A legal watchdog group has asked a court to order U.S. securities regulators to cough up records showing they implemented promised reforms following their failure to detect Bernard Madoff’s massive Ponzi scheme.
In a lawsuit filed Wednesday in federal court, Citizens for Responsibility and Ethics in Washington, or CREW, said it sought the records from the SEC on Oct. 6 under the Freedom of Information Act (FOIA), but the agency failed to respond.
SEC spokesman John Nester said it took longer than expected for the agency to prepare a response “simply because of the sheer volume of reforms that have been undertaken. However, we expect to be able to release documents regarding these reforms later this month.”
The SEC raised concerns about Madoff’s firm but failed to follow through on tips it received over several years about his activities. In September, SEC Inspector General David Kotz issued a report detailing how the agency mishandled those warnings and assigned inexperienced lawyers to examine Madoff.
Kotz made 58 recommendations to overhaul the agency and in particular its compliance unit, where staff made critical mistakes in nearly every aspect of their examinations of Madoff and his business, according to the report.
“Our FOIA request was prompted not only by the colossal failures of the SEC’s enforcement division in the past but by the agency’s own promise… that they were going to institute systemic reforms,” said Anne Weismann, chief legal counsel for CREW.
Madoff is serving a 150-year prison sentence after pleading guilty to the $65 billion fraud. He told Kotz that if SEC lawyers had done some basic investigative work, it “would’ve been easy for them to see” he was a crook.
The SEC last year said it would take “decisive and comprehensive steps” to avert similar frauds, including restructuring management of its enforcement division, overhauling the process for handling tips and complaints, and improving fraud detection techniques.
CREW said it wanted SEC documents demonstrating that the SEC had done those things.
The case is Citizens for Responsibility and Ethics in Washington v. Securities and Exchange Commission, District of Columbia, No. 10-00018.
(Reporting by Dan Margolies; Editing by Tim Dobbyn)
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