"Unseasoned investigators from the [SEC] were alternatively intimidated and enthralled by a name-dropping, yarn-spinning Bernard L. Madoff as he dodged questions about his financial house of cards, according to a scathing new report on the agency's repeated failures to uncover the huge investment fraud. 'Madoff carefully controlled to whom they spoke at the firm,' the SEC's independent watchdog said in the report on Wednesday. ... In fact, the string of lapses was capped by a staff lawyer receiving the highest performance rating from the agency, in part for her 'ability to understand and analyze the complex issues of the Madoff investigation.' Perversely, Mr. Madoff used the SEC's inquiries as a selling point to reassure investors that the government had looked over his operations and found no problems. ... It was the fact that, 'despite numerous credible and detailed complaints,' the SEC never took 'the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.' ... 'A simple inquiry to one of several third parties could have immediately revealed the fact that Madoff was not trading in the volume he was claiming,' the report said. ... One investigator described Mr. Madoff as 'a wonderful storyteller' and 'a capitvating speaker' after the 2005 encounter in which Mr. Madoff, a former Nasdaq chairman, boasted of his ties to people high up in the SEC and he said he was on the short list to be the next agency chairman--the post which went to Mr. Cox. ... The failure to heed Mr. Markopolos was almost inexplicable, except that some agency officials did not like him personally, Mr. Kotz said", my emphasis, David Stout at the NYT, 3 September 2009, link: http://www.nytimes.com/2009/09/03/business/03madoff.html.
"Renaissance Technologies, the big hedge-fund run by James Simons, raised questions about Bernard Madoff at least as early as 2003, eventually triggering a regulatory investigation of Mr. Madoff and withdrawal of money according to a [SEC] watchdog report. Details revealing Renaissance executives' concerns about Mr. Madoff's strategy and the validity of his reported returns figure prominently in the SEC report, released Friday. ... Henry Laufer, Renaissance's chief scientist, questioned Mr. Madoff's ability to exit the market, selling its investments and holding primarily cash supposedly to avoid lossses that hit other investment firms. The timing of the moves, Mr. [Nathaniel] Laufer said, was almost statistically impossible. 'We would have loved to figure out how he did it so we could do it ourselves,' he testified this year to the SEC. 'And so that was very suspicious.' ... Nathaniel Simons told regulators the firm believed the SEC had closely examined Mr. Madoff's investments, and regulators should have been able to perform the same analysis of Mr. Madoff's trading strategy that Renaissance had. ... 'We did feel that despite the fact that we're kind of smart people, we were just looking at matters of public record,' he also said in his testimony", Jenny Strasburg and Scott Patterson at the WSJ, 8 September 2009, link: http://online.wsj.com/article/SB125211198200188027.html.
"Top officials at the [SEC] pledged at a Senate hearing on Thursday to fix the problems that led to the agency's failure to detect the multibillion-dollar fraud conducted for more than a decade by Bernard L. Madoff. ... 'We intend to learn every lesson we can,' [Robert Khuzami] said. 'There are no sacred cows.' ... Harry Markopolos, the fraud investigator who brought his allegations to the SEC about improprieties in Mr. Madoff's business starting in 2000, testified that the agency's staff 'was not capable of finding ice cream in a Dairy Queen.' The system of conducting inspections at the agency rewards attention to detail rather that investigative energy and mortivation to catch misconduct, he said. ... Khuzami disputed Mr. Markopolos assertion that large numbers of SEC staff should be fired, saying the failures in the Madoff case were not emblematic of the the entire enforcement division", my emphasis, NYT, 11 September 2009, link: http://www.nytimes.com/2009/09/11/business/11madoff.html.
Crap. Blame structure and SEC peons, not higher-ups for quashing the Madoff investigations. This looks like the John Mack fiasco, my 23 October 2008 post: http://skepticaltexascpa.blogspot.com/2008/10/who-is-stephen-cutler-2.html. Will any SEC higher-ups be named and indicted? This sounds like a Big 87654 audit. If there's a problem, blame the peons. "Discouraged from forcing the issue". By whom? Six warnings. Hmm. What can we do with this? Kotz: "It is true that all these instances, taken singly, do not prove beyond question that White knew the statements which he prepared were padded with false entries; but logically the sum is often greater than the aggregate of the parts, and the cumulation of instances, each explicable only by extreme credulity or professional inexpertness, may have a probative force immensely greater than any one of them alone. ... We do not say that his guilt was demonstrated, but enough was proved to subject him to the hazard of a verdict; faced with the choice of finding him a knave or a fool, we cannot say that the jury was bound to acquit him; fair men might have had no compunction in refusing to believe that he was so credulous or so ill acquainted with his calling as a finding of innocence demanded", US v. White, 124 F2d 181, 185 (2nd Cir., 1941) (Hand, J). Kotz, we're watching you; fool or knave?