The Report of SEC Inspector General Kotz.

The failure to catch and stop Madoff is defacto intentional when the SEC asks the NASD whether Madoff owned options on a particular date, the NASD says he did not, and the SEC then does nothing.

James Simons is perhaps the most successful hedge fund manager of the 21^st Century. Twice in the last few years he has made 2.5 billion dollars and once 1.7 billion dollars. The failure to catch and stop Madoff is defacto intentional when you find out that his company has deep suspicions about Madoff's bona fides, but you do nothing -- you do not even bother to contact his firm to learn what it knows or believes, including why it says that it has knowledge that Madoff's execution of trades is unusual.

The failure to catch and stop Madoff is defacto intentional when the use of options is central to Madoff's claimed method of trading, but he tells you he no longer uses options, yet you do nothing. The failure to catch and stop Madoff is defacto intentional again when you know his statement is at least partly a lie because you know that for some clients he is using options, yet again you do nothing.

The failure to catch and stop Madoff is defacto intentional when experts let you know there are not enough options in the world to support Madoff's claimed trading, yet, though the use of options is central to his strategy, you do nothing.

The failure to catch and stop Madoff is defacto intentional when you start an investigation of Avellino & Bienes because you fear a Ponzi scheme, but, when the money invested with Avellino and Bienes is paid back (by Madoff), you never even ask where he got the money to pay back the Avellino and Bienes investors. The failure to catch and stop Madoff is again defacto intentional when you swallow, without extensive further investigation, the preposterous claim, and/or practice, of Avellino and Bienes that they never keep any records -- no records for 440 million dollars(!!) (which in today's money is probably a billion dollars or more).

The failure to catch and stop Madoff is defacto intentional when you -- the government's then highly respected regulator and watchdog, the SEC -- suck people into investing or remaining in Madoff by announcing through the Wall Street Journal in 1992 -- by announcing as you otherwise never do -- that you have found no evidence of fraud -- by making a public announcement (based on a thoroughly negligent investigation) that inevitably would and did cause people to leave money in Madoff, to add money to Madoff, or to invest with Madoff for the first time.

The failure to catch and stop Madoff is defacto intentional when an anonymous person, who obviously has some kind of inside knowledge judging by what he says, sends you a letter saying that Madoff has commingled Norman Levy's money with Madoff's, and tells you that Madoff keeps two sets of books, the more important of which are on his personal computer which is always on his person, but you almost wholly dismiss the tip from the obvious insider by doing no more than asking Madoff if he is an investment adviser for Levy and then fully accept his counsel's false negative answer to the question without any further inquiries even Madoff is known to have lied to your agency previously about important matters. (In one of the recent books on Madoff, one of the Madoff company's chauffeurs in effect verifies the commingling by discussing the multimillion dollar checks he regularly took to Levy (every day if I remember correctly). As for the computer, no doubt it was one that Madoff retained access to for many months after he was indicted -- and which he no doubt attempted (successfully?) to wipe clean, thereby impairing the search for funds to repay defrauded victims).

The failure to catch and stop Madoff is defacto intentional when you require him to register as an investment advisor because you learn that, contrary to years of lies to you, he is acting as an investment advisor for more than 15 people, and newly registered investment advisors are supposed to be inspected within a short period of time but the SEC never undertakes the required inspections.

The foregoing list does not exhaust the items discussed in Kotz's report which show that the SEC acted in a way that can and should be described as defacto intentional: i.e., the SEC did things it would have done if it didn't want Madoff to be caught and stopped and if it wanted to destroy the antifraud policy of its statutes. Nor does the list give chapter and verse of each of the items on the list, giving only capsule summaries of them instead. But the list does make clear why the SEC's misconduct was so horrid, its degree of negligence was so high, that it has to considered defacto intentional, has to be considered to be exactly the same as what the SEC would have done had it wanted Madoff to continue succeeding with his Ponzi scheme and wanted to destroy the antifraud policy of its own statute.

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From the time Madoff was arrested on December 11^th until today, and no doubt continuing on into the foreseeable future, there have been and will be those who say the victims were at fault for investing with Madoff. For one reason or another, the victims should have known better, is the attitude. This is in some ways curious, not just nasty, vengeful and wrong.

Just to take my own case as an example of what I think was typical of many people, I had no idea, and had no reason to think or understand, the things that gave pause to some Wall Street insiders who had the knowledge and capacity to do extensive due diligence, Wall Street insiders who were aware, as the average investor was not:

that on Wall Street itself rumors were rife that something was not right at Madoff;

that for various reasons it seemed quite possible to Wall Street insiders that Madoff was not buying and selling securities, as he claimed to be doing, and that his supposed trades and positions could not be “seen” in the markets, where they should have been “visible” if he was trading the huge volumes he claimed;

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