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SEC Investigator Raised Madoff Concerns Years Ago, Was Asked to Look Elsewhere
Walker-Lightfoot e-mailed Donohue, saying she was "not sure what you want [J]acqui [Wood] and I to do concerning Madoff, but I'm focusing on the mutual fund project, as requested." She asked, "Should we just focus on mutual funds and return to Madoff when we're done?"
The next morning, Donohue responded: "Concentrate on mutual funds for the time being."
A few weeks later, Donohue told Walker-Lightfoot to turn over her work on Madoff to Wood, according to a person familiar with the matter. Not long after that, the material was boxed by Wood for transfer, this person said.
Many of the people interviewed for this story, including current and former SEC officials, spoke on the condition of anonymity because of the agency's ongoing investigation into its handling of the Madoff case.
A spokesman at the law firm where Wood now works said she would be unavailable to comment.
Walker-Lightfoot's lawyer, Julie Grohovsky of Wheat Wu, declined to comment, except to say her client had been "a dedicated and exemplary SEC employee who had been uniquely qualified to work on the investigations conducted by the Office of Compliance Inspections and Examinations." Walker-Lightfoot left the SEC in 2006 after filing a complaint with the agency alleging that she'd been subjected to a hostile workplace. A person familiar with the complaint said it was settled in Walker-Lightfoot's favor.
SEC spokesman John Nester declined to comment, citing an ongoing investigation by the agency's inspector general, H. David Kotz.
Kotz said he is reviewing "all the circumstances surrounding the SEC's various examinations of Mr. Madoff, including the 2004 examination" and said he is interviewing more than 100 former and current SEC officials. He said he has reviewed Walker-Lightfoot's story. "While we are considering all information provided, it would be incorrect to assume that the OIG's final report or analysis of any particular examination or personnel decision will be based on the input of any single source," he said.
The investigation includes a review of Swanson's relationship with Madoff's niece, Shana. Kotz said earlier this year that he was looking into "allegations of conflicts of interest regarding relationships between any SEC officials and members of the Madoff family and whether such relationships in any way affected the manner in which the SEC conducted its regulatory oversight of Bernard Madoff."
Swanson married Shana Madoff in 2007. The SEC has said he worked on reviews related to Madoff in 1999 and 2004 but he never did while he was involved with his future wife. SEC officials are not permitted to work on matters that involve people with whom they're romantically linked.
Madoff boasted at a business roundtable discussion about his close relationship with SEC regulators, saying "my niece just married one."
In a letter this week to a congressional committee, Kotz recommended several steps to avoid a repeat of the Madoff debacle, including better oversight of auditors, independent custodians and bounty programs to encourage whistleblowers to come forward.
After Walker-Lightfoot's inquiry concluded, the Madoff investigation was transferred to the SEC's New York office, and the documents collected by the Washington office were shipped there. The Office of Compliance Inspections and Examinations in Washington was too busy working on mutual funds and other cases deemed to be of higher priority, according to agency officials.
A New York team, building on the work done in Washington, then began looking into Madoff's firm, reporting in 2005 that it had found three violations of minor rules, officials said. The probe found no evidence of fraud. Madoff received a private deficiency letter from the agency, warning him to improve certain practices.
According to a person familiar with the matter, Walker-Lightfoot never was consulted on the case again.