SEC employee sounded alarm about Madoff in 2004
Posted
Jul 02 2009, 01:25 PM
by
Kim Peterson
Rating:
Well isn't this interesting: An investor at the Securities and Exchange Commission told her bosses in 2004 that something funny was going on at Bernard Madoff's firm.
One of those bosses would later marry Madoff's niece. And what do you know? The investigator was told to focus on other issues, according to The Washington Post.
The investigator, Genevievette Walker-Lightfoot, sent e-mails to a supervisor saying her review of Madoff's firm raised red flags. But sources tell the Post that the SEC was under pressure to look for fraud in the mutual fund industry, so Walker-Lightfoot had to end her Madoff investigation to focus on mutual funds.
The revelation is just going to be more damaging for the SEC, which has already been heavily criticized for failing to catch Madoff before his massive Ponzi scheme bilked investors of tens of billions of dollars.
The SEC had looked into Madoff's activities five times over nearly 20 years, the Post reports, but it never uncovered the fraud. If she had been given the opportunity, could Walker-Lightfoot have taken Madoff down? Who knows. She seems like a smart cookie, though. Here's what reportedly jumped out to her:
--Madoff wasn't consistent with his security purchases, sometimes paying for them a day later or sometimes seven days later.
--Madoff said he used the same strategy for all his investors, but he was handling accounts differently.
--Madoff was supposed to trade stocks and then trade options to hedge against any stock losses, but he wasn't doing that.
She saw other unusual trading patterns, and told her boss she wanted to ask Madoff nine follow-up questions about his business. But a month later, the Post reports, her boss told her to start looking into mutual funds instead.
This story doesn't end well. Walker-Lightfoot left the SEC in 2006, saying the commission was a hostile workplace. The complaint was settled in her favor, a source tells the Post. She was never asked about the case again.
And the guy that married Madoff's niece? He left the SEC as well, and the SEC says he never worked on anything related to Madoff while he was involved with Madoff's niece.
A sad story all around. And yet another missed opportunity by the SEC.
Related reading:
SEC employees make trades, view porn on the job?
SEC chair steps down after disgraceful term
SEC isn't to blame for Madoff
Was the short ban the SEC's biggest mistake?
