Bernard Madoff once boasted that he "was on the short list" to be the next chairman of the Securities and Exchange Commission, according to a report issued Wednesday by the agency's internal watchdog.
The blistering report offers new details into how the agency missed the multi-billion-dollar Ponzi scheme.
Madoff's claim came during a 2005 interview with agency investigators. The report doesn't detail whether Madoff's claim was ultimately verified but it did note that Madoff told the investigators that Christopher Cox -- the now-disgraced former SEC chairman -- would be appointed to the position "a few weeks prior" to the official announcement.
The report's executive summary notes, as reported by TPM Muckraker:
Madoff told them that Christopher Cox was going to be the next Chairman of the SEC a few weeks prior to Cox being officially named. He also told them that Madoff himself "was on the short list" to be the next Chairman of the SEC.
The report also found that a relationship between Madoff's niece and one-time employee, Shana, and a former SEC official, Eric Swanson, didn't "influence the conduct of SEC examinations" of the Madoff firm. Further, it stated that SEC personnel had "no financial or other inappropriate connection" with Madoff.
The team of investigators from the agency's New York office had been looking into Madoff. But they didn't know that a similar investigation - looking at "identical issues they were examining" - had also been conducted out of the SEC's Washington, D.C. office.
The New York investigation was launched after the SEC discovered internal e-mails in April 2004 "that raised questions about whether Madoff was involved in illegal activity." One of the e-mails "provided a step-by-step analysis of why Madoff must be misrepresenting his options trading." But despite the gravity of the charge, the agency didn't assemble a team of investigators until eight months later, the report notes.
The team eventually interviewed Madoff, who, when pressed for documents, revealed that he had handed them to the SEC's Washington team. It was the first the New York investigators had heard of the Washington investigation.
The teams later held a few conference calls, "but relatively little sharing of information" ensued.
The report notes:
One of the few points that was made in a conference call between the offices was a comment by a senior-level Washington, D.C. examiner reminding the junior [New York] examiners that Madoff "was a very well-connected, powerful, person," which one of the [New York] examiners interpreted to raise a concern for them about pushing Madoff too hard without having substantial evidence.
The inspector general ends the report with the following sobering words:
As the foregoing demonstrates, despite numerous credible and detailed
complaints, the SEC never properly examined or investigated Madoff's trading and never
took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme.
Had these efforts been made with appropriate follow-up at any time beginning in June of
1992 until December 2008, the SEC could have uncovered the Ponzi scheme well before
Madoff confessed.
Read the report below.