SEC Inspector General Report: SEC Ignored Madoff Fraud

The long anticipated Securities and Exchange Commission’s Inspector General report about why the Commission failed to detect the Bernie Madoff Ponzi scheme was released September 2 and states that the SEC received “more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation” of Bernie Madoff and his company Bernard L. Madoff Investment Securities, LLC, for operating a Ponzi scheme.

David Kotz, the SEC’s Inspector General, states in the report’s Executive Summary that his investigation failed to find any evidence that any SEC personnel that examined or investigated Bernie Madoff’s firm had any financial or other inappropriate connection with Madoff or his family “that influenced the conduct of their examination or investigatory work.” That being said, however, despite “three examinations and two investigations being conducted” of Madoff’s firm, Kotz said that “a thorough and competent investigation or examination was never performed.” Kotz further says that between June 1992 and December 2008 when Madoff confessed, “The SEC received six substantive complaints that raised significant red flags concerning Madoff’s hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading.” Kotz also says that the SEC was also aware of two articles from reputable publications written in 2001 regarding Madoff’s investment operations that “questioned Madoff’s unusually consistent returns.”