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Did the SEC Have Any Experienced People Looking at Madoff? You Betcha!!

Posted by Larry Doyle on September 7, 2009 11:24 AM |

While the SEC Inspector General David Kotz would have the American public believe the SEC fell down in its oversight of Bernie Madoff largely due to inexperienced investigators, this claim is very shallow.

Former SEC lawyer Genevievette Walker-Lightfoot was investigating Madoff in 2004 but was reassigned when she started to ask the hard questions. The Wall Street Journal highlights Ms. Walker-Lightfoot’s time working for the SEC in writing, Ex-SEC Lawyer: Madoff Report Misses Point:

A former Securities and Exchange Commission lawyer who investigated Bernard Madoff in 2004 says the new report on how the agency failed to uncover his massive fraud places too much blame on staff examiners and overly generalizes about their “inexperience.”

Genevievette Walker-Lightfoot told Dow Jones Newswires on Thursday the SEC inspector general should have focused more of his attention on how supervisors, rather than the staff examiners and investigators, handled the agency’s many stillborn probes of Mr. Madoff.

SEC inspector general, H. David Kotz, reached by telephone, said he considered it premature for Ms. Walker-Lightfoot to criticize the summary before the full response was released. He described himself as “befuddled” by her remarks. Mr. Kotz noted the decision to release the summary was made by SEC Chairman Mary Schapiro, not by his office.

An executive summary of the report, released on Wednesday, repeatedly emphasized what it described as the inexperience, confusion and limited expertise of staff assigned to at least six investigations involving Madoff since 1992.

Ms. Walker-Lightfoot — who recommended more action in a 2004 investigation that was shelved — said those descriptions were overly simple, and the summary generalized too much.

“My experience is a key example,” she said. “Here was someone who raised red flags and said “We need to look into these things.” But I wasn’t senior management, so it wasn’t my call.”

The full report is expected on Friday, and she said she would reserve final judgment on it until then.

Ms. Walker-Lightfoot, who is now a lawyer for the Federal Reserve Board, was part of a four-person team in the SEC’s Office of Compliance Inspections and Examinations, or OCIE, who investigated Mr. Madoff’s firm in 2004. She informed a supervisor of inconsistencies she learned of during her review and suggested following up.

Instead, her team was ultimately diverted to another case.

Who made this decision? Why?

The inspector general’s conclusions should have considered what other levels in the bureaucracy did, she said. “It would have been more insightful to take a more holistic approach”.

Her involvement in the case was first reported in July by the Washington Post, which said she left the SEC in 2006 after filing a hostile workplace complaint. It was settled in her favor, the Post reported.

In the interview with Dow Jones Newswires, she said members of the SEC’s investigative teams had varied skill levels that the inspector general, H. David Kotz, doesn’t adequately address in the summary. “He talked a lot about the team as an aggregate,” she said.

The lead person on any team, she said, typically had a breadth of knowledge or experience about the issues at hand.

Her team’s investigation required at least one examiner who understood options — a skill that Ms. Walker-Lightfoot had, having worked at an equity and options exchange for about two years prior to joining the SEC.

Ms. Walker-Lightfoot’s supervisors included Mark Donohue, who still works at the agency, and Eric Swanson, then an assistant director who ultimately married Mr. Madoff’s niece, Shana, the former compliance attorney for his firm. The inspector general found that Mr. Swanson’s romantic relationship didn’t influence the SEC’s conduct during its Madoff investigations.

Was Mr. Donohue or Mr. Swanson the individual who reassigned Ms. Walker-Lightfoot and her team? Isn’t this a natural question that needs to be answered?

Ms. Walker-Lightfoot’s review of Madoff documents revealed inconsistencies, such as certain transactions purportedly conducted by Mr. Madoff’s firm that settled on a Sunday. “Anyone in the securities business knows they don’t settle on the weekend,” she said.

She also noticed that equities transactions reported by Mr. Madoff often settled in one, four or six days instead of three, which is the industry standard.

Ms. Walker-Lightfoot said her role during nearly five years as an SEC staff attorney, where she worked from 2001 to 2006, was to provide advice and opinions. “My opinion was that we needed to ask more questions,” she said.

But the SEC boxed up that opinion, and there it sat, she said.

Ms. Walker-Lightfoot said she still hadn’t completely absorbed the effects of her SEC experience.

“For me, as a federal employee with almost 10 years of service, I’m disappointed that experienced people who contributed greatly on those teams are now going to have their reputations sort of blemished,” she said.

Is the American public getting the full story? Is there a semblance of a coverup being played out here? Clearly the government wants to maintain total focus on the SEC in this question of failed oversight. Why? In my opinion, the fact that the SEC has immunity walls off the Madoff victims from pursuing this entity for damages. The SEC was not the only regulator with oversight of Madoff over the years. Despite the assertion made by a number of regulators that FINRA did not have oversight of Madoff, do not forget that FINRA was formed from the regulatory arms of the NYSE and NASD in 2007. Madoff became a registered investment advisor in 2006. Prior to that, Madoff’s enterprise would have been regulated by both the SEC and the NASD, FINRA’s parent.

The investigation into what really happened within Bernard Madoff Investment Services will not be complete unless and until the light is shone inside the NASD and FINRA.

Perhaps Ms. Walker-Lightfoot and Harry Markopolos can make sure the light encompasses those organizations as well.

The American public deserves nothing less.

LD

  • Spot on Larry – the focus is 100% on the SEC, because the SEC has immunity from legal recourse from Madoff victims. It is basically impossible for anyone to sue the SEC and/or arrest the SEC, barring an executive order from President Obama, and we know that’s not going to happen. It’s also interesting that Kotz says that it was Mary Schapiro’s decision to release the report, not his. That means that Schapiro approved the report prior to its release, even though the report is supposed to be an independent investigation of Schapiro’s organization. Schapiro shouldn’t ever be allowed to see the report at all, as she is the single primary person that needs to be investigated and subpoened, as she was head of FINRA prior to becoming head of the SEC, and prior to that, Schapiro was head of the NASD and was a high-ranking member of the NASD for 10 years. How can Schapiro be investigated when she is the person tha thas to approve the investigative report prior to it being released?????

  • Mary Schapiro was also head of the Commodity Futures Trading Commission from 1994-1996. She also gave a speech in 1993 on derivatives and how a “more flexible regulatory paradigm” would provide benefits to financial innovation, and that she was NOT convinced that consolidated regulatory supervision of securities firms and their affiliates was necessary!!! And she went on to become the most powerful investment and financial regulator in the country!!!

  • S Jacobs

    as I also have posted on The WSJ web site …

    A REFRESHER ON THE FEDERAL TORT CLAIMS ACT: HOW TO SUE THE UNITED STATES
    http://www.finchmccranie.com/refresher.htm

    [snip]
    The Act allows monetary recovery against the United States for damages, loss of property, personal injury or death. In seeking recovery, one must show that the damages occurred as a result of the negligent or wrongful acts of government employees acting within the scope of their employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred. 28 U.S.C. § 1346(b).

    private person
    1 : an individual who is not a public figure or in the military services
    2 in the civil law of Louisiana : a juridical person governed by private law
    Merriam-Webster’s Dictionary of Law, © 1996 Merriam-Webster, Inc.

    negligence
    : failure to exercise the degree of care expected of a person of ordinary prudence in like circumstances in protecting others from a foreseeable and unreasonable risk of harm in a particular situation
    Merriam-Webster’s Dictionary of Law, © 1996 Merriam-Webster, Inc.

    “Negligence is a ‘legal cause’ of damage if it directly and in natural and continuous sequence produces or contributes substantially to producing such damage, so it can reasonably be said that if not for the negligence, the loss, injury or damage would not have occurred.”

  • J.B.

    It seems to me that Ms. Walker-Lightfoot had a better handle on the issues than her supervisors and managers had.

    The upper management must have hated the fact she knew mo0re than they did and instead of pursuing her questions and trying to learn they preferred to mask their ignorance by moving her around.

    Ms. Walker-Lightfoot should be appointed as a director to the new Consumer Protection Agency. We need people like her on watch. She is educated, experienced, qualified and knows what she is doing (unlike others in the regulatory industry), but most importantly she is dedicated to Public Service!!!!

  • Larry Doyle

    Matt,

    Sense on Cents, June 4th

    How Courageous is Mary Schapiro?

  • Tony Ryals

    I have been screaming at H.David Kotz for a long time now about his siding with anonymous fraudsters on sec.gov claiming everything from worthless penny stocks,(that the fraudulent ‘naked short selling claim of James Dale Davidson’s NAANSS or National Association Against Naked Short Selling first started with
    in 2002),to Novastar Financial and Northern Rock and finally Freddie Mac and Fannie acording to ex SEC Chair Chris ‘Naked Shorts’ Cox and his and David Kotz’s SEC were brought down by ‘naked short selling’!My first article-posts re Kotz and Christopher Cox’s ‘naked shorting’ lies and cover ups are hard to find now for some reason but are still on internet.
    Ij ust wanted you to know he claims Fannie Mae and Freddie Mac were ‘naked shorted’ or ‘counterfeited’ to cover that massive fraud up as well.Will someone investigate,PLEASE !?

    http://www.phillyimc.org/en/senator-carl-levinsarlen-specters-naked-short-fannie-mae-theory-vs-jfk-magic-bullet-assassination-th

    Senator Carl Levin’s,Arlen Specter’s ‘Naked Short Fannie Mae Theory’ vs JFK ‘Magic Bullet’ Assassination Theory

    SEC Inspector General H.David Kotz who these Senators treat with kid gloves as though he were a child prodigy for playing along with their and ex SEC Chair Chris Cox lie about Fannie Mae and Freddie Mac being ‘naked shorted’ when it is precisely those stocks that prove the claim of James Dale Davidson,Patrick Byrne,Senators Bob Bennett, Carl Levin,Arlen Specter, et.al. is a lie – if shares issued by Fannie Mae and Freddie Mac were ‘naked shorted’ meaning they were counterfeited according to the Senators and James Dale Davidson and Byrne,et.al.,then many shareholders would have complained of not receiving their dividends over the years.This never occured so the only question is are these Senators purposely aiding stock criminals or just mistaken and themselves manipulated to aid a mafia like stock fraud that thanks nothing of threatening the lives of those who criticise them whether they be journalisats are victims of their fraud such as myself.

  • Tony Ryals

    Larry Doyle,
    While doing a google search of ‘senseoncents naked short’ I noted that while some of the organized ‘securities’ criminals who spread the ‘naked short selling’ rumor,(or fraudulent claim),quote you – I am pleased to note as far as I can find YOU NEVER QUOTE THEM.I believe the term was completely made up by National Tapayers Union founder James Dale Davidson,David Patch,Brent Pierce and Grant Atkins in 2002 or they at the very least took the term out of some obscure place(the Cheetah Club?,ha) and popularized it for the purpose of distracting from their illegal pumps and dumps of penny stocks,particularly Genemax and Endovasc(that defrauded me).
    Note that I went back on Yahoo!’s Fannie Mae and Freddie Mac message boards to search the term ‘naked short’and found that the term first appears on those boards in early 2008 – the same time that the crook ex SEC Chair Chris ‘Naked Shorts’ Cox,(coincidentally),began spreading the rumor on sec.gov that Fannie Mae,Freddie Mac,AIG,Lehman Brothers,Goldman Sachs(and I forget the rest but his statement is still on sec.gov)were ALL ‘naked shorted’.You can still find his statements in this regard that IG H.David Kotz colluded in this fraudulent claim and still does!
    The whole of the SEC is aiding a massive ‘securities’fraud ($trillion plus?),against Americans to fill the offshore accounts of a privilerdged few is my theory ! I’d sure like to hear yours.
    You see Endovasc didn’t pay dividends so no one could say different when David P Summers,who turned out to be a Beltway banker now running Virginia Heritage penny stock Bank,and James Dale Davidson said they were ‘naked shorted’
    But with dividend paying ponzi schemes like Novastar Finanancial pumped by Patrick Byrne of Overstock.con and Bud Burrell Mary Hellurn and an anonymous ‘Bob O’Brien’ on Yahoo! this sould have been obvious – eveyone got their dividends so NO ‘naked short’ shares were being pumped and dumped only ‘real’ ones….

    And this is the earliest’naked short
    selling’ rumor I can find on Yahoo!’s Freddie Mac ‘message board’ – and it’s only from early 2008 when ex SEC Chair Christopher Naked Shors’ Cox,(coincidentally),
    began touting the rumor on the sec.gov and around the internet for his unnamed clients and,(coincidentally),sec.gov revoked my ‘posting priviledges’ on their and H.David Kotz and Chris Cox’s scam sec.gov ‘naked shorting crime’
    ‘message board’ set up for the likes of David Patch,Ron Paul,Mark Faulk, Patrick Byrne and their anonymous and not so anonymous friends such as that jerk from Oregon who claimed to all tose Global Links shares to prove Utah Moron Bob Bennett’s theory that Global Links was indeed(ha),’naked shorted’.
    Maybe someone should tell Michael Moore….Oh yeah his agent is Ari Emanuel.Oh well…

    freddie mac rahm emanuel ari emanuel
    michael moore ‘naked short selling’..
    ha.
    Uh,why are Yahoo!’s links so long ?

    http://search.messages.yahoo.com/search?.mbintl=finance&q=naked+short&type=vhBzWd_VWseDO89nxRYaniOLg_1XNJx.RNakMCr5Q2hnoVtciqwvrKgw1JrtEMQ-&action=Search&srch=1&v=1Nkba0jVWsf62K3zfSLRk0G8DzV8L5gNbXwPsoh2aEKyQxPdewhHCvb.uHiU&b=1&within=subject&within=msgtext&showthread=tm&sentiment=0&postedon=pd&sMonth=10&sDay=3&sYear=2009&eMonth=10&eDay=3&eYear=2009&off=1801

    1815. Prediction: Naked short will history soon because
    hedge funds will use naked short to bring down FRE and FNM. Then Fed/SEC will wakeup and go after naked short sellers.
    Business & Finance > Investments > Stocks (A to Z) > Stocks F > Freddie Mac (FRE)

    n

    • Larry Doyle

      Tony,

      I know the ‘naked short selling’ topic is very hot and controversial. I would ask you to further clarify your comments for purposes of adding to the dialogue. I have a difficult time understanding your premise and frame of reference.

  • Tony Ryals

    Larry,
    Because I have been complaining to the SEC that Endovasc was NOT ‘naked shorted’ since 2003 and only first heard of the term in 2002 on ragingbull.con’s Endovasc message board
    it is very frustrating to still be dealing with the subject
    this many years later.And frustrating that maybe what is so obvious to me now and since 2003 has grown from penny stocks where perhaps millions of worthless shares were promoted and dumped transfering naive investors’,(such as myself),into insiders accounts,generally but nt always to offshore accounts outside of the U.S..Ihad to create my own term for it – I call it share money laundering.
    Occassionally over the years,for whatever reason I don’t understand,the SEC will charge insider to a penny stock pump and dump that has made vocal clams of being ‘naked shorted’ with issuing unregistered shares or some such thing and generally settle out of court – but NEVER has the SEC CHARGED ANY COMPANY OR INDIVIDUAL WITH MAKING A FRAUDULENT ‘NAKED SHORT SELLING’ CLAIM.Why ? I believe it is because the SEC does not want to set a precedent and scare the criminals from continuing to make the claim because the SEC WANTS THIS CHAOS.Why ? Because it allows an excuse to let many Beltway insiders to the frauds go free and that saeems to be what the SEC wants.
    Endovasc as an example had approximately 100 million + shares outstanding in 2002 when they did a 40 for 1 ‘reverse split’ that as I estimate turned those 100 million shares to(what?),about 21/2 million shares – then they began they pump and dump all over again with wildly optimistic press releases.Tim Mahoney’s vFinance in Florida and Charles Schwab were glad to appreciate the price per share 40 times over night and the insiders had all those shares back in their ownership tp dump all over again.And as you know this happens all the time,the market makers such as Scwhab and vFinance benefit and the insiders promoting or pumping benefit and their offshore partners who I find to often but not always be Israelis(e.g.-the Grin brothers),or even what looked to me to be CIA and or M15 or M16 at Bellador Group of Kuala Lumpur benfit but an outside naive investor such as myself has 1/40th the shares they previously held and dilution is – well -just about to zero.
    Rupert Murdoch’s NY Post investigative reporter Christopher Byron took up my problem in April,2006 re Bellador Group and its Dubai and possible CIA connectins but by November of that year he silently disappeared from the Post.The CIA and In-Q-Tel denied any involvement and yet shares of SRA International that was no penny stock was being promoted in Hong Kong with ‘cold calls’ against their security regs and no one from the U.S.SEC to the CIA or FBI was doing a thing about it even though the CIA’s In-Q-TEL was SRA’s biggest shareholder so they certainly didn’t mind that SRA or the penny stocks Endovasc,Biophan or Republican Party connected China Wireless(incorporated in Colorado)was being
    promoted and sold by the Kuala Lumpur boiler room Bellador Group and its Mr.Peter Taylor.
    Anyway immrdiately after the reverse split and what was obviously in retrospect illegal pump and dump activity in November 2002 David P Summers released a press release along with silicon breast implant attorney John O’Quinn of Houston claiming Endovasc was naked shorted just like Davidson’s Genemax.However it appeared the term was so new even to them in 20023 they used the term’oversold position’
    instead and besides accusing their own mrkets maker Schwab
    they also mentioned Refco at that time !All these parties and others they later litigated were culpable of stock fraud and manipulation I believe but so were the Grin brothers and James Dale Davidson and David P Summers,et.al.
    And only about a half year later in early 2003 did Endovasc have to disclose an estimate very rough of about 18 million shares in the float !And Bellador Group’s Taylor NEVER had to disclose anything only lie about Endovasc being ‘naked shorted’ – so none of the shares he was selling and dumping were in SEC filings at all !
    But all the myriad worthless scams claiming naked shorted after that from Jag Media Holdings,of Valinoti and David Patch to CMKX Diamonds to Adnan Kashoggi’s GenesisIntemedia to Utah Senator Bob Bennett’s poster stock of Global Links to HUNDREDS more all simply claimed their obvious pumps and dumps were really victims of – you guessed it – naked short selling’ – and the U.S. SEC has alowed bigger and bigger securities frauds to do so such as NY 911 ‘heroe’ Bernie Kerick’s Taser to …….. And then the scamsters were so confident they began to claim Lanny Davis and Patrick Byrne’s et.al.’s dividend paying Novastar Financial was a victim of – you guessed it – naked shorting ! And yet Mary Hellburn rented her own shares out to be legally shorted all the while that Forbes.con did aricles with her as head of Byrne’s et.al’. NCANS or National Coalition Against Naked Short Selling that replaced Davidson’s NAANSS or National Association Against Naked Short Selling in 2005 with a $100,000+ ad in the Wshington Post addresed to W
    Bush and his regime and warning of the dangers of – you guessed it – ‘naked short selling’! And their two websites were both offshore at the time – in the British Virgen Islands – and for their nfi.net or Novastar Financial address Bobo O’Brien listed the Cheetah Club lap dance or strip joint of Lss Vegas’ its address !And neither the SEC or any part of the Bush regime investigates !Later they move the ncans.net website to San Diego and open a Wells Fargo account and their attorney is the same name as that
    Shiite in Iraq – ah – Saadar I belive and something.Then a
    message on the Yahoo! NFI message board in 2005 by one of the anonymous Bob O’Brien’s aliases who was getting nervous that WSJ’s Eissinger might expose him says that James Dale Davidson is involved and contributed with cell phones.etc.. I still have a copy of the message but Yahoo!’s NFI board who I found NCANS.NET(since replaced by thesanitycheck.con where Bud Burrell has his lieing post and death threat to me on),had the original removed to protect this gang who probably know Carl Icahn,et.al..
    Larry,I have so much about this on the internet I hardly know where to begin or end.I f you have any direct question I’ll try and answer or find a previous internet post that might.I kmow I must sound raving mad but consider how long I’ve been dealing with this ansd any time I think it might get better such as last year when Senator Carl Levin nd Barck Obama declared they would investigate offshore banking – well now as you can see by visiting Levin’s own website and press releases he and Grassley and Jon Tester and I can’t remember all the other Representaitives and Senators have detoured to join Utah Morons Orrin Hatch and
    BVob Bennett fight the evil naked shorting ‘Sith Lord’ instead !
    Oh did I ever make it clear in all this that Fannie Mae and Freddie Mac’s shares could not have been ‘naked shorted’ or investors would have come forward a long time ago and and said they did not get a dividend ? This didn’t happen so they weren’t – Christoper Cox lied right on the sec.gov website and Senators Arlen Specter and Carl Levin,et.al. know it!

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