SEC Chair Blasts “Multiple Failures Over At Least A Decade” On Madoff

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December 17, 2008 8:15 a.m.

We’ve been focusing lately on the growing signs of negligence by the SEC in the Bernie Madoff case. And now the commission itself has done the same.

In an extraordinary admission of failure, SEC chairman Christopher Cox last night ordered a full review by of why his agency failed to act on complaints about Bernard Madoff, citing “deeply troubling” findings in its initial investigation since news broke last week of Madoff’s alleged “$50 billion ponzi scheme”.

Wrote Cox in a statement:

The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action.

Cox lamented “apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”

The past reviews of Madoff’s brokerage business — not the investment business where the alleged fraud took place — appear to have been little more than cursory. Cox wrote that the commission didn’t use its subpoena power, but instead “relied upon information voluntarily produced by Mr. Madoff and his firm.”

And there’s a suggestion that Madoff’s and his family’s personal relationships with SEC officials may have led the commission to go easy.

The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.

Cox added that he had ordered “the mandatory recusal from the ongoing investigation of matters related to SEC v. Madoff of any SEC staff who have had more than insubstantial personal contacts with Mr. Madoff or his family, under guidance to be issued by the Office of the Ethics Counsel.”

Madoff’s niece, who works as a compliance lawyer at his firm, in 2007 married a former SEC official, who had previously participated in the reviews of Madoff’s brokerage business.

Cox wrote that the investigation will be conducted by the SEC’s inspector general.

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