December 17, 2008
Madoff & the SEC
Posted by Usha Rodrigues

Bernard Madoff's Ponzi scheme continues to unfold. Yesterday's WSJ featured gossipy tales of high fliers caught up in the fraud, including Steven Spielberg and DreamWorks CEO Jeffrey Katzenberg. Schadenfreude isn't the prettiest human emotion, but I suspect that I'll be reminding myself "it could be worse" when I'm looking at my shrunken year-end statements. At least I haven't lost millions.

David had blogged before about the marginalization of the SEC in the current financial crisis--it was likewise AWOL in the Madoff fraud, and this bad boy was clearly within its purview. The beleaguered Chairman Christopher Cox issued a surprisingly frank statement yesterday. One highlight:

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. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.

One of today's lead WSJ stories highlights a potential conflict involving Madoff's niece, Shana Madoff, who married former SEC attorney Eric Swanson last year. Swanson supervised the SEC's inspection program in charge of trading oversight.

Maybe David was right back in September. It's certainly more evidence for the SEC as potted plant theory.

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