Madoff Report Said to Slam SEC

Issues surrounding the Securities and Exchange Commission’s (SEC) oversight of Bernard Madoff—now spending 150 years in prison for orchestrating an historic Ponzi scam—have raised serious questions for months now. According to FOX Business, the SEC’s inspector general, H. David Kotz, will be delivering a scathing report to the agency discussing its part in failing to notice or prevent Madoff’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 “not credible,” reported FOX Business. The SEC has come under fire for apparently missing warnings that something was amiss with Madoff’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, “I can assure you that our investigation and review will be independent and as hard-hitting as necessary… The matters that have been brought to our attention require careful scrutiny and review… 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,” quoted FOX Business.

In July, Kotz also said—in testimony before a different House Committee—that the eight-month investigation focused on the SEC’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, Lori Richards, director of the SEC’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, Pennsylvania Democratic Representative Ron Kanjorski, who leads the House Financial Services capital markets subcommittee, had been especially critical of Richards’ unit and its performance in regards to Madoff, accusing the SEC of ignoring Madoff red flags, such as the inability of investors to duplicate Madoff’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.

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