International Law

How the SEC Missed the Madoff Fraud - Not!

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More on single issue explanations for the Madoff fraud, this time from the NY Post, blaming the SEC investigator who headed up the Madoff investigation.

"Markopolos gave the investigators a long memo that flatly said that "Madoff Securities is the world's largest Ponzi scheme."

Soon after, in January 2006, the New York branch of the SEC opened an enforcement case on Madoff based on Markopolos' claims. The document authorizing that probe is signed by three SEC staffers: Cheung, attorney Simona Suh, and Assistant Director Doria Bachenheimer.

But after interviewing Madoff and a principal of Fairfield Greenwich Group -his biggest hedge-fund investor - as well as reviewing documents, the SEC probe "found no evidence of fraud," according to a case closing recommendation signed off by those three staffers.

The probe did find that Madoff had violated regulations by acting as an investment adviser without registering, but said he should not be disciplined because he had remedied the situation.

Philip Michael, a lawyer for Markopolos, said the failure by Cheung and the other probers to find Madoff's fraud suggests that "she just didn't understand what was going on" even after Markopolos gave her a road map."

Has anybody actually read the Markopolos memo?

I have, and given that there were no investors complaining, none whatsoever, I am not surprised that the Markopolos memo failed to excite any investigator.

The 8 or 9 standard features of a Ponzi were not identified in the Markopolos memo.

You have to put yourself in the shoes of the ordinary investigator who believes that the chances of the former head of NASDQ is running the biggest ponzi scheme must be low. (That is is not the proper investigative technique may relevant.)

Full post as published by Misleading Advertising Law on January 07, 2009 (boomark / email).