Securities Law

Counseling Memos, Pay Cuts, Suspensions, Demotions for 8 SEC Workers Who Missed Monster Madoff Fraud


Eight employees of the U.S. Securities and Exchange Commission have been disciplined concerning their handling of concerns about Bernard Madoff’s massive Ponzi scheme, which was not detected for at least a decade as multiple complaints were made about the seemingly unrealistic returns purportedly generated by his hedge fund.

Relying on anonymous sources, the Washington Post says their punishment ranged from a “counseling memo” to suspensions, demotions and pay cuts. An ninth employee resigned, but none of the eight was fired.

Among the most severely disciplined was an individual who had been recommended for termination by an outside law firm. As the firm suggested, in the alternative, that person was retained because a termination would have hurt the SEC. However, the worker was given a 30-day unpaid suspension and a reduction in pay and grade, the newspaper recounts.

While the SEC checked into Madoff’s operations on five occasions, in response to complaints, its personnel “never took the necessary and basic steps to determine if Madoff was misrepresenting his trading,” the agency’s inspector general said in a 2009 report.

As detailed in previous ABAJournal.com posts, it was eventually determined that Madoff’s hedge fund had purchased no securities of any kind for years; a cursory audit of its claimed trades presumably would have uncovered this fact.

Related coverage:

ABAJournal.com: “Madoff Thought Jig Was Up in 2006, But SEC Didn’t Check Trades”

ABAJournal.com: “Repayment Plan for Madoff Victims Puts Total Ponzi Scheme Loss at $20B”

ABAJournal.com: “SEC Officials During Time of Madoff Swindle Now Have Lucrative BigLaw Jobs”

ABAJournal.com: “DOJ Has No Plan to Investigate Former SEC Gen’l Counsel David M. Becker, His Lawyer Says”

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