Wall Street’s top watchdogs acted more like Keystone Cops than highly paid enforcers, bungling tips and missing many chances to sniff out Ponzi schemer Bernie Madoff.
A report by the Securities and Exchange Commission’s own inspector general, David Kotz, delivered damning evidence that the SEC was asleep in the guardhouse. Madoff first hit the agency’s radar in 1992, but his $60 billion scam wasn’t uncovered until last December.
“Essentially the SEC is admitting that it blew it,” Bill Singer, a securities industry attorney at Stark & Stark, told The Post.
In some cases, the agency neglected to pursue complaints that provided specific signs that Madoff was running a gigantic scam, according to a brief outlining Kotz’s 450-page report. One complaint from 2005 entitled, “The World’s Largest Hedge Fund is a Fraud,” detailed 30 red flags that could have led the SEC to nab Madoff, said the brief.
The self-regulated agency received a total of eight complaints about Madoff, including one from a “respected hedge-fund manager.”
In another instance, the SEC’s investigators caught Madoff in outright lies — but opted not to dig deeper.
“Even when Madoff’s answers were seemingly implausible, the SEC examiners accepted them at face value,” the report said.
Kotz’s report did not reveal any signs that agency officials had an improper relationship with Madoff.
SEC Chairman Mary Schapiro is in the process of trying to overhaul the agency. “It’s a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors,” Schapiro said in a statement yesterday.
Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, said his panel has scheduled a Sept. 10 hearing on the report.
Kotz’s report reads as a virtual diatribe against the failed policies and practices of the SEC’s old guard, Singer said. “The larger, far more important question is where do we go from here with his conclusions?”