The U.S. Securities and Exchange Commission chairman, Christopher Cox, announced that it has initiated an internal investigation to determine why its didn’t uncover the alleged US$50-billion Ponzi scheme at Bernard L. Madoff Investment Securities, LLC.

In a statement, Cox said that since its commissioners were first informed of the Madoff investigation last week, it has met multiple times on an emergency basis “to seek answers to the question of how Madoff’s vast scheme remained undetected by regulators and law enforcement for so long”.

“Our initial findings have been deeply troubling,” he said, noting that the commission “has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the commission for action.”

Cox said, “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.”

As a result, an immediate review of the past allegations regarding Madoff and his firm and the reasons they were not found credible has been launched. It s being led by the SEC’s Inspector General. The review will also cover the internal policies at the SEC governing when allegations such as those in this case should be raised to the commission level, whether those policies were followed, and whether improvements to those policies are necessary. The investigation should also include all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm, Cox added.

He also directed the mandatory recusal from the ongoing investigation of matters related to SEC v. Madoff of any SEC staff who have had “more than insubstantial personal contacts” with Mr. Madoff or his family, under guidance to be issued by the Office of the Ethics Counsel. These recusals will be in addition to those currently required by SEC rules and federal law.

Cox also reported that its investigation into the alleged fraud indicates that Madoff kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.

IE