SEC Says It Missed Chance To Unravel Madoff Scheme; Probe Indicates Madoff Cooked Books And Falsified Docs

Christopher Cox

BLOG UPDATE 12:12 P.M. EST (U.S.A.): A bail hearing for Bernard Madoff rescheduled for today has been canceled. Madoff was ordered last week to produce two additional co-signers to guarantee his $10 million bail, but was unable to come up with them. A federal judge, with consent of the prosecution, now has ordered Madoff placed on electronic monitoring and home detention, with a curfew between 7 p.m. and 9 a.m. His wife, Ruth, was ordered to surrender her passport.

Here, below, our earlier post . . .

The Securities and Exchange Commission said late yesterday that it had received “credible and specific” leads about alleged wrongdoing by Bernard Madoff a decade ago and failed to respond properly.

Meanwhile, the agency has found evidence that Madoff kept multiple sets of books to help his securities firm pull off a Ponzi scheme that could cost investors $50 billion or more.

In a dramatic concession, SEC Chairman Christopher Cox ordered an internal investigation of the agency to include a probe of contacts the agency had with Madoff family members.

Shana Madoff, Madoff’s niece, is married to Eric Swanson, a former SEC attorney who once was a supervisor in an SEC unit that made an inquiry into Madoff’s business practices. Shana Madoff is the Madoff firm’s compliance attorney and the daughter of Peter Madoff, Bernard Madoff’s brother, and the firm’s chief compliance officer.

Swanson, through spokesmen, told the New York Times that he did not begin to date his wife until years after the SEC inquiry and was not a participant in an inquiry during their romantic lives. Swanson and Shana Madoff married in 2007.

Cox ordered SEC employees who had anything beyond “insubstantial personal contacts with Mr. Madoff or his family” to recuse themselves from the probe.

“Since commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff’s vast scheme remained undetected by regulators and law enforcement for so long,” Cox said.

“Our initial findings have been deeply troubling,” Cox continued. “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.”

Rather than use formal investigative powers and subpoena power, Cox said, the agency “relied upon information voluntarily produced by Mr. Madoff and his firm.”

Madoff might have been cooking the books, Cox said.

Records investigators have viewed in recent hours are “increasingly exposing the complicated steps that Mr. Madoff took to deceive investors, the public and regulators,” Cox said. “Although the information I can share regarding the ongoing investigation is limited, progress to date indicates that Mr. Madoff kept several sets of book and false documents, and provided false information regarding his advisory activities to investors and to regulators.”