SEC documents describe Madoff as shocked agency failed to catch him earlier

By Zachary A. Goldfarb
Washington Post Staff Writer
Saturday, October 31, 2009

Bernard L. Madoff, the confessed swindler who pulled off the largest Ponzi scheme in history, often escaping the eye of federal regulators, expressed shock to the watchdog of the Securities and Exchange Commission that the agency's staff didn't discover his fraud on multiple occasions.

It was "amazing to me" that the SEC's enforcement investigators didn't detect the Ponzi scheme after he told them plainly suspect information, Madoff told SEC inspector general H. David Kotz in an interview earlier this year.

A 12-page summary of that interview was among thousands of pages of documents released on Friday by the inspector general. Kotz issued a scathing report last month saying that inexperienced investigators, locked in an inefficient and uncommunicative bureaucracy, failed to detect Madoff's fraud despite five probes over more than 15 years.

The inspector general interviewed Madoff in jail in New York in June. Madoff has since been moved to a federal prison in North Carolina, where he is expected to spend the rest of his life.

Madoff told the inspector general that he expected to get caught during many of the probes, saying he was "worried every time."

"It was a nightmare for me," Madoff said, because his scheme "was very basic stuff."

Madoff also told Kotz that he never dealt with Eric Swanson, a former SEC official who helped oversee an investigation into Madoff's firm and later married his niece, Shana, a compliance officer at his company.

Madoff said he found out about the relationship six months before the wedding, which was years after that probe.

The report caused a degree of chagrin for SEC Chairman Mary Schapiro on Friday. Schapiro, previously head of the Financial Industry Regulatory Authority, had already faced criticism because that agency also missed Madoff's fraud.

In the interview with the inspector general, Madoff said that Schapiro was a "dear friend" and that she "probably thinks I wish I never knew this guy."

But Kotz released a statement on Friday that he "did not find any corroboration or evidence to support Madoff's claim of a close relationship with Mary Schapiro."

Many of the documents and interviews supported Kotz's findings, showing SEC officials trying to explain how they could examine Madoff's firm without finding the Ponzi scheme.

The Madoff experience has left deep scars at the agency, which has been unveiling new policies to try to ensure it never misses a scheme of such magnitude again.

© 2009 The Washington Post Company