Bernard Madoff Ponzi Scheme Linked to SEC Official's DepartureJul 9, 2009 | Parker Waichman LLP
The Bernard Madoff scandal may have played a role in the coming departure of a key Securities and Exchange Commission (SEC) official. According to Bloomberg.com, Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations, was widely criticized for missing warning signals about Madoff. Richards will be leaving her post - which she has held since 1995 - on August 7.
Madoff was recently sentenced to 150 years in prison for running a Ponzi scheme that is estimated to have cost investors as much as $65 billion. The SEC has come under fire for apparently missing warnings that something was amiss with Madoff's investment advisory business. Richards' department was responsible for overseeing money managers like Madoff.
Richards' office only inspected Madoff's business - Bernard L. Madoff Investment Securities LLC - in 2004 and 2005 when it was registered as a brokerage, Bloomberg.com said. It never conducted an inspection of the money-management side of Madoff’s business after he registered it with the SEC in September 2006
According to Bloomberg.com, Pennsylvania Democratic Rep. Ron Kanjorski had been especially critical of Richards' unit and its performance in regards to Madoff. Kanjorski, who leads the House Financial Services capital markets subcommittee, has accused the SEC of ignoring Madoff red flags, such as the inability of investors to duplicate Madoff’s returns and his unusual choice of an outside auditor.
As we've reported previously, money manager Harry Markopolos had also claimed he tried to warn the SEC numerous times over several years about Madoff. According to Bloomberg, Markopolos has said that SEC inspectors lack knowledge about products such as derivatives and have inadequate understanding of the businesses they are supposed to review.
Richards is not the only SEC official who has announced a resignation in the wake of the Madoff scandal. Former Enforcement Director Linda Thomsen resigned in February, following a pretty severe drubbing at the hands of a Congressional committee investigating the Madoff debacle. Former SEC Commissioner Edward Fleischman told Bloomberg.com that Richards' coming departure "allows the newly cleansed and baptized SEC to say, ‘If there was anything wrong done on our part, those people are gone.’”