SEC staffer stopped from asking Madoff the right questions
Filed under: People, Investing
Genevievette Walker-Lightfoot, a Securities and Exchange Commission lawyer with an expertise in specialized trading strategies, developed a list of critical questions for Bernard Madoff in 2004 related to inconsistencies in his trading practices. Had she been allowed to pursue that line of questioning, Madoff's massive Ponzi scheme may have been exposed, but she was cut off by her supervisors, according to a report in The Washington Post today.
Inconsistencies she found included the fact that Madoff's reported settlement times were erratic. Sometimes he settled only one day after a purchase, other times seven days later. Madoff claimed to the SEC that he was using the same strategy for all investors -- trading stocks and hedging them at the same time. But when she reviewed his data she found he followed different approaches on different accounts.
If she had been allowed to pursue these questions and others she had about Madoff's trading strategy, the Ponzi scheme could have been exposed in 2004, and possibly saved considerable pain for many Madoff victims. But instead, her supervisors told her to stop her Madoff inquiry and work on mutual fund investigations instead. Her supervisor was Branch Chief Mark Donohue, who answered to Eric Swanson, director of the department, according to Post reports. Eric Swanson is the one who later married Madoff's niece, and their relationship is one of the things being reviewed by the SEC's inspector general.
The IG's report is due out at the end of the summer. The IG is trying to figure out how the SEC could have conducted at least five inquiries over 16 years and still miss exposing the Ponzi scheme. Steven Pearlstein said in his Post column, "Make no mistake -- the IG's report is likely to be a devastating rebuke of an agency once regarded with equal measure of fear and respect."
Pearlstein said he expects the IG to find that the insular culture at the SEC led it to look skeptically at tips from jealous competitors, unhappy customers, disgruntled employees or publicity-seeking state regulators. He also believes it will be found that SEC staff was top heavy with lawyers who lacked understanding of traders, the markets and financial instruments. All ingredients that allowed them to be snowed by a smooth talker like Bernard Madoff.
The Washington Post built its story by talking primarily with staff who worked with Walker-Lightfoot. They said about a month after she was told to work on mutual fund issues, her research was shipped to the New York office. Walker-Lightfoot was never consulted by the New York office.
She did file a complaint against the SEC when she left in 2006, alleging that she'd been subjected to a hostile workplace, according to her attorney Julie Grohovsky. A person told the Post the case was settled in Walker-Lightfoot's favor.
As we wait for the full investigation by the SEC's IG, Walker-Lightfoot may finally be vindicated but unfortunately, because her work was shelved in 2004, more investors got pulled into Madoff's scheme. We can only hope the IG's report is so devastating that true changes are made to the working environment at the SEC to prevent this from ever happening again.
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Reader Comments (Page 1 of 2)
7-02-2009 @ 4:20PM
Binky said...
Eric Swanson needs to be put in the cell right next to Madoff!
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7-02-2009 @ 4:34PM
jim forrester said...
the girl was trying to do her job. heads abover ought to roll and be prosecuted
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7-02-2009 @ 4:47PM
Titus II said...
Unfortunately for those who lost their life savings to Madoff and those who suffered loses in the Market from his Ponzi Sceme, the explanation as to why the SEC failed to follow up on the Madoff operations is all too simple.
Favors were received by some in SEC management who were in charge of overseeing operations such as Madoff's and other favors were received by some in the government agencies who were in charge of overseeing the SEC.
Also at fault may be one or more individuals in both the SEC and government agencies who, though basically honest, were too gutless to blow the whistle for fear of losing their job.
And, don't forget the usual, so called, SEC and Government leaders who will claim to accept full responsibility for bungling the Madoff situation but will still return to their office every Monday morning without suffering so much as a on their dirty hands.
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7-02-2009 @ 5:01PM
Carl Ulmer said...
Eric Swanson and Christopher Cox were such sweet fellows and did a remarkable job juggling their awesome responsibilities at the SEC. They worked had at it. For goodness sake, let them enjoy their retirement unmolested. (P.S. - We do not need additional regulatory powers, or staff. THE REGULATORS AND INVESTIGATORY AGENIES JUST NEED TO DO THEIR JOBS!)
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7-02-2009 @ 5:06PM
Bob said...
Without a doubt, Madoff had protection from regulatory authorities and politicians. It is evident by the way that these issues have not been made public, that they are covered. And, the only way it could remain covered is that it is big-time democrats that are involved. Even the book writers are staying away from this one.
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7-02-2009 @ 5:16PM
atzmonglenn said...
The tribe always circles their wagons and protect each other. Nothing new here
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7-02-2009 @ 5:29PM
georgestooper said...
The Tribe always will circle their wagons to protect one of their own. Nothing new here.
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7-02-2009 @ 5:43PM
Al Wunsch said...
It would appear that a lack of morals and ethics was involved in this case - no big surprise. We can add all the regulations we want but, without moral behavior, they won't change much. In congress we still have the same people pushing the same mistaken fiscal policies.
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7-02-2009 @ 11:44PM
Peter said...
Outrageous; to read such things. I only hope that the Inspector General comes down hard and the others responsible for these acts pay the price.
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7-02-2009 @ 5:34PM
don d said...
When is the American public going to realize the people with the power and wealth control our government? When people are told to turn their head they do. You can't get elected or stay elected without raising great sums of money. To get money you have to make promises and keep them. Democracy is a great form of government, but the easiest for corrupt and greedy people to function in. And I have to add, you know which party supports the powerful and wealthy.
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7-02-2009 @ 5:56PM
georgestooper said...
Eric Swanson is another "air dancer" for the eagerly anticipated Day Of The Rope
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7-02-2009 @ 6:21PM
tom said...
Duh. I think we can all safely acknowledge- considering the outright obviousness of the lack of oversite at the SEC- THERE WAS INFACT a mole working diligently to downright divert all SEC employee snooping and sniffing out Madoff's trail of slime.
I'm waiting for someone ANYONE with any balls in our govt. to prosecute to the fullest extent. I won't hold my breath. They all protect each other on this stuff. Don't even get me started.
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7-02-2009 @ 6:49PM
georgestooper said...
So Uncle Bernie's niece, Shana Madoff was married to this dude Eric Swanson , Ms.Lightfoots, superior at the SEC,
and Shana Madoff was the compliance lawyer for The Madoff Co? WTH
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7-02-2009 @ 7:40PM
MyKisa said...
...your government does the same thing to you.....and you put up with it
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7-02-2009 @ 7:48PM
polcorr3452 said...
So the dude Eric Swanson was MsLightfoots superior at the SEC. He is married to Shana Madoff who is Uncle Bernie's "compliance lawyer"?? Yeah , they will be circling the wagons on this one I'm sure
Reply
7-02-2009 @ 8:21PM
W. C. Peterson said...
That's what happens when the President starts promising to reduce the regulations and 'free up' the markets. The Republicans have been singing that tune actually since Nixon, but really turned up the volume with Ronald Reagan. The two Bush-leaguers weren't smart enough except to follow in lock step with the Republican chant, and Clinton was beseiged by Republicans like Newt Gingritch and his crowd.
The United States put all those regulations in place after the Stock Market crash of 1929 and the Republicans systematically took the financial safety net apart and stole the piggy bank. I can't understand how anybody with simple deductive skills could ever vote for such a crooked party ever again. It seems like most of these deluded souls post on AOL.
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7-02-2009 @ 8:44PM
Gadfly1660 said...
I agree that those SEC bozos are entitled to share cells next to Madoff. They knew what they were doing and what he was doing. Several people tried to get the SEC to step in and it never happened during the days the "free market" folks were free wheeling.
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7-02-2009 @ 9:12PM
Bob said...
You cannot spend or hide 50 BILLION dollars without the help of a "government" somewhere. No bank, no brokerage, no suitcase on earth can hold that amount of money. Mr. Madoff and "government" experts, the same ones who hide Haliburton, Exxon/Mobil payoffs to US politicians assisted Mr. Madoff and shared in the profit. The SEC supervisors look like it was the US government but his philanthropic culture suggests another. Somewhere is a stash of gold bullion or fighter planes bought and paid for by Mr. Madoff in exchange for government laundering.
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7-02-2009 @ 10:15PM
bill said...
NO MORE WHINING, just bend over its only just beginning suckers. All politicians in both parties are on the take.
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7-02-2009 @ 11:14PM
mr_c_2_u said...
" you know which party supports the powerful and wealthy."
Sure do: both of them. Before you try to say the Dems are better, consider this. . .
5 richest senators in 2008:
1. Sen. John Kerry (D-Mass.)
$230.98 million
2. Sen. Jay Rockefeller (D-W.Va.)
$80.40 million
3. Sen. Frank Lautenberg (D-N.J.)
$55.33 million
4. Sen. Dianne Feinstein (D-Calif.)
$52.34 million
5. Sen. Edward Kennedy (D-Mass.)
$47.62 million
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