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: Jim Hamilton's World of Securities Regulation

By Jim Hamilton

a href="http://photos1.blogger.com/blogger/3226/1283/1600/wklbcch.1.jpg"img style="FLOAT: left; MARGIN: 0px 10px 10px 0px; CURSOR: hand" alt="" src="http://photos1.blogger.com/blogger/3226/1283/320/wklbcch.1.jpg" border="0" //abr /span style="font-family:arial;font-size:130%;color:#3333ff;"strong/strong/spanbr /span style="font-family:arial;font-size:130%;color:#3333ff;"strong/strong/spanbr /span style="font-family:arial;font-size:130%;color:#3333ff;"strongCiting Madoff Firm, SEC Chair Cox Orders Broad Review of SEC Internal Policies; SIPC Begins Liquidation/strong/spanbr /span style="font-family:arial;"/spanbr /Noting that the SEC was informed of the Madoff investigation last week despite the fact that credible allegations of wrongdoing were brought to the staff?s attention as early as 1999, Chairman Christopher Cox a href="http://www.sec.gov/news/press/2008/2008-297.htm"ordered/a a broad review of the Commission?s internal investigative policies. The chair said that he was gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. At the same time, the SIPC said that it was liquidating the Madoff investment firm under the Securities Investor Protection Act. At SIPC?s request, a federal judge has already appointed a trustee for the liquidation of the brokerage firm. Mr. Cox said that SEC investigators are currently working with the trustee to review vast amounts of records and information involving Mr. Madoff and his firm.br /br /The SEC chair also pledged that every necessary resource at the SEC has been dedicated to pursuing the investigation, protecting customer assets and holding both Mr. Madoff and others who may have been involved accountable. Firm records are increasingly exposing the complicated steps that Mr. Madoff took to deceive both investors and regulators. The investigation has already found that the firm kept several sets of books and false documents, and provided false information involving advisory activities to investors and to regulators. Moreover, as a consequence of the staff?s failure to seek a formal order of investigation from the Commission, subpoena power was not used to obtain information. Rather, the staff relied upon information voluntarily produced by Mr. Madoff and his firm.br /br /In response, after consultation with the Commission, the chair directed the SEC?s Inspector General to conduct a full and immediate review of the past allegations regarding Mr. Madoff and his firm and the reasons that they were not found credible. The review will also cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the Commission level, whether those policies were followed, and whether improvements to those policies are necessary. The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm.br /br /While it is clear that customers of the Madoff firm need the protections available under federal law, SIPC President Stephen Harbeck cautioned that the scope of the misappropriation and the state of the defunct firm's records will make this more difficult than in most prior brokerage firm insolvencies. It is unlikely that SIPC and the federal liquidation trustee will be able to transfer the customer accounts of the firm to a solvent brokerage firm, said the SIPC chief.br /br /The state of the firm's records may preclude a transfer of customer accounts. Also, because the size of the misappropriation has not yet been established, it is impossible to determine each customer's pro rata share of customer property. The trustee is charged with giving notice of the proceeding and mailing claim forms to the customers and other creditors of the firm.

Full post as published by Jim Hamilton's World of Securities Regulation on December 16, 2008 (boomark / email).