SEC probes of Madoff ‘Deeply Troubling’ – Cox
U.S. Securities and Exchange Commission Chairman Christopher Cox called for a probe of his agency, saying what he has learned about its investigations of Bernard Madoff before the investment manager confessed to operating a $50 billion Ponzi scheme is “deeply troubling.”
“Credible and specific allegations” were made to SEC staff going back to at least 1999, Cox said today in a statement. He asked the agency’s inspector general to lead a “full and immediate review” of the past claims against Madoff.
“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,” Cox said.
Madoff, 70, was arrested Dec. 11 after he told his sons Bernard L. Madoff Investment Securities LLC was a “giant Ponzi scheme,” the SEC said. Clients facing losses range from a Fairfield, Connecticut, pension fund to hedge funds and New York Mets owner Fred Wilpon’s
Sterling Equities Inc.
“This is an incredible statement for the chairman of the SEC to make,” James Cox, a securities law professor at Duke University in Durham, North Carolina, said in an interview. “I can recall nothing that rivals this in the history of the SEC in terms of condemnation for how the staff had handled an investigation.” Cox isn’t related to the SEC chairman.
The Republican chairman said Inspector General H. David Kotz’s probe will look into the agency’s internal policies and whether they should be improved. The investigation will also include a review of all SEC contact with “the Madoff family and firm,” Cox said.
Madoff’s niece, Shana, was a compliance lawyer at his firm and last year married Eric Swanson, a former assistant director of compliance and examinations at the SEC. Swanson left the agency in August 2006 and is currently the general counsel of Bats Trading Inc., the third-largest U.S. equity exchange by trading volume.
“Eric Swanson worked at the SEC for 10 years and did not participate in any inquiry of
Bernard Madoff Securities or its affiliates while involved in a relationship with Shana, whom he met through her trade association work,” Bats Trading spokesman Randy Williams said in an e-mailed statement. “Throughout his career, Eric has displayed the highest ethical standards and his reputation has been, and continues to be, above reproach.”
Madoff sometimes consulted with the SEC on how to regulate markets and sat on a panel of academics, regulators and executives formed in 2000 to give the agency advice on new stock market rules in response to the growth of electronic trading.
Cox said SEC staff members who had “more than insubstantial” personal contacts with Madoff will be barred from participating in the SEC’s current investigation of him and his firm.
The SEC hadn’t inspected Madoff’s investment advisory business since he registered the firm with the agency in September 2006, two people familiar with the matter said. SEC examiners reviewed Madoff’s brokerage business in 2005 after an employee at an investment firm and press reports questioned the validity of his stated returns.
The regulator’s enforcement division completed a probe involving Madoff’s company last year without bringing a claim. Cox, not referring to any specific investigation, said the staff never sought subpoena power to examine Madoff and instead relied on voluntary information provided by him and his firm.
SEC investigators have been working around the clock to examine records at Madoff’s company since his arrest last week. The probe to date indicates that he kept several sets of books and false documents and lied to investors and regulators about his business, Cox said.
The inspector general’s review will help determine “what, if any, policy failures occurred” Steve Adamske, a spokesman for House Financial Services Committee Chairman Barney Frank, said in an interview today. Frank is a Massachusetts Democrat.
Kotz has released reports this year critical of the agency’s conduct. He said in one examination that the SEC “failed to carry out its oversight” of Bear Stearns Cos., the investment bank that faced collapse in March before selling itself to JPMorgan Chase & Co. He’s also questioned the enforcement staffs’ handling of investigations.