WASHINGTON — Pushing past years of “red flags,” investigators at the U.S. Securities and Exchange Commission bungled their probes of Bernard Madoff so badly that his multibillion-dollar fraud not only flourished but he used the exams to suck in new investors, an agency watchdog declared Wednesday.
The report by the SEC inspector general shows that no smoking gun of corruption was found in the agency’s conduct toward the disgraced financier. Instead it painted a grim picture of an agency hobbled by incompetence that cleared the way for Madoff to run the biggest Ponzi scheme in U.S. history.
One of the most striking points in the report is that the investigations actually may have made things worse.
“Madoff proactively informed potential investors that the SEC had examined his operations” and found nothing amiss, it says. The fact that three SEC inspections and two investigations failed to detect the fraud gave credibility to Madoff’s operations and encouraged more people to give him their money.
The report by inspector general David Kotz cites no evidence of improper ties between agency officials and Madoff, nor of senior SEC officials trying to influence the agency’s probes of his business.