Issues surrounding the Securities and Exchange Commissionâ€™s (SEC) oversight of Bernard Madoffâ€”now spending 150 years in prison for orchestrating an historic Ponzi scamâ€”have raised serious questions for months now. According to FOX Business, the SECâ€™s inspector general, H. David Kotz, will be delivering a scathing report to the agency discussing its part in failing to notice or prevent Madoffâ€™s Ponzi scheme estimated to have cost duped investors an incomprehensible $65 billion.
In December, following the now-famous arrest of the disgraced financier, Kotz initiated an investigation into how the SEC handled its dealings with Madoff, said FOX Business. Christopher Cox, former SEC chairman, requested the investigation, asking, for example, why the agency believed allegations made through the years about Madoff to be â€œnot credible,â€ reported FOX Business. The SEC has come under fire for apparently missing warnings that something was amiss with Madoffâ€™s investment advisory business.
Kotz wrote to FOX Business, via email, yesterday, saying he intends to send his report to Mary Schapiro, current SEC chairman, today. FOX Business reported that Kotz said that it is up to the agency to determine when and how it releases the report publicly; however, that should come later this week following review by Schapiro and her team.
Although Kotz would not discuss his findings, FOX Business noted that in his
January testimony to a House committee he said, â€œI can assure you that our investigation and review will be independent and as hard-hitting as necessaryâ€¦ The matters that have been brought to our attention require careful scrutiny and reviewâ€¦ If we find that criticism of the SEC is warranted and supported by the facts, we will not hesitate to report the facts and conclusions as we find them,â€ quoted FOX Business.
In July, Kotz also saidâ€”in testimony before a different House Committeeâ€”that the eight-month investigation focused on the SECâ€™s Office of Compliance Inspections and Examinations and its Division of Enforcement, said FOX Business.
Last month we wrote that the scandal might have played a role in the departure of a key SEC official. According to Bloomberg.com, Lori Richards, director of the SECâ€™s Office of Compliance Inspections and Examinations, was widely criticized for missing warning signals about Madoff. Richards, who held her post since 1995, was scheduled to vacate August 7. According to Bloomberg.com, Pennsylvania Democratic Representative Ron Kanjorski, who leads the House Financial Services capital markets subcommittee, had been especially critical of Richardsâ€™ unit and its performance in regards to Madoff, accusing the SEC of ignoring Madoff red flags, such as the inability of investors to duplicate Madoffâ€™s returns and his unusual choice of an outside auditor.
Earlier this year, former Enforcement Director Linda Thomsen resigned in February. Her resignation followed a pretty severe drubbing at the hands of a Congressional committee investigating the Madoff debacle.
Also, money manager Harry Markopolos has long claimed that he tried to warn the SEC numerous times over several years about Madoff. According to Bloomberg, Markopolos has said that SEC inspectors lack knowledge about products such as derivatives and have inadequate understanding of the businesses they are supposed to review.