In an odd twist, some relatives of a U.S. Securities and Exchange Commission (SEC) enforcement official, entrusted about $2 million to what it believed to be the largest Ponzi scheme in history. The relatives of the SEC official whose unit was involved, received a tip in 2005 about Bernard Madoff and his massive Ponzi scheme, reported Bloomberg.com
The tip, which was received anonymously by the Office of Internet Enforcement via email, was one of no less than six “substantive complaints” that went uninvestigated over 16 years, according to Inspector General H. David Kotz, said Bloomberg. Kotz made the statement in a report released last week in advance of his testimony before the Senate, reported Bloomberg.com. The investments, which were made by two of the SEC official’s family, were indicated as a footnote in the report—numbered at some 457 pages—and does not disclose the official or the losses, added Bloomberg.com. Katz said that the official involved was not part of the investigation into Madoff’s activities.
Madoff is now spending 150 years in prison for orchestrating a Ponzi scam estimated to have cost duped investors an incomprehensible $65 billion. The SEC has come under fire for apparently missing warnings that something was amiss with Madoff’s investment advisory business.
The report discusses, in part, the agency’s failure to notice or prevent Madoff’s Ponzi scheme; Kotz’ investigation was initiated in December, following the now-famous arrest of the disgraced financier. As part of the investigation, Kotz looked at how the SEC handled its dealings with Madoff, said FOX Business previously. Christopher Cox, former SEC chairman, requested the investigation, asking, for example, why the agency believed allegations made through the years about Madoff to be “not credible,” reported FOX Business.
According to Bloomberg.com, the investigation looked at how the agency failed to detect the historic fraud since 1992 and faults the SEC for not fully going after tips, having inexperienced staff handle reviews, not looking into unbelievable and sustained profits, not pushing when Madoff was clearly caught in lies, and not pursuing trading records that would have pointed them to the scam. It seems the SEC cut an examination short, shifting gears to work on another issue; did not release many hundreds of exhibits that are noted in the report, one of which was Madoff testimony from this June; and released the report after business hours on Friday evening of the recent three-day Labor Day weekend.
The tip said, quoted Bloomberg.com, “I know that Madoff (sic) company is very secretive about their operations and they refuse to disclose anything. If my suspicions are true, then they are running a highly sophisticated scheme on a massive scale. And they have been doing it for a long time…. After a short period of time, I decided to withdraw all my money (over $5 million).”
Madoff’s scam moved money from new clients to pay bogus returns supposedly issued by a so-called split-strike conversion that is a type of stock and options trading approach, explained Bloomberg.com. Among other tactics, Madoff and his staff at Bernard L. Madoff Investment Securities LLC, would fabricate records to cover the scam
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