the U.S. Federal Reserve, and the SEC even had his account number.
A 22-page summary of the report has been released, and it’s posted on the SEC’s website at http://www.sec.gov/spotlight/secpostmadoffreforms/oig-509-exec-summary.pdf. The full report contains 450 pages. Senator Charles Grassley, an Iowa Republican, who called the report evidence of the SEC’s “culture of deference toward the Wall Street elite,” said the SEC must be transformed so it can be “the tough cop-on-the-beat that the public needs.” I totally agree with the Senator. Hopefully, the SEC and Congress have learned a great deal from the Madoff scandal which hurt lots of folks – some beyond financial repair – and that’s something that the SEC will have to live with. I hope and pray it has learned its lesson!
Source: Insurance Journal