Bernard Madoff: An Epilogue The SEC Looked but Failed to See (Part I)

Earlier, I wrote some blogs on Bernard Madoff’s Ponzi scheme that defrauded investors of billions of dollars. At the time, securities regulators were trying to figure out exactly how Madoff and his company were able to perpetrate this massive fraud for such a long period of time without being exposed. On August 1, 2009, the SEC’s Office of Inspector General (OIG) issued an over 450- page report attempting to shed light on this ticklish issue.
Here are a few of the sometimes astonishing revelations contained in the 22-page Executive Summary of the report:
1. No SEC people who examined or investigated Madoff’s company, Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial interest or other improper connection with Madoff or his family that influenced their conduct.
2, The former SEC Assistant Director’s “romantic relationship” with Madoff’s niece did not influence the conduct of SEC examinations of Madoff or his firm.
3. Between June 1992 and December 2008 when Madoff confessed, the SEC received eight substantive complaints that raised “significant red flags,” including specific accusations that Madoff was operating a Ponzi scheme. The report concludes that these complaints should have led to questions about whether Madoff was actually engaged in trading.
4. The SEC was aware of two articles published in reputable publications in 2001, questioning Madoff’s “unusually consistent returns” not duplicable by anyone else.
5. According to an expert retained by OIG to analyze the information the SEC, the most critical step in investigating whether someone is operating a Ponzi scheme is to verify the subject’s trading through an independent third party
In my next blog, I will note a few more of these revelations.

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