A tired, disinterested SEC ignored Madoff crime spree

A tired, disinterested SEC ignored Madoff crime spree

At 75, it appears that the Securities and Exchange Commission is suffering infirmities of age. It simply can’t keep up with swindlers, even one like Bernie Madoff, who, at 71, is only a few years younger than the Depression Era agency that is supposed to protect American investors.

A properly functioning SEC is important, and not only to the financial well-being of individual investors. Its larger role is to bolster confidence in the securities industry. If American (and international) investors cannot be confident that someone is keeping Wall Street honest, they’ll find someplace else to invest their money. At times such as these, the United States cannot afford to have people afraid of investing in American companies.

We have written before about the damage done by an activist Supreme Court that made it more difficult for the SEC to do its job and more difficult to prosecute white collar criminals who built the financial houses of cards that then collapsed on unsuspecting investors.

Today, we write about the abject failure of the SEC to recognize the Ponzi scheme that Madoff used to bilk investors out of tens of billions of dollars over decades. SEC investigators and bureaucrats — people being paid to protect American investors — not only didn’t see what Madoff was doing, they ignored whistleblowers who did their work for them and provided evidence of Madoff’s scheme.

A vision of incompetence

A report released this week by inspector general David Kotz portrayed an incompetent agency that failed to pursue the most obvious leads and cleared the way for Madoff to continue running a monumental Ponzi scheme for another decade.

Madoff even used the fact that his investment company had undergone SEC investigations as a selling point to lure in fresh victims.

All the while, whistleblowers were telling SEC staff members that Madoff was up to no good, and they were being ignored. Chief among them was a financial analyst in Boston, Harry Markopolos, who filed his first complaint a decade ago. Markopolos had been challenged by his bosses to figure out how Madoff was making the kind of returns he was for his investors. It didn’t take long for Markopolos to conclude that it was legally impossible to duplicate Madoff’s results. No one at the SEC in a position to bust Madoff took Markopolos seriously and Madoff was free to continue running his scam.

Madoff is serving a 150-year prison term, but that’s small consolation to the people who lost their life savings or charities that saw their assets dwindle.

SEC Chairman Mary Schapiro, appointed by President Barack Obama in January, says the agency is pursuing new initiatives. One of the first should be to take the tips of whistleblowers like Markopolos seriously.

And Congress will be opening hearings aimed at toughening up the SEC. People should pay attention. What comes out of those hearing is important to everyone who holds stocks, mutual funds or is in a private or public pension plan.

The health of the nation’s financial markets is arguably as important to America’s future well-being as the health-care system for the nation’s residents — even if it hasn’t captured the public’s attention in the same way.