Inspector says SEC official’s relatives entrusted $2 million to Madoff scam



SEC According to the agency’s watchdog, family members of a U.S. Securities and Exchange Commission enforcement official, whose unit got a tip in 2005 that Bernard Madoff may be running a Ponzi scheme, entrusted $2 million to the scam.

Inspector General H. David Kotz said on Friday in a report released before he testifies before the Senate that the anonymous e-mailed tip to the Office of Internet Enforcement was among at least six “substantive complaints” the SEC didn’t fully investigate during 16 years. Investments by two of the official’s relatives were disclosed as a footnote in the 457- page report, which doesn’t identify him or specify losses. He wasn’t part of any Madoff probe, Kotz noted.

Kotz’s eight-month inquiry offers the most exhaustive look yet at how the agency missed chances since 1992 to detect a $65 billion fraud that burned thousands of investors. The inspector faulted the agency for inadequately pursuing tips, assigning inexperienced staff to conduct reviews and failing to seek trading records that would have revealed the scam.

Moreover, the report doesn’t find that managers improperly influenced or interfered with inquiries, despite the numerous contacts between Madoff and senior SEC officials, including former chairmen. Nor did Kotz find that an SEC employee’s romantic relationship with Madoff’s niece had any affect on the agency’s examinations.

Instead, Kotz said the SEC failed to scrutinize Madoff during a 1992 probe of a firm that funneled him money. Years later, employees failed to scrutinize his consistently strong profits, didn’t press harder when they caught him in lies and abruptly ended an examination to focus on mutual-fund abuses.




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