SEC Discipline Over Madoff
Agency's Action Follows Report Questioning Staff Conduct Over Ponzi Scheme
WASHINGTON—The Securities and Exchange Commission admitted Friday that it had disciplined eight employees over their handling of the $50 billion Bernard Madoff Ponzi scheme without firing any of the workers.
The disciplinary actions, which drew jeers from some victims of the investment scandal, prompted a ninth individual to leave the agency before the punishment was finalized. The actions were meted out over the past year and weren't disclosed by the agency until an article on the actions was published online Friday by the Washington Post.
The agency's actions followed a 2009 report by the SEC's internal watchdog that called into question the conduct of 21 staff members for work related to Mr. Madoff. Of the staffers mentioned by the SEC's inspector general, 10 had left the agency by the summer of 2011, an agency spokesman said.
The spokesman, John Nester, said the SEC planned to disclose the actions after an appeal by an employee was completed. "The plan has always been to provide a public accounting once the process was complete," he said.
Helen Chaitman
The SEC has been criticized for failing to identify the Ponzi scheme and for its failure to respond to whistleblowers and their warnings that Mr. Madoff's operations were a fraud. Mr. Madoff's firm collapsed in December 2008.
"They should have fired them and made whole the people who got victimized, but this is all wishful thinking," said Elisa Entine, a Madoff victim from Boston. Ms. Entine, 66 years old, said she lost $1 million through a Madoff feeder fund and has yet to recoup any of it.
Following publication of the 2009 report, the SEC hired an outside law firm, Fortney & Scott, to recommend disciplinary actions. The report said the agency received six warnings about Mr. Madoff's trading business over 16 years, but an inexperienced staff and delays in examinations enabled him to continue his Ponzi scheme for years.
Miriam Siegman
Fortney & Scott and the SEC's human-resources director ultimately recommended that SEC Chairman Mary Schapiro fire one employee, unless that removal would have an adverse impact on the agency's work. That employee, who received the most extreme disciplinary action, was suspended for 30 days without pay and also received a reduction in pay and a demotion. A person familiar with the matter identified the employee as an assistant regional director in the SEC's New York office, who worked in compliance and inspections.
Dewitt Baker
A second employee also received a 30-day suspension but didn't receive a reduction in pay or grade. Other disciplinary actions ranged from a seven-day suspension without pay to an individual who received a 5.7% reduction in pay. Two individuals received "counseling memos." The ninth individual, who left before the disciplinary process was complete faced a recommendation for a seven-day suspension.
Burt Ross
The SEC said that by law it can't discipline former employees and also can't fire employees unless the recommendation was made by the agency's human resource director, who relied on the outside law firm's recommendations. Mr. Nester said that the disciplinary actions reflect overall employee performance and each individual's responsibilities both before and after the Madoff scheme came to light.
Brad Friedman, Attorney for Victims
Still, the actions could damage the careers of the SEC employees, say people familiar with the agency. The employees will have a difficult time gaining advancement in the future and will have a "mark of Cain" attached to their names at the SEC, former SEC Chairman Arthur Levitt said in an interview.
Mr. Levitt said while it is "constructive" that the SEC took this action, many critics will feel that the SEC didn't do enough. "There will be people who think that whoever they find should be boiled in oil," he said.
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