When the house of cards collapsed, a financial sleuth named Harry Markopolos became famous for having tried in vain to get SEC employees to see through the scam.
For the past few years, the SEC has been struggling to rebuild its reputation and remedy the weaknesses the Madoff scandal laid bare.
The SEC’s inspector general issued a 477-page report in 2009 concluding that the agency “received numerous substantive complaints since 1992 that raised significant red flags concerning Madoff’s hedge fund operations.”
Although the SEC conducted five examinations and inspections of Madoff based on the complaints, agency personnel “never took the necessary and basic steps to determine if Madoff was misrepresenting his trading,” the inspector general reported.
“While examiners and investigators discovered suspicious information and evidence and caught Madoff in contradictions and inconsistencies, they either disregarded these concerns or relied inappropriately upon Madoff’s representations and documentation in dismissing them,” the inspector general added.
The inspector general’s report mentioned 56 SEC employees and called into question the performance of 21 of them, according to SEC officials. At a March congressional hearing, an SEC official testified that 35 of the 56 had left the SEC voluntarily and that six disciplinary proposals were “working their way through the system.”
A document obtained from the SEC on Friday showed that the employees disciplined included an enforcement manager, a senior officer in the inspections office and staff attorneys.
The enforcement manager received a 5.7 percent pay cut for failing to adequately analyze whistleblower Markopolos’s complaint, the document showed.
The senior officer in the inspections office received a 30-day suspension without pay for failing to ensure that the agency’s examination of Madoff’s business was broad enough and for failing to address issues that remained unresolved at the end of the exam.
One staff attorney was issued a counseling memo for inadequately investigating issues Markopolos had raised. In that case, the SEC cited a mitigating factor: The attorney was acting under the direction of two supervisors. The supervisors have left the agency, the SEC said.
The SEC has no power to discipline people who have left its workforce.
When Schapiro became chairman in early 2009, dealing with the Madoff fallout and addressing the institutional weaknesses the scandal had revealed were among her most pressing challenges.
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