SEC “deeply troubled” by its own Madoff failures

Former Republican congressman Christopher Cox, who has been in the hot seat as chairman of the Securities & Exchange Commission (SEC) since 2005, has admitted that the Washington-based Commission screwed up big time over Bernie Madoff’s $50bn Ponzi scheme.

In amazing mea culpa which appeared on the SEC website yesterday, Cox said the initial findings of a major investigation in Madoff and his firm, Bernard L. Madoff Investment Securities, were “deeply troubling”.

Cox admitted that the agency, already under the cosh for regulatory failures relating to the collapse of Bears Stearns and Lehman Brothers, failed to act for almost a decade on “credible and specific allegations” of wrongdoing by Mr Madoff who, in what appears to have been the world’s largest ever fraud, effectively stole $50bn from investors.

Cox Republican representative for Orange County California, from 1989-2005, admitted the SEC it had been sitting on information about alleged wrongdoing by Madoff since “at least” 1999. “The Commission has learned that credible and specific allegations regarding Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action.

“I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations … Moreover subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Madoff and his firm.”

SEC to investigate its failure to investigate

Cox said has now ordered a “full and immediate review of the past allegations regarding Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General” to include an investigation into why the original allegations were not raised at Commission level.

In the statement Cox, who now wants Congress to draft legislation that will ensure that the $55 trillion credit default swaps market is brought under regulatory control, added: “Since the Commission first took emergency action against Bernard Madoff and his firm, Bernard L. Madoff Investment Securities, on Thursday, December 11, every necessary resource at the SEC has been dedicated to pursuing the investigation, protecting customer assets and holding both Madoff and others who may have been involved accountable.”

Initial findings of the major investigation into Madoff that is underway have already thrown up the “complicated steps that Mr Madoff took to deceive investors, the public and regulators … progress to date indicates that he kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.”

“Since Commissioners were first informed of the Madoff investigation last week, the commission has met multiple times on an emergency basis to seek answers to the question of how Madoff’s vast scheme remained undetected by regulators and law enforcement for so long. Our initial findings have been deeply troubling.”