Ms. Schapiro - Please Step Up on Madoff

Several senior SEC staff members took to Capitol Hill today to talk about Bernard Madoff. Thanks to my friends at Securities Mosaic you can read the testimony at http://www.knowledgemosaic.com/gateway/Rules/TE.ts020409-joint.020409.htm.

In December, then SEC Chair Christopher Cox was very blunt, saying, “The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am 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. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.”

Unfortunately, today staffers referred to ongoing criminal investigations as the reason that they cannot discuss anything that may have been done wrong at the SEC, and provided only very limited information about prior SEC investigations of Madoff. In fact, they seem to imply that Madoff’s involvement in the regulatory world only began in 2006 when he became an investment advisory firm (but note Cox’s statement above).

I greatly respect the hard working people at the SEC, especially those with the difficult task of overseeing large divisions with limited budgets. And I understand we are on the verge of a possible complete overhaul of the regulatory structure.

But when I respectfully disagree with their approach to something, I speak up, respectfully. There are many, many thousands who have literally lost billions of dollars here, and it appears that the SEC and Finra were asleep at the switch.

There is a sense of urgency here, it seems, among everyone but the very regulators who need to act. The other day President Obama admitted that he “screwed up” in pushing for Sen. Tom Daschle to be a member of his Cabinet given his tax problems. I call on Chairman Schapiro to step up very early in her ascendancy and let us know that it appears the regulators (including the “self-regulators” she oversaw at Finra) also screwed up here over the years and how she will attend to ensuring it does not happen again, not with a two-year investigation, but with action starting right now.

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