November 16, 2011

SEC Disciplined Eight Employees For Misconduct In Bernie Madoff Case - Ninth SEC Employee Resigned Ahead of Likely Disciplinary Action

I'm happy the U.S. Securities and Exchange Commission (SEC) is finally taking action. But why did it take them so long? They should have reacted immediately to prevent future negligence and protect investors from other ponzi schemes. My gosh, this is the U.S. federal regulatory agency that oversees America's stock and options exchanges.

"The U.S. Securities and Exchange Commission (frequently abbreviated SEC) is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States.

The SEC was established by the United States Congress in 1934 as an independent, quasi-judicial regulatory agency during the Great Depression that followed the Crash of 1929. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges, the companies whose securities traded on them, and the brokers and dealers who conducted the trading.

The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies alleged to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law. The SEC also works with criminal law enforcement agencies to prosecute individuals and companies alike for offenses which include a criminal violation." [source: wikipedia]


The Wall Street Journal
written by Andrew Ackerman
Saturday November 12, 2011

WASHINGTON—The Securities and Exchange Commission admitted Friday that it had disciplined eight employees over their handling of the $50 billion Bernard Madoff Ponzi scheme without firing any of the workers.

The disciplinary actions, which drew jeers from some victims of the investment scandal, prompted a ninth individual to leave the agency before the punishment was finalized. The actions were meted out over the past year and weren't disclosed by the agency until an article on the actions was published online Friday by the Washington Post.

The agency's actions followed a 2009 report by the SEC's internal watchdog that called into question the conduct of 21 staff members for work related to Mr. Madoff. Of the staffers mentioned by the SEC's inspector general, 10 had left the agency by the summer of 2011, an agency spokesman said.

The spokesman, John Nester, said the SEC planned to disclose the actions after an appeal by an employee was completed. "The plan has always been to provide a public accounting once the process was complete," he said.

The SEC has been criticized for failing to identify the Ponzi scheme and for its failure to respond to whistleblowers and their warnings that Mr. Madoff's operations were a fraud. Mr. Madoff's firm collapsed in December 2008.

"They should have fired them and made whole the people who got victimized, but this is all wishful thinking," said Elisa Entine, a Madoff victim from Boston. Ms. Entine, 66 years old, said she lost $1 million through a Madoff feeder fund and has yet to recoup any of it.

Following publication of the 2009 report, the SEC hired an outside law firm, Fortney & Scott, to recommend disciplinary actions. The report said the agency received six warnings about Mr. Madoff's trading business over 16 years, but an inexperienced staff and delays in examinations enabled him to continue his Ponzi scheme for years.

Fortney & Scott and the SEC's human-resources director ultimately recommended that SEC Chairman Mary Schapiro fire one employee, unless that removal would have an adverse impact on the agency's work. That employee, who received the most extreme disciplinary action, was suspended for 30 days without pay and also received a reduction in pay and a demotion. A person familiar with the matter identified the employee as an assistant regional director in the SEC's New York office, who worked in compliance and inspections.

A second employee also received a 30-day suspension but didn't receive a reduction in pay or grade. Other disciplinary actions ranged from a seven-day suspension without pay to an individual who received a 5.7% reduction in pay. Two individuals received "counseling memos." The ninth individual, who left before the disciplinary process was complete faced a recommendation for a seven-day suspension.

The SEC said that by law it can't discipline former employees and also can't fire employees unless the recommendation was made by the agency's human resource director, who relied on the outside law firm's recommendations. Mr. Nester said that the disciplinary actions reflect overall employee performance and each individual's responsibilities both before and after the Madoff scheme came to light.

Still, the actions could damage the careers of the SEC employees, say people familiar with the agency. The employees will have a difficult time gaining advancement in the future and will have a "mark of Cain" attached to their names at the SEC, former SEC Chairman Arthur Levitt said in an interview.

Mr. Levitt said while it is "constructive" that the SEC took this action, many critics will feel that the SEC didn't do enough. "There will be people who think that whoever they find should be boiled in oil," he said.

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