In 2006, the SEC conducted two investigations of Bernie Madoff and Madoff Investments. Below are the case opening and closing descriptions written by the SEC. In the SEC’s own words:
The Staff received a complaint that Bernard L. Madoff…operates an undisclosed multi-billion dollar investment advisory business and that BLM operates this business as a Ponzi scheme…
[D]uring an SEC investigation of BLM (Madoff’s firm) that was conducted earlier this year, BLM–and, more specifically, its principal, Bernard L. Madoff–mislead the examination staff about the nature of the strategy implemented in the…customers accounts, and also withheld from the examination staff information about certain of these customer accounts.
The SEC is ordinarily extremely tough on those who mislead it (see Martha Stewart). In Madoff’s case, however, it does not appear to have been troubled by this. It simply continued its investigation, found a few minor infractions, and then closed the case.
View SlideShare document or Upload your own. As the SEC looks into its own conduct, the critical question will be why it failed to uncover the Ponzi scheme even though it was specifically looking for it. The answer probably lies in the failure to subpoena specific information instead of relying on voluntarily produced (fabricated) documents.
It is also hard to understand why, if Madoff “misled” the SEC in the early stages of the investigation, the agency wasn’t more aggressive in its investigation.