Multiple Madoff Warnings at SECJul 2, 2009 | Parker Waichman LLP
A Securities and Exchange Commission (SEC) investigator claims to have warned her superiors in 2004 about concerns she had with Bernard Madoff's financial management firm, said the Washington Post. Attorney Genevievette Walker-Lightfoot, with the SEC's Office of Compliance Inspections and Examinations, was told to work on another issue, said the Post, citing SEC documents and its sources. Walker-Lightfoot worked at the American Stock Exchange, gaining proficiency in “specialized trading strategies,” the Post added.
Walker-Lightfoot was assigned to examine Madoff's relationship with various hedge funds when the SEC was concerned he was allowing those funds to trade before his, enabling an unethical lead, said the Post. She sent emails to a supervisor about her concerns with the disgraced financer’s activities and developed some questions to ask his firm, reported the Post, which said some questions confronted some of Madoff’s actions, which were later connected to his historic Ponzi scheme. For instance, Walker-Lightfoot discovered a number of variations such as Madoff’s inconsistent settling practices, something counter to what Madoff, himself, documented he was doing.
Madoff has been in custody since he pleaded guilty on March 12, 2009, to an 11-count information charging securities, investment advisor, mail, and wire fraud; three counts of money laundering; perjury; false statements; false filings with the SEC; and theft from an employee benefit plan. Madoff was just sentence to 150 years in prison for swindling scores of investors out of about $65 billion and was mandated—to start with—to return $170,799,000,000, representing total proceeds of and property involved in some of the related crimes. Madoff was divested of his interest in all property, including real estate, investments, cars and boats, in partial satisfaction of the judgment.
Because the SEC was consumed with issues surrounding mutual funds, Walker-Lightfoot was forced to concentrate on nonMadoff issues, said the Post, citing documents and sources familiar with the investigation. The Post also reported that Walker-Lightfoot's supervisors on the case were Mark Donohue, a branch chief in her department at the time, and his boss, Eric Swanson, the department’s assistant director.
Of note, Swanson later married Madoff's niece, Shana, said the Post. That relationship is under review by the SEC’s inspector general, who is looking at the agency’s handling of the scandal, reported the Post. Madoff also allegedly bragged about his tight relationship with SEC regulators, saying, "my niece just married one," quoted the Post.
The SEC has been shamed for its inability to detect Madoff's fraud and its role in the well-publicized investment bank collapse, which has been blamed—in part—for the current financial downturn, the Post pointed out. The SEC has since accused Madoff of “fabricating his strategy, generating false account statements and trade confirmations, and lying to investigators,” said the Post.
Over two-decades, the SEC allegedly investigated Madoff's business five times, never finding the massive fraud even after Walker-Lightfoot expressed concerns and that others apparently stepped forward, noted the Post. For instance, in 2007, the SEC looked at Madoff’s activities after it received warnings from a former Madoff rival—Harry Markopolos—that Madoff was likely spearheading a Ponzi scheme, said the Post.
When sentencing Madoff this week, Judge Denny Chin said, "Objectively speaking, the fraud was staggering … the breach of trust was massive," the crimes were an extraordinarily evil." Although Bernard has been initially stripped of $171 billion and all of his personal property, as well as $80 million in assets Ruth claims were hers, Ruth walks away with $2.5 million, likely more than many of Madoff’s duped investors.