A securities enforcement veteran has added his name to the growing consensus that the SEC’s failure to detect Bernard Madoff’s alleged “$50 billion ponzi scheme” likely represented a serious failure on the part of the commission.
Robert Fusfeld, who spent 31 years as an SEC enforcement lawyer, and for 15 managed the trial unit in the commission’s Denver office before retiring in 2006, told TPMmuckraker in an interview last night that Madoff’s profile contained several “classic red flags” that should have attracted the SEC’s attention.
Among those, he said, were the facts that Madoff’s outside auditor was a three-person firm operating out of a small suburban office (one employee was a secretary, and another a 78-year old living in Florida); that Madoff is said to have used a secretive “black box” algorithm to determine when to buy and sell stocks; and that he had social ties — often through the Jewish community — to many of his investors.
Fusfeld said that these characteristics should certainly have alerted enforcement lawyers to the possibility of fraud — though he stressed that he had no direct knowledge of the case, and that the facts still remained opaque.
On Tuesday night, SEC chair Chris Cox acknowledged in a statement that there had been “apparent multiple failures over at least a decade” to thoroughly investigate claims against Madoff.
Since 1999, the SEC has conducted several reviews of Madoff’s brokerage business — though none, it appears, of his investment advisory business, where the fraud is alleged to have taken place. A 2005 inquiry found several rule violations, but a subsequent review last year — conducted after he had registered with the commission in 2006 — gave Madoff a clean bill of health.
Fusfeld added that during the 90’s he had used Madoff as a witness in a securities case to which Madoff was tangentially connected. “The man had charisma,” said Fusfeld.”He was one of those people that, when he walked into a room, everyone stopped what they were doing and watched him.”
Had the SEC watched him a little closer, however, numerous investors might have been saved some crippling losses.