One of the "key participants" at the U.S. Securities and Exchange Commission who investigated Bernie Madoff in 2005 and 2006 - and entirely missed the fact that he was running a $50 billion Ponzi scheme - was rewarded with a cash bonus for later Madoff work, the SEC's inspector general found in a report released Aug. 2.
The unnamed employee was nominated for a bonus in September 2009, shortly after Inspector General H. David Kotz released a massive report detailing the SEC’s failure to catch Madoff. That report flagged the employee — and the assistant regional director who nominated the employee for the award, also unnamed in the report — for “numerous performance issues” and potential disciplinary action.
One might think such findings would bring a person’s career to a standstill. But not, apparently, at the SEC. Instead, the employee got a bonus, in part “to reward the employee’s efforts in 2009 pertaining to a follow-on investigation of Madoff” — a decision that Kotz found “jeopardizes the integrity of the awards program.”
The SEC did postpone payment of the award until April of 2010, after outside counsel from Fortney & Scott concluded the employee’s actions did not warrant formal disciplinary action.
“However, the Fortney & Scott report did not dispute the serious performance issues pertaining to the employee raised in our report, including the fact that the 2005 examination of Madoff in which the employee had played a critical role was inappropriately focused, conducted without obtaining critical independent data, closed with unresolved issues remaining, and relied too heavily on the representations of Madoff,” Kotz wrote.
The inspector general also found that the SEC’s budgeting process for employee awards is “flawed and ineffective,” and the average awards are nominal — $951 per person in 2010. Last year, the SEC gave out 2,524 cash awards to employees.
I don't think people are understanding how the fed system works on bonuses. You get them for high rating performances. This goes up the chain of command. If the lower levels discover wrongdoing on the watch of upper management, then none of the management can claim high outcome results which means it affects upper management bonuses. I know how it works. I worked for HHS. When I blew the whistle that outcomes to Congress had been falsified for decades, it rocked management. It meant the years of bonuses paid to countless feds were unjustified. This problem is fed system wide.
Posted by: Evelynn Brown, J.D., LL.M | August 08, 2011 at 06:59 PM
How fitting that the agency set up after the Crash of 1929 to bring integrity to investments should be so visibly lame for the current round of "double dip" or depression economics.
At the same time, accelerating disparities between rich and poor have placed the world squarely at risk of the next great depression, and Congress is so bought off it pretends not to notice. Makes on want to retore D.C. to its former wetlands status.
Posted by: Tim Morgan | August 05, 2011 at 01:46 PM
If this doesn't illustrate the interior rot at the SEC, nothing does. It is another breathtaking example of how the SEC staff is allowed to bungle, fudge the facts, mangle the law, waste time on stupid, petty cases, and parade around with a holier-than-thou attitude based on endless, robotic repetition of "We are the investor's advocate."
Posted by: Former SEC Enforcement Division Lawyer | August 04, 2011 at 06:45 PM