Madoff:Regulators Probed at Least 8 Times Over 16 Years

The WSJ reports on upcoming Congressional review of the SEC and the Madoff affair. This article details how at least 8 examinations by regulatory bodies failed to uncover the alleged scam.

The WSJ notes:-

Harry Markopolos, an executive then working at a rival company, met with an official at the SEC’s Boston office in 2001 to lay out his concerns about Mr. Madoff’s steady returns. The same month, Barron’s, a Dow Jones & Co. publication, and hedge-fund trade publication MarHedge suggested Mr. Madoff was front running for favored clients.

Then

In November 2005, SEC investigators in New York met with Mr. Markopolos, who prepared a 21-page report outlining his concerns. His conclusion was that Mr. Madoff’s firm “is the world’s largest Ponzi scheme.”

The 2005 review and Mr. Markopolos’s report prompted the SEC to open an enforcement case, a notch more serious in the SEC’s world than the previous examination. “The staff is trying to ascertain whether” the allegation that Mr. Madoff “is operating a Ponzi scheme has any factual basis,” according to the SEC case memo.

After sifting through documents and interviewing Mr. Madoff, the SEC concluded that neither he nor Fairfield Greenwich Group, a New York firm that funneled investors’ money into the firm, told investors Mr. Madoff was making investment decisions. Fairfield revised its disclosures to investors.

Markopolos appears to have been right, yet the SEC failed to uncover any substantive wrongdoing. So what the devil did they actually do in these reviews?

Also Barack Obama’s pick to head the SEC may come under fire:-

The failure to stop Mr. Madoff also is an embarrassment for Mary Schapiro, the Finra chief who has been nominated by President-elect Barack Obama as the next SEC chairman. Finra was involved in several investigations of Mr. Madoff’s firm, concluding in 2007 that it violated technical rules and failed to report certain transactions in a timely way.

Is Schapiro the right pick, given the need to take a good look at regulatory oversight and the fact that Finra appears to have dropped the ball.

The WSJ article concludes:-

Finra’s full-scale examination in 2007 indicated that parts of Mr. Madoff’s firm had no customers. It didn’t provide an explanation of this finding. “At this point in time we are uncertain of the basis for Finra’s conclusion in this regard,” SEC staff wrote last month, after Mr. Madoff was arrested.

“We don’t have access to that document, nor have we received any feedback from the SEC on our examinations of the Madoff broker-dealer,” said Nancy Condon, a spokeswoman for Finra.

Not a good look for Finra or Ms Schapiro.

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