SEC inspector general report details Madoff investigation errors

[JURIST] The US Securities and Exchange Commission (SEC) [official website] made a number of missteps that could have uncovered the fraud committed by Bernard Madoff [JURIST news archive] at an earlier date, according to an inspector general's report [text, PDF] released Wednesday. The report indicated that between 1992 and 2008, six complaints were lodged with the SEC concerning Madoff's hedge fund operation. One of the complaints [text], submitted in 2005 by independent fraud investigator Harry Markopolos, raised doubts as to the level of return seen with Madoff's fund. The inspector general's report concluded:


As the foregoing demonstrates, despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme. Had these efforts been made with appropriate follow-up at any time beginning in June of 1992 until December 2008, the SEC could have uncovered the Ponzi scheme well before Madoff confessed.

SEC chair Mary Schapiro released a statement [text] expressing not only regret at missing the warning signs, but confidence that the agency has implemented the proper regulations to prevent a similar event from taking place in the future.

The Madoff case has had regulators in both the US and abroad [JURIST report] reevaluating their policies. In early August, Madoff's former financial chief Frank DiPascali pleaded guilty [JURIST report] to charges of fraud, conspiracy, tax evasion, and perjury for his role in the multi-billion dollar ponzi scheme. In mid-July, SEC chair Schapiro pledged more vigorous enforcement of securities policies, two weeks after Madoff was sentenced to 150 years in prison [JURIST reports].


 

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