January 16, 2009
Posted: 02:32 PM ET
Slowly but surely more information is coming out in the Bernard Madoff case. One of the big questions remains: With this being one of the largest alleged Ponzi schemes in history, is it really possible that Madoff acted alone? Or were others involved in the scam?
Industry insiders have told me they question whether regulators were either not sophisticated and experienced enough to uncover a massive fraud, or whether there was someone on the inside purposely looking the other way.
This week, Congressman Paul Kanjorski (D-PA), the chairman of the House Financial Services Subcommittee who is investigating the Madoff case, released a statement that suggests more red flags than originally thought were missed by federal regulators in this case.
He points to the 2007 audit report of Bernard L. Madoff Investment Securities. He says it contains obvious warning signs that should have alerted the Securities and Exchange Commission.
Kanjorski says the audit report did not include basic information such as an income statement, an accounting of how money was managed, or even a statement of cash flows. Click here to read Congressman Kanjorski’s statement to S.E.C. Chairman Christopher Cox.
Essentially, it was a report with a bunch of boxes checked, without information attached. (Or maybe the information was attached, but it has somehow gone missing.)
Kanjorski also raises questions into the S.E.C's inspection policies as they relate to internal controls for broker-dealers and their auditors. Kanjorski says a "competent" auditor would have likely spotted the alleged scam much earlier.
So, once again, the big question: Was it a lack of “competency” or did qualified people simply choose to trust Madoff and look the other way?
Take a look at the audit report yourself – it’s only eight pages. Does anything stand out to you? Do you agree with Kanjorski that the report should have raised red flags within the S.E.C. about Madoff’s operations? Click here to read the 2007 audit report of Bernard L. Madoff Investment Securities.
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