Madoff to SEC: What Took You So Long?

It’s one thing for the Securities and Exchange Commission (SEC) to be criticized by its own inspector general or the news media -- it’s kind of what they’re there for, after all. You live, you learn, you reorganize.

It’s another thing entirely, however, for the SEC to be criticized by, of all people, Bernie Madoff, currently sitting in a federal prison hoping medical advances will increase the human lifespan beyond 150 years.

But that’s exactly what happened during a jailhouse interview with the disgraced financier conducted by SEC Inspector General H. David Kotz and Deputy Inspector General Noelle Frangipan.

The interview, one of thousands of documents that have been released by the inspector general’s office, reveals that Madoff was “astonished” that his multi-billion Ponzi scheme wasn’t discovered earlier, citing several close calls where he was certain his ill-dealings were days, or even hours, away from being discovered only to get the all-clear from federal regulators. Bringing down the scheme, he said, would have been “easy to do,” had the SEC performed basic checks that he said was basic “accounting 101.”

All they had to do, he said, was check his records against those of the Depository Trust & Clearing Corporation, as he had not reconciled the two when the SEC probed him in a front running sweep in 2006. If they’d only gone to counterparties, they "would've seen it," adding, "they didn't do any of that." He stated that "it's the only thing to do," and clarified, "If you're looking at a Ponzi scheme, it's the first thing you do."

He also stated that investigators "never even looked at my stock records" or did a "box count."

However, he did receive a letter citing him for what he called "two ridiculous violations," which were, incidentally, citing incorrect violations anyway and had to be corrected. "After two months, they found two to three nitpicky things; and they were wrong about those things."

The financier didn’t view everyone at the SEC as the financial equivalent of the Keystone Kops – he called current SEC Chair Mary Schapiro a “dear friend," and that she "probably thinks I wish I never knew this guy." It may be worth noting that Schapiro is also the former head of Financial Industry Regulatory Authority, (FINRA) which was found to have also missed multiple red flags regarding Madoff’s Ponzi scheme.

But according to the Financial Times, an SEC spokesperson has stated that there was no evidence to corroborate Madoff's claim of a close relationship with Shapiro.

As one may imagine, keep up a multi-billion dollar fraud is a lot of hard work -- almost as much as, you know, legitimately making billions of dollars. There’s a lot of stress, much of it from constant fear of being caught. Madoff said that, despite the multiple opportunities missed by SEC regulators, that he was "worried every time" he was examined or investigated by the SEC, and that "it was a nightmare for me." He added, "I wish they caught me six years ago, eight years ago...."

Sometimes, Bernie, dreams do come true.