Watchdog: SEC blew chances to stop Madoff

WASHINGTON - The Securities and Exchange Commission's internal watchdog has found that the agency consistently mishandled its five investigations of Bernard L. Madoff's business, despite ample complaints over 16 years about the multibillion-dollar fraud.

But SEC inspector general David Kotz's report, which was released yesterday, found no evidence of any improper ties between agency officials and Madoff, who is now in prison for running a massive Ponzi scheme.

Despite speculation that senior SEC officials may have tried to influence the probes, Kotz's 450-page report found no evidence of that.

The SEC enforcement staff, during investigations of Madoff's business, "almost immediately caught [him] in lies and misrepresentations, but failed to follow up on inconsistencies" and rejected whistle-blowers' offers to provide evidence, the report said.

Revelations in December of the agency's failure to uncover Madoff's scheme over more than a decade touched off one of the most painful scandals in the agency's 75-year history.

Kotz's exhaustive inquiry looked at the SEC's conduct in the Madoff affair and does not make recommendations for action.

Three of the five high-ranking SEC officials who were lambasted over the Madoff affair at a congressional hearing in February - including the enforcement director and the head of the inspections office - have left the agency.

Kotz's report "makes clear that the agency missed numerous opportunities to discover the fraud," SEC Chairwoman Mary Schapiro said in a statement. "It is a failure . . . [that] has led us to reform in many ways how we regulate markets and protect investors."

Sen. Christopher J. Dodd (D., Conn.), chairman of the Senate Banking Committee, said the panel had scheduled a hearing for next Thursday on Kotz's report.

Between June 1992 and last December, when Madoff confessed, the SEC received six "substantive complaints that raised significant red flags" regarding Madoff's operations, the Kotz report said. But "a thorough and competent investigation or examination was never performed," the report says.