Yesterday morning, I posted a story saying that the Bernard Madoff scandal represented a new low point for the U.S. Securities and Exchange Commission, underscoring the need for fresh leadership at this small yet critical federal agency.
Last night, I was happy to see that the leader of the agency, chairman Christopher Cox, has recognized the failures of his leadership and of the organization he leads by putting out a press release with the bland title, “Statement Regarding the Madoff Investigation.” It should have been titled, “Statement Regarding Our Failure and Abdication of Our Responsibility.”
“The Commission has learned that credible and specific allegations regarding Mr. 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,” wrote chairman Cox. “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”
Although it’s too little and too late, chairman Cox has now ordered a “full and immediate review of past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General.”
One potentially explosive issue is that the SEC may have reined in its investigation of Madoff due to a serious conflict of interest. One of the SEC’s investigative teams was led by a lawyer named Eric Swanson—the husband of Shana Madoff, a niece of Bernard Madoff and daughter of his brother Peter Madoff, the firm’s chief compliance officer. A New York Times story delves into the issue.
This may explain why the SEC NEVER used its subpoena power to obtain information about Madoff. Rather, it relied on information voluntarily produced by Madoff and his firm, information we now know that was full of lies.
Trying to understand your mistakes makes sense because it may help you avoid making the same mistakes in the future. But instead of making such a big stink about investigating past failures, I think the public would be better served if the SEC told us it was putting most of its power and resources behind uncovering the next big fraud—or making sure another one doesn’t happen.