Admitted fraudster Bernard L. Madoff claimed in 2005 that he was on the “short list” to be named the new SEC chairman.
According to an executive summary of a report released yesterday by the Securities and Exchange Commission's inspector general, Mr. Madoff told SEC examiners in 2005 that he was “on the short list” to become the next SEC chairman, replacing outgoing chairman William Donaldson.
The post was instead filled by Christopher Cox, then a Republican congressman from California.
Although the IG report summary details numerous dropped balls by SEC examiners and enforcement staff that allowed Mr. Madoff to conduct a massive Ponzi scheme over a period of years, his prominence in the securities industry may have helped him avoid scrutiny.
The report said that throughout a 2005 examination of his firm, “Bernard Madoff would drop the names of high-up people in the SEC” to SEC examiners.
When examiners in the SEC's Northeast regional office complained to their assistant director about not getting cooperation from Mr. Madoff, “they received no support and were actively discouraged from forcing the issue,” the IG report said.
When the Northeast regional staff inquired about a similar exam that had been performed earlier by the Washington staff, a senior-level Washington examiner told junior-level examiners in the Northeast office that Mr. Madoff “was a very well-connected, powerful, person,” the report said.
When Northeast office examiners wanted to look beyond the issue of front running at Mr. Madoff's firm, their assistant regional director denied their request, the IG report said.
A request to look into Madoff feeder funds was also denied.
The Northeast office's exam was one of three examinations and two investigations of the Madoff firm going back to 1992. None of them uncovered the fraud.
Inexperience and poor training were key causes of the failure, the report said.
In a statement, SEC Chairman Mary Schapiro said the agency has bolstered its inspection program and started to revamp how it handles tips.
The agency has also “begun to hire new skill sets, increased internal training, and sought more resources to keep pace with financial fraudsters,” she said.