Complacent SEC helped Ponzi scheme going

The erstwhile chairman of NASDAQ, who was at one point in time regarded as a financial genius, revealed how he concocted the fraud and more importantly, how he hid it from the watchdog for so many years.

Complacent, inefficient SEC
It has been reportedly learnt that the Securities and Exchange Commission (SEC) got as many as six substantive tip offs over the 17 year period through which Madoff’s ponzi scheme lasted.

The watchdog, however failed to uncover the fraud primarily due to inexperienced staff, delays in execution and lack of clear, explicit communication.

Madoff claimed that he feared being caught way back in 2003, but to his utter surprise and good fortune, the investigators did not scrutinize his books of accounts to examine if he had actually traded stocks.

Had such an exercise been undertaken by the SEC sleuths at that point of time, they would have known that he has not traded in any stocks and that the entire scheme was a mere sham.

Third-party check not done
The examiner was "blowhard" who "talked tough, but didn't look at anything," Bernard said of the biddable SEC inspector.

"I worried every time," Madoff said in the interview. "I wish they caught me six years ago, eight years ago."

Bernard told Kotz that if SEC lawyers had done some basic exploratory work, it "would've been easy for them to see" he was a crook.

"It's very easy if you want. You must do a third-party check. It's an absolute must," Mr. Madoff said of how one investigates a Ponzi scheme. "It's accounting 101."

Time and again, the agency got tips that what was going-on at Bernard L. Madoff Investment Securities LLC was illegitimate, but never followed up on investigations end to end.

The charges of chief whistleblower Harry Markopolos were thus never proved and the guilty remained at large.

Markopolos had in 2001 questioned how Madoff could carry on high giving such high returns for investors under all sorts of market conditions.

He had said that Madoff was either "incredibly talented and/or lucky," or was employing an illegitimate process that needed investigation.

The SEC examiners had an inkling of the possible fraud, but just could not tie all loose ends together.

"I am still puzzled that Bernie is able to always find counterparties willing to trade options in the size that he needs to for the strategy without freaking out the market," one SEC examiner wrote in an email.

"Maybe the counterparties are able to hedge themselves somehow, but I don't see how," added the investigator.