Securities and Exchange Commission Chairman Mary Schapiro's testimony before the House Committee on Financial Services turned explosive on Tuesday morning when lawmakers criticized the agency's lack of punishment of former SEC employees who "missed" early warning signs of Bernie Madoff's Ponzi scheme.
Following a barrage of questions ranging from Iranian investments to monitoring dark pools, Rep. Bill Posey (R-Fla.) struck a chord when he compared the quiet departure of 15 former SEC investigators to "letting a pedophile slink out the door and change neighborhoods to get away."
Posey argued that the investigators who failed to recognize a fraud that "everyone with a half a brain" could detect should not be holding positions at other agencies or receiving retirement benefits supported by taxpayer money.
Schapiro defended the employees and the SEC's method of handling the situation, despite not working for the agency at the time. "I don't think we have to vilify these people," said Schapiro. "In some cases they were being pulled from one project to another project. There are lots of reasons for this failure."
Just as Madoff duped many savvy investors, he also charmed the examiners at the SEC who monitored his investments. A junior investigator, in an SEC report, characterized Madoff as a "very captivating speaker" with "an incredible background of knowledge in the industry."
Echoing Posey's call for more accountability for SEC examiners, committee member Paul Kanjorski (D-Penn.) suggested that Schapiro should move forward and discuss with other SEC officials the issue of how to punish former staffers.
"For 10 years, the SEC did nothing about it," said Posey. "[The former SEC employees] should not be unnamed or forgotten just because they left the agency."