"When Madoff provided evasive or contradictory answers to important questions in testimony, they simply accepted as plausible his explanations," Kotz wrote.
David Kotz, found that rather than following up on clear evidence of fraud, SEC enforcement staffers decided to take Madoff's word that his operation was legitimate. And it led to sweeping changes at the Securities and Exchange Commission, which missed the fraud for years despite repeated warnings, including from independent investigator Harry Markopolos, who set out to analyze Madoff's improbable returns and pronounced them fraudulent as early as 2000.Ī subsequent investigation by the agency's inspector general, H. Madoff Investment Securities shattered investor confidence, which was already damaged by the financial crisis. The investment "returns" shown on those statements - some $50 billion in all - were pure fiction. Rather than employing a so-called split-strike conversion strategy as he claimed, he simply deposited investors' funds in a Chase bank account, paying off new customers with funds from earlier customers - a pyramid investment strategy - and providing his clients with falsified account statement. In fact, investigators said, Madoff did not execute a single trade for his advisory clients for years. "The rest is my tragic history of never being able to recover." "I thought this would be only a short-term trade which could be made up once the market became receptive," he wrote.
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