Stopping the Next Bernie Madoff

Bernie Madoff’s financial fraud scheme was so big, brazen, and long-lasting that it ensnared everyone from charities to movie stars to the New York Mets.  Yet it escaped the notice of the federal agency charged with protecting investors.

That agency, the Securities and Exchange Commission, is supposed to look out for anyone with a stake in the stock market, whether you’re a billionaire investor or a teacher with your retirement nest egg invested in stocks.

Missing the Madoff scandal was a black eye for the agency, calling its competence into question.  It’s been trying to restore its reputation ever since. 

In that light, it was surprising to learn the commission allowed its top lawyer to set policy on the compensation of Madoff victims, despite sharing a $2 million inheritance from a Madoff account.

The lawyer still argues that disclosing his inheritance would have made him no “‘more or less effective in representing” the agency and that there was “no appearance of impropriety.”  But the agency chairman herself said she wished the lawyer had recused himself from Madoff matters.  Ironically, the lawyer earlier counseled a lower level employee to avoid potentially conflict-raising activities for “appearance purposes.”

At the very least, the agency showed an extreme insensitivity to the Madoff victims by allowing the top lawyer to work on such a contentious case despite his conflict.  The lawyer seemed to hold himself only to the minimal standard of what he believed was technically legal, rather than what was best for the Madoff victims and the agency’s integrity.  With a fellow member of Congress, I wrote to agency officials seeking a full accounting of what happened.  The commission’s independent watchdog, its inspector general, is investigating.

The Securities and Exchange Commission needs to impose ethics reforms that go beyond adherence to the bare minimum of what might be technically legal.  Standards need to be strong, consistent, and uniformly applied.  The executive suite has to follow the same rules as rank-and-file employees. There can’t be a do-as-I-say, not-as-I-do mentality.  Integrity and competence at this agency stand between the American investor and the next Bernie Madoff.