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SEC Looked Other Way In Madoff Debacle

By       Message Sherwood Ross     Permalink
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The SEC Inspector General's 457-page report on fraudster Bernie Madoff shows that the "negligence and malperformance" of the Securities and Exchange Commission(SEC) were so great that it acted "as if it did intend for Madoff not to be caught and stopped," says a legal authority who lost money invested with Madoff.

The report shows that the SEC "did the very things one would do if one were trying to enable Madoff not to be caught and were thereby attempting to destroy the antifraud policy of the statute that the SEC is instead supposed to enforce," says Lawrence Velvel, Dean of the Massachusetts School of Law at Andover (MSL) and formerly an attorney on major antitrust cases.

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Based on the just issued 457-page report of SEC Inspector General H. David Kotz, Velvel gave the following reasons showing that the SEC looked the other way to such an incredible extent that its failure to catch and stop Madoff was "defacto intentional."

# It would have taken "only a single phone call to the Depository Trust Co. to learn that Madoff never held the securities positions he claimed to have held, but for 16 years, through six complaints and five investigations, not a single member of the SEC, not a single one of its supposed investigators ever made that single phone call," Velvel wrote.

# The SEC could have requested relevant records from the NASD (National Association of Securities Dealers) and other organizations that would have shown Madoff never did the trading he claimed to have been doing, yet for 16 years it never made the request.

# Although Madoff told the SEC he acted through Barclay's Bank, the bank told the SEC there had been no activity in his account---yet the SEC made "no effort to plumb this discrepancy," Velvel said.

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# Even though SEC personnel knew Madoff lied to them and knew he was telling them deeply inconsistent stories, "not a single investigator tried to learn the truth," Velvel said.

# The SEC was told by NASD that Madoff did not own options on a date he said he did, yet the SEC did nothing.

# Although told by experts there were not enough stock options in the world to support the trading in options which Madoff claimed to be doing, the SEC did not probe further, Velvel said.

# When the SEC learned that the hedge fund of star hedge fund manager James Simons had deep suspicions that Madoff's execution of trades was unusual, it did not bother to contact him, Velvel said.

# When the SEC required Madoff to register as an investment adviser after learning he had lied to them for years by falsely claiming he was not an investment advisor, the SEC did not bother to conduct the prompt inspection that is required when a person or firm first registers as an investment adviser.

Velvel goes on to say the SEC's misconduct not only allowed Madoff's Ponzi scheme to grow and expand but it caused "a dramatic reduction in the amounts of money available to victims when the fraud finally collapsed in December, 2008." For over $12 billion dollars was pulled out of Madoff in the last six months, and, a year or so previously, Madoff apparently had somewhere between $17 and $20 billion in his coffers. Had the SEC exploded his Ponzi scheme, even as late as 2006 or 2007, these billions of dollars would have been available for repayment to defrauded investors. Instead there was almost nothing.

The SEC's defacto intentional conduct resulted, Velvel says, not only in allowing the fraudster to grow his Ponzi scheme from about $500 million in 1992 to the $65 billion reported on his Nov. 30th, 2008 statements, but in having very little with which to repay innocent investors. Thus, the SEC, and through it the U.S. Government, "is [equally] responsible for the dire poverty which now afflicts so many innocent Madoff victims."

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The Massachusetts School of Law at Andover is a 21-year-old law school whose pioneering mission is to inexpensively provide rigorous legal education, a pathway into the legal profession, and social mobility to members of the working class, minorities, people in midlife, and immigrants.

Through its television shows, videotaped conferences, an intellectual magazine, and internet postings, MSL -- uniquely for a law school -- also seeks to provide the public with information about crucial legal and non legal subjects facing the country.

Reach Sherwood Ross, media consultant to Massachusetts School of Law at Andover, at #


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Sherwood Ross worked as a reporter for the Chicago Daily News and contributed a regular "Workplace" column for Reuters. He has contributed to national magazines and hosted a talk show on WOL, Washington, D.C. In the Sixties he was active as public (more...)

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