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SEC Ignored Credible Tips About Madoff, Chief Says
SEC chief Christopher Cox has ordered an internal review.
(Brendan Smialowski - Bloomberg News)
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"I'm very close with the regulators, so I'm not trying to say that they can't, you know, that what they do is bad. As a matter of fact, my niece just married one," Madoff said, adding in an apparent reference to Swanson, "Very nice attorney."
A Bats spokesman who said he was speaking at Swanson's request said that the relationship began after the end of Swanson's role in regulating Madoff, and that the couple met through their involvement in a securities industry trade group.
Swanson "did not participate in any inquiry of Bernard Madoff Securities or its affiliates while involved in a relationship with Shana," Bats said in a statement. "Throughout his career, Eric has displayed the highest ethical standards and his reputation has been -- and continues to be -- above reproach."
Swanson participated in the 2004 examination of Madoff's company, and helped to conduct an internal review of a previous examination of the company in 1999, according to the SEC. The agency issued a statement underscoring that Swanson was not involved in regulating Madoff after the relationship began.
"The SEC has very strict rules prohibiting SEC staff from participating in matters involving firms where they have a personal interest," the agency said. "Subsequently, Mr. Swanson did not work on any other examination matters involving the Madoff firm before leaving the agency."
Investigators also will review why the SEC's regular examinations of the company failed to find problems.
The SEC said yesterday that it conducted routine examinations of the company in 1999 and 2004, as well as a previously disclosed examination in 2005 and an investigation that ended in 2007. The 2005 examination found minor problems; the others closed without incident.
Cox said last night that Madoff kept multiple sets of books and falsified documents, allowing him to mislead investors and regulators.
Cox and other commissioners have been angered that they learned information about the case from the news media instead of from agency staff, according to people familiar with the matter. For example, when senior staff members told the commissioners about the relationship between Swanson and Madoff's niece, they said Swanson had not been involved in the 2005 examination. They did not, however, tell the commissioners that Swanson had been involved in previous looks at Madoff, these people said.
A Boston investment professional, Harry Markopolos, started writing letters to regulators in 1999 alleging that Madoff was conducting a Ponzi scheme. Markopolos continued to send letters, including most recently in April. Markopolos said that his charges were detailed and specific, and he said he was still angry that the SEC ignored him.
"They have a lot to answer for," Markopolos said. "They refuse to enforce rules against this industry."
The extent of the alleged fraud has also raised questions about the possible involvement of other people. Cox's statement yesterday mentioned "others who may be involved."
