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Posts Tagged ‘Arthur Anderson’

SEC Employee Discipline for Madoff Inaction Published

Posted by Steve Markowitz on November 14, 2011

The Wall Street Journal published what was previously withheld information about penalties handed out by the Security and Exchange Commission (SEC) for employees who ignored signals of the Bernie Madoff scandal.  That Ponzi scheme, which collapsed in 2008, involved $50 billion of investors’ money with billions being lost.  Considering the scope of Madoff’s rip-off and the SEC’s weak response to its incompetent employees, it is not difficult to understand why they delayed release of the disciplinary actions.

An 2009 internal SEC audit determined that the Agency had received six warnings about Madoff and his business practices over a 16-year period, but took no action.  It also raised concerns about the actions of 21 SEC employees who ignored signs of the scheme that resulted in the losses.  However, that audit’s report was not enough for this agency charged with protecting investors.  The SEC then engaged an outside law firm, Fortney & Scott, to suggest disciplinary actions for the  21 employees.  Before the studies were complete, about a dozen of the problematic employees left the SEC before being disciplined.  Eight were received relatively light discipline as follows:

  • The one employee that Fortney & Scott recommended be fired instead was merely suspended for 30 days without pay and was demoted.
  • Another employee received a 30-day suspension, but without a demotion.
  • One person received a 5.7% pay-cut.
  • A few employees received seven-day suspensions.
  • Two employees were given “counseling memos.”

It is unacceptable given the warnings ignored by the SEC over a 16 year period that led to a $50 billion Ponzi scheme that a total of only eight SEC employees were given these meager disciplinary actions.  Not one employee went to jail war was even fired.

The lack of accountability of government agencies and employees for incompetent and/or illegal actions is one reason governments are so dysfunctional.  We do not have to go back long in history to remember the Enron and Arthur Anderson scandal that resulted in the Sarbanes-Oxley Act (SOX).  This legislation created huge expenses for businesses and consumers, but did little to protect the investors.  Not only was Bernie Madoff able to perpetrate his fraud on so many investors after SOX, but the largest banks required taxpayer bailouts in 2008 because of off-balance-sheet transactions, the same issue that brought down Enron and led to SOX.

Government regulations have proven to be ineffective in protecting investors from those that would defraud them.  However, that does not stop Progressives from offering the same failed solutions.  The only people who benefit from increased government regulations are employees of the bloated and/or new bureaucratic agencies charged with enforcing them.

In addition, there is an incestuous relationship between regulators and the businesses they are supposed to be regulating.  All too often bureaucrats who worked in these agencies retire from government only to join the businesses they were previously charged with regulating, or vice versa.  These incestuous relationship that set the stage for SEC’s weak response to its incompetent employees.  Similar relationships explain why Bernie Madoff is one of the few Wall Streeter’s that ripped off investors who is currently doing time.


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