The SEC on Madoff: Corrupt? No. Incompetent? Yeah
The inspector general looking into the SEC's baffling failure to investigate Bernard Madoff finds no corruption -- no strings pulled at high levels to call off the dogs, no bribes, no cronies helping cronies. It does find ridiculous, maddening and repeated failures to respond to extremely specific allegations, as far back as 1992. We knew much of this already, of course. But seeing it in print from the IG is still amazing. If the SEC and its nearly $1 billion budget can't respond to tips such as these, what the #&%!!*$ were they doing down there?
The first complaint, brought to the SEC's attention in 1992, related to allegations that an unregistered investment company was offering "100%" safe investments with high and extremely consistent rates of return over significant periods of time to "special" customers. The SEC actually suspected the investment company was operating a Ponzi scheme...The second complaint was very specific and different versions were provided to the SEC in May 2000, March 2001 and October 2005. The complaint submitted in 2005 was entitled "The World's Largest Hedge Fund is a Fraud" and detailed approximately 30 red flags indicating that Madoffwas operating a Ponzi scheme, a scenario it described as "highly likely."
In May 2003, the SEC received a third complaint from a respected Hedge Fund Manager identifying numerous concerns about Madoffs strategy and purported returns, questioning whether Madoff was actually trading options in the volume he claimed, noting that Madoffs strategy and purported returns were not duplicable by anyone else, and stating Madoffs strategy had no correlation to the overall equity markets in oyer 10 years. According to an SEC manager, the Hedge Fund Manager's complaint laid out issues that were "indicia of a Ponzi scheme."
The fourth complaint was part of a series of internal e-mails of another registrant that the SEC discovered in April 2004. The e-mails described the red flags that a registrant's employees had identified while performing due diligence on their own Madoff investment using publicly-available information. The red flags identified included Madoffs incredible and highly unusual fills for equity trades, his misrepresentation of his options trading and his unusually consistent, non-volatile returns over several years. One of the internal e-mails provided a step-by-step analysis of why Madoff must be misrepresenting his options trading. The e-mail clearly explained that Madoff could not be trading on an options exchange because of insufficient volume and could not be trading options over-the-counter because it was inconceivable that he could find a counterparty for the trading. The SEC examiners who initially discovered the emails viewed them as indicating "some suspicion as to whether Madoff is trading at all."
The fifth complaint was received by the SEC in October 2005 from an anonymous informant and stated, "I know that Madoff [sic] company is very secretive about their operations and they refuse to disclose anything. If my suspicions are true, then they are running a highly sophisticated scheme on a massive scale. And they have been doing it for a long time." The informant also stated, "After a short period of time, I decided to withdraw all my money (over $5 million)."The sixth complaint was sent to the SEC by a "concerned citizen" in December 2006, advising the SEC to look into Madoff and his firm as follows:
Your attention is directed to a scandal of major proportion which was executed by the investment firm Bernard L. Madoff.... Assets well in excess of$10 Billion owned by the late [investor], an ultra-wealthy long time client of the Madoff firm have been "co-mingled" with funds controlled by the Madoff company with gains thereon retained by Madoff.In March 2008, the SEC Chairman's office received a second copy of the previous complaint, with additional information from the same source regarding Madoff's involvement with the investor's money, as follows:
It may be of interest to you to that Mr. Bernard Madoff keeps two (2) sets of records. The most interesting of which is on his computer which is always on his person.
Comments
This is what happens when the government is run by people who
don't believe in government.
Posted by: MikeA | September 3, 2009 9:18 AM
I don't accept MikeA's premise:
1) the allegations began in 1992 (Clinton era)
2) agencies like the SEC are populated with careerists - only those at the very top change with administrations
3) identifying and prosecuting a scheme so hugely fraudulent would have made heroes of many career regulators - the fact that they missed it really does go to incompetency in my way of thinking
This kind of thing makes calls for more regulations sheer idiocy - they can't enforce the laws that currently stand
Posted by: BigMike | September 3, 2009 4:02 PM
Good points, BigMike. It's nice to have a reasoned rebutal. New regulations aren't needed, just the will to enforce what's there already.
Posted by: MikeA | September 3, 2009 6:15 PM
I am a contractor working within the SEC and can confirm that the organization is both corrupt and incompetent, based on what I have been able to observe so far. If only the American people knew. The favorite passtime of many of the workers here is to sit around and talk about their next vacation or golf game. It's so politicized that when people are actually working, they are essentially fighting over sets of data fields and other trivial matters. All on your taxpayer dollar!
Posted by: David | October 7, 2011 11:40 AM