Securities Regulation

Madoff Thought Jig Was Up in 2006, But SEC Didn't Check Trades


Questioned by the U.S. Securities and Exchange Commission in 2006, Bernard Madoff gave the feds his account number at the Depository Trust Co. independent clearing agency and figured he was only hours away from being exposed as the architect of a massive investment fraud.

“I thought it was the end, game over. Monday morning, they’ll call DTC and this will be over,” he told the SEC inspector general’s office this year, as detailed in a overview of a report about an SEC inspector general’s investigation of the agency’s handling of tips about Madoff’s $65 billion Ponzi scheme.

But to Madoff’s astonishment the SEC never attempted to check his purported trading activity, recounts Bloomberg.

“This was perhaps the most egregious failure in the enforcement investigation of Madoff,” states IG David Kotz in the report overview. “They never verified Madoff’s purported trading with any independent third parties.” Had the SEC checked with the DTC, it would have “immediately realized that Madoff was not trading in anywhere near the volume that he was showing on the customer statements.”

Kotz said the SEC could potentially have caught Madoff as early as 1992, when the agency suspected that a smaller, Florida-based firm that invested money with Madoff was operating a Ponzi scheme and briefly looked at Madoff, too.

As in the later missed opportunities, however, inexperienced staffers including fledgling attorneys didn’t pursue the situation aggressively. In at least some of the missed opportunities, inadequate investigative resources and a lack of knowledge of the options market also made it difficult for SEC investigators to see that they were being bamboozled by Madoff, according to Kotz.

His massive Ponzi scheme came to light only late last year, when Madoff confessed to his sons and they notified authorities. The 71-year-old is now serving a 150-year federal prison term.

Earlier related coverage:

ABAJournal.com: “SEC Never Did ‘Thorough & Competent’ Madoff Probe, Internal Report Says”

ABAJournal.com: “Madoff Reveals ‘Extraordinary Details’ of Scam to Plaintiffs Lawyers”

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