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Madoff Trial: Defendants Hope to Put SEC ‘On Trial’

Posted by Larry Doyle on November 6, 2013 10:27 AM |

How did Lehman Brothers CEO Dick Fuld escape the clutches of justice while steering his firm right into bankruptcy? He played the card that many Wall Street execs have played over the last 5 years.

Fuld and other Wall Street execs maintained that the regulators were right there in their offices — or perhaps more aptly described, “in bed with” them — so if the brakes were not applied to what they were doing, then how can they be held accountable. Hell, it worked for Fuld et al so why not keep playing the card, right?

We see an iteration of this very play being called once again in the ongoing trial of former Madoff employees. Bloomberg touches upon it this morning in writing:

Five ex-employees of Bernard Madoff on trial accused of aiding his $17 billion fraud seek to “embarrass” U.S. Securities and Exchange Commission witnesses by asking about bungled Madoff audits, prosecutors say.

Temperatures rising. I love it.

Do not get me wrong, I am the last person who would sit here in defense of individuals who may very well have engaged in the massive Madoff conspiracy to defraud. To think that Bernie did not have assistance throughout this scam from a number of his employees is ridiculous. But let’s not forget, the regulators charged with overseeing Madoff’s operations failed at an unprecedented level.

Should this trial serve as the venue to bring the long overdue meaningful transparency to the relationship between Madoff and the regulators? Why not? Prosecutors have zero interest in navigating that path and state as much:

The questions, to be asked on cross-examination, should be barred because the SEC employees who will testify began probing only after Madoff’s arrest on Dec. 11, 2008, and weren’t involved in earlier reviews that failed to uncover the Ponzi scheme, prosecutor Randall Jackson said Nov. 4 at a hearing.

If that is the case, then let’s go back and put the regulators who were involved in those earlier reviews on the stand. Again, why not? Not only the Madoff investors but also the American public want the truth, the whole truth, and nothing but the truth, right?


Where to start? Just as I wrote a month ago:

. . . not to provide meaningful assistance to the defendants in this case but, if I were their lawyers, who would I call and put on the stand? Former SEC assistant Inspector General David Weber and former SEC attorney Genevievette Walker-Lightfoot. What might Weber be able to share?

David P. Weber’s term in the US Securities and Exchange Commission was marked by his unwillingness to keep his mouth shut about his superiors’ unethically close ties to Madoff and fellow Ponzi schemer R. Allen Stanford.

For his pains, Weber was put on administrative leave after the SEC banned him from the workplace on ludicrously trumped-up claims that he was psychologically unstable and violent. After formally complaining to the government about the SEC’s suspiciously inept handling of the Madoff/Stanford affairs he was fired for similarly lame reasons, but Weber’s countersuit hit hard, earning him one of the largest whistleblower rewards in US history.

Don’t you think most people in America would like to learn more fully what Weber might have to say about the relationships between those at the SEC and Madoff himself? And in regard to Ms. Walker-Lightfoot:

Ms. Walker-Lightfoot is notably the only former regulator who was uniquely qualified to detect Bernard Madoff’s multi-billion dollar fraud years prior to him turning himself in to the authorities.

In fact, she was in the process of connecting the dots in exposing Madoff when her superiors at the SEC took her off the case. You smell something there?

Learning what Mr. Weber and Ms. Walker-Lightfoot might highlight about the nature of the relationship between Madoff and senior regulators is not meant to embarrass anybody. It is all about learning the truth.

That truth should hopefully help define the guilt or innocence of the defendants in the current case, but not provide cover.

Just as two wrongs do not make a right, neither should two potentially guilty parties (these defendants and the regulators who benefit from playing the absolute immunity card) allow one to escape justice.

Let’s never forget that when questioned by Congress in early February 2009 during a hearing on the Madoff scandal, none other than Harry Markopolos stated:

“I’d give the SEC an A+ for incompetence and FINRA an A+ for corruption.”

We are long overdue to pull back the blanket on this story and learn the real nature of the relationship between Madoff and the regulators.

Don’t you think?

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.


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