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S.E.C.: Our Bad
by Jeffrey Cane
Dec 17 2008
Dec 17 2008
In saying sorry over missed Madoff signs, the agency tries to save itself.
The Securities and Exchange Commission has issued an extraordinary mea culpa, acknowledging that it missed many warning flags about Bernard Madoff, the Wall Street executive who has been accused of running a $50 billion Ponzi scheme.
"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 S.E.C. staff, but were never recommended to the commission for action," Christopher Cox, the chairman of the S.E.C. 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."
The statement by Cox is startling, coming from an official of an administration that has steadfastly refused to apologize or even explain any number of fiascoes: Iraq, Hurricane Katrina, and the economy. An honest reappraisal of failure is a refreshing change, even though it probably will not provide much solace to the investors who lost billions of dollars.
Yet there is a strategic reason for Cox's admission. With virtually all of the S.E.C.'s credibility shot—after the near collapse of Bear Stearns and the financial turmoil this year—the S.E.C. chairman has only one card left to play to win any support: that of outraged victim himself.
In trying to salvage the agency, to ensure that it has a major role and adequate powers in any regulatory overhaul to come, Cox has to eat humble pie in public. And the S.E.C. needs to clean house. Ultimately, the agency, as Megan Barnett argued recently, will have to start over and rebuild how it oversees markets and how it protects investors.
The statement came hours after Madoff met with federal authorities to describe the details of his scheme, the New York Times reports.
The S.E.C. also said that it would conduct an internal review that will include "all staff contact and relationships with the Madoff family and firm." A niece of Madoff is married to a former S.E.C. compliance lawyer.
A former chairman of the S.E.C., Arthur Levitt, told Bloomberg Radio today that "the system is obviously flawed, and it's got to be rethought in terms of how investors can be protected."
Cox, he said, "is doing the right thing" by calling for an internal review.
"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 S.E.C. staff, but were never recommended to the commission for action," Christopher Cox, the chairman of the S.E.C. 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."
The statement by Cox is startling, coming from an official of an administration that has steadfastly refused to apologize or even explain any number of fiascoes: Iraq, Hurricane Katrina, and the economy. An honest reappraisal of failure is a refreshing change, even though it probably will not provide much solace to the investors who lost billions of dollars.
Yet there is a strategic reason for Cox's admission. With virtually all of the S.E.C.'s credibility shot—after the near collapse of Bear Stearns and the financial turmoil this year—the S.E.C. chairman has only one card left to play to win any support: that of outraged victim himself.
In trying to salvage the agency, to ensure that it has a major role and adequate powers in any regulatory overhaul to come, Cox has to eat humble pie in public. And the S.E.C. needs to clean house. Ultimately, the agency, as Megan Barnett argued recently, will have to start over and rebuild how it oversees markets and how it protects investors.
The statement came hours after Madoff met with federal authorities to describe the details of his scheme, the New York Times reports.
The S.E.C. also said that it would conduct an internal review that will include "all staff contact and relationships with the Madoff family and firm." A niece of Madoff is married to a former S.E.C. compliance lawyer.
A former chairman of the S.E.C., Arthur Levitt, told Bloomberg Radio today that "the system is obviously flawed, and it's got to be rethought in terms of how investors can be protected."
Cox, he said, "is doing the right thing" by calling for an internal review.
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