Christopher Cox Blasts Own Department For Missing Madoff Scheme

WASHINGTON — The fraud investigation of Wall Street money manager Bernard L. Madoff took unusual twists Wednesday as the U.S. attorney general removed himself from the criminal probe and the Securities and Exchange Commission looked into the relationship between Madoff's niece and a former SEC attorney who reviewed Madoff's business.

The developments reflect growing criticism that Wall Street and regulators in Washington have grown too close. Madoff himself has boasted of his ties to the SEC.

The question of Madoff's connection to regulators goes to the heart of the investigation of the alleged $50 billion fraud, SEC Chairman Christopher Cox told reporters.

On Thursday, President-elect Barack Obama is expected to name his choice to replace Cox as head of the embattled commission: former SEC member Mary Schapiro, Democratic officials said Wednesday, requesting anonymity because they aren't authorized to discuss unannounced personnel decisions. Schapiro, who currently heads a nongovernment regulatory group for securities firms, is also a former head of the Commodity Futures Trading Commission and has been appointed to government jobs by one Democratic and two Republican presidents.

Congress jumped into the Madoff scandal, too. The chairman of the House capital markets subcommittee, Rep. Paul Kanjorski, D-Pa., announced an inquiry that will begin early next month into what may be the biggest Ponzi scheme of all time and how the government failed to detect it.

In New York, Madoff showed up at the federal courthouse to sign some papers in his case, wearing a baseball cap and walking silently past a reporter who asked Madoff whether he had anything to say to his alleged victims. Free on $10 million bail, Madoff now has a curfew and an ankle-bracelet to monitor his movements.

U.S. Attorney General Michael Mukasey recused himself from the Madoff probe because his son, Marc Mukasey, is representing Frank DiPascali, a top financial officer at Madoff's investment firm. The Justice Department refused to say when Mukasey became aware of the conflict but confirmed Wednesday he was removing himself from all aspects of the case.

DiPascali was the Madoff employee who had the most day-to-day contact with the firm's investors. Several described him as the man they reached by phone when they had questions about the firm's investment strategy, or wanted to add or subtract money from their accounts.

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The turmoil at the SEC came as the investigation into the scandal widened.

Massachusetts Secretary of State William Galvin's office said he subpoenaed Madoff's brother, Peter Madoff, who is the chief compliance officer of Madoff's company, and Marcia Beth Cohn, chief compliance officer of Cohmad Securities Corp., which is in the same building in New York. Galvin is trying to determine the relationship between Madoff's firm and Cohmad Securities, as well as the names and numbers of all Massachusetts investors with both companies.

The events unfolded the day after Cox delivered a stunning rebuke to his own career staff, blaming them for a decade-long failure to investigate Madoff.

Credible and specific allegations regarding Madoff's financial wrongdoing going back to at least 1999 were repeatedly brought to the attention of SEC staff, said Cox. Cox said he was gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate the allegations or at any point to seek formal authority from the politically appointed commission to pursue them.

Cox's critics said that targeting the staff was Cox's attempt to salvage his own reputation.

"He put in place the people he is now shifting the blame to," said Ross Albert, a former SEC senior special counsel, former federal prosecutor and now a private attorney in Atlanta.

Senate Majority Leader Harry Reid, D-Nev., suggested Cox bears some of the responsibility for what went wrong.

"I served in Congress with Christopher Cox, but I don't think he's going to make the All-Star team," said Reid.

SEC Inspector General David Kotz is looking into the agency's failure to uncover the alleged fraud in Madoff's operation. One area Kotz said he will examine is the relationship between a former SEC attorney, Eric Swanson, and Madoff's niece, Shana, who are now married. Sen. Charles Grassley, R-Iowa, said he wants regular updates on the IG's probe.

As an SEC attorney, Swanson was part of a team that examined Madoff's securities brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff. In a statement about Swanson's role, the SEC compliance office cited its strict rules prohibiting employees from participating in cases involving firms where they have a personal interest.

A spokesman for Swanson said that he and Shana Madoff met at a breakfast in October 2003, started dating in April 2006 and married last year.

Kotz said his office would move as quickly as possible to complete the inquiry into why regulators didn't pursue Madoff more aggressively.

Kanjorski, the lawmaker, said his subcommittee's inquiry will examine the alleged Madoff fraud and try to determine why the SEC and other regulators "failed to detect these substantial evasions."

With the scandal swirling around Madoff, he was unable to find co-signers of his bail package. The judge modified the bail package, and gave lawyers until next Monday to come up with additional paperwork.

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Associated Press writers Lara Jakes Jordan in Washington, David B. Caruso in New York and Jay Lindsay in Boston contributed to this report.

Comments

[Harndog]

The simple comment is "Great job, Brownie"....

However, the only change is that rich people were affected rather than poor....Now, "it's outrageous."

[kirkwest]

I think the largest Ponzi schemes were allowing Wall Street to treat this country as if they were pirates on the high seas. They have r@pe and pillage this country at the expense of the tax payers, who are losing their homes and their jobs, now they are rolling over on each other. It will take us years to recover from this. I guess the Enron scandal was a preview of many things to come; now republicans are circling the wagons, so much for less government.

[sixx]

Good job, Coxie.

[keriheb]

Errrr, Bush administration has not looked favorably upon whistle blowers. This is a continuation of the don't ask don't tell policy. Don't ask us whether we are stealing the money, and we won't tell you if we are stealing the money. See it works just fine.

[BillyMae]

You know, it's not surprising. This whole administration was built on fraud. I suspect there is a lot more to come.

[nrborod]

I am certain you are right. AND, if nobody wanted to LOOK before, just think how it'll all come down now. For years I've been wondering just HOW rotten the wood work really is....Golly! Well, I think we're really in for it. Madoff isn't the ONLY one who has made off....ha,ha!!

[jazzdad51]

Very theatrical....He should run for congress.

[Sundialsvc4]

"Mister Cox, your impeachment has been finalized. You have the right to remain silent ..."

You. Yes, you. And don't worry because all of your fellow Commissioners have been impeached as well, and they will face criminal charges along with you.

Sounds drastic? Not really.

"The Buck Stops Here." Or, as Jack Kennedy once said, "I am the responsible officer of this Government." Whether or not an underling failed to do his job ... whether or not (MUCH more likely) a willful crime was committed and/or abetted ... Y-O-U are The Commission.

Here's the bottom line for "300 million of us" ... It's CRIME. Whether you are committing the crime or aiding-and-abetting it or some combination, it's HIGH CRIME because you are using the powers and responsibilities of your Civil Office to do it. (Just) The monetary size of the damage caused to "We the People" is incalculable.

And that's WHY "impeachment" was carefully written into the Constitution.

[FairTalk]

Pardon me, but when was he going to discover this fraud?

Any fraud?

[Turtleposer]

This stuff happens because the SEC & the industry has felt that small-time investors need more regulations than "sophisticated" hedge funds. The theory was that if you had millions of dollars, you are sophisticated enough to know what you're doing when you're investing. The problem is that larger "sophisticated" investors have a greater impact on other people's lives than people who don't have a lot to invest. Both should be regulated.

It's a shame that regulatory entities assume all the rules are being adhered to just because a hedge fund is doing spectacularly well. They must be doing something right . . . . . Sure.

[aznurse]

and this little piggy went Wee-Wee-Wee all the way home.

[piquet]

You and your pasty friends were paid off...It's all part of that "limited government" rally cry to ensure those that are privileged get theirs while the rest of us have to maintain accountability. Just another reason why the relationship between business and government needs to be contentious at best.

[jeffp26]

During my 25 year career on wall street, I have personally tipped the SEC -- in phone calls and letters -- to fraud in both the securities markets and the investment management business.

Based on my experience, I would taunt the examiners I spoke with, daring them to do something. I would literally call them clowns.

THEY NEVER ACTED TO PROTECT THE INVESTING PUBLIC.

I have offered to testify in public about this. I repeat that offer.

[Evelyn]

Can someone explain to me why this crook is walking the streets and sleeping in his own bed at night? If he had stolen $150 from a liquor store by pointing a toy gun at the clerk, he'd be in jail awaiting his trial. But because he did it more skillfully than that, he is out on bond. There is every reason to think he could disappear to some island nation somewhere.

[time-in]

http://www.deepcapture.com has been talking about them [sec] being impotent for years. No surprises there.

[Danny]

That's a good one. The Chief orders an immediate investigation to deflect blame from himself. Where have seen this tactic before?

[BillFromDover]

It wouldn't surprise me in the least if it comes to bear that the order to "lay off" on this investigation came right from the top.