Ex-SEC Lawyer: Madoff Report Misses Point
SEPTEMBER 4, 2009, 6:14 A.M. ET
By SUZANNE BARLYN
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NEW YORK -- A former Securities and Exchange Commission lawyer who investigated Bernard Madoff in 2004 says the new report on how the agency failed to uncover his massive fraud places too much blame on staff examiners and overly generalizes about their "inexperience."
Genevievette Walker-Lightfoot told Dow Jones Newswires on Thursday the SEC inspector general should have focused more of his attention on how supervisors, rather than the staff examiners and investigators, handled the agency's many stillborn probes of Mr. Madoff.
An executive summary of the report, released on Wednesday, repeatedly emphasized what it described as the inexperience, confusion and limited expertise of staff assigned to at least six investigations involving Madoff since 1992.
Ms. Walker-Lightfoot -- who recommended more action in a 2004 investigation that was shelved -- said those descriptions were overly simple, and the summary generalized too much.
"My experience is a key example," she said. "Here was someone who raised red flags and said "We need to look into these things." But I wasn't senior management, so it wasn't my call."
The full report is expected on Friday, and she said she would reserve final judgment on it until then.
Ms. Walker-Lightfoot, who is now a lawyer for the Federal Reserve Board, was part of a four-person team in the SEC's Office of Compliance Inspections and Examinations, or OCIE, who investigated Mr. Madoff's firm in 2004. She informed a supervisor of inconsistencies she learned of during her review and suggested following up.
Instead, her team was ultimately diverted to another case.
The inspector general's conclusions should have considered what other levels in the bureaucracy did, she said. "It would have been more insightful to take a more holistic approach".
Her involvement in the case was first reported in July by the Washington Post, which said she left the SEC in 2006 after filing a hostile workplace complaint. It was settled in her favor, the Post reported.
In the interview with Dow Jones Newswires, she said members of the SEC's investigative teams had varied skill levels that the inspector general, H. David Kotz, doesn't adequately address in the summary. "He talked a lot about the team as an aggregate," she said.
The lead person on any team, she said, typically had a breadth of knowledge or experience about the issues at hand.
Her team's investigation required at least one examiner who understood options -- a skill that Ms. Walker-Lightfoot had, having worked at an equity and options exchange for about two years prior to joining the SEC.
Ms. Walker-Lightfoot's supervisors included Mark Donohue, who still works at the agency, and Eric Swanson, then an assistant director who ultimately married Mr. Madoff's niece, Shana, the former compliance attorney for his firm. The inspector general found that Mr. Swanson's romantic relationship didn't influence the SEC's conduct during its Madoff investigations.
Ms. Walker-Lightfoot's review of Madoff documents revealed inconsistencies, such as certain transactions purportedly conducted by Mr. Madoff's firm that settled on a Sunday. "Anyone in the securities business knows they don't settle on the weekend," she said.
She also noticed that equities transactions reported by Mr. Madoff often settled in one, four or six days instead of three, which is the industry standard.
Ms. Walker-Lightfoot said her role during nearly five years as an SEC staff attorney, where she worked from 2001 to 2006, was to provide advice and opinions. "My opinion was that we needed to ask more questions," she said.
But the SEC boxed up that opinion, and there it sat, she said.
Ms. Walker-Lightfoot said she still hadn't completely absorbed the effects of her SEC experience.
"For me, as a federal employee with almost 10 years of service, I'm disappointed that experienced people who contributed greatly on those teams are now going to have their reputations sort of blemished," she said.
SEC inspector general, H. David Kotz, reached by telephone, said he considered it premature for Ms. Walker-Lightfoot to criticize the summary before the full response was released. He described himself as "befuddled" by her remarks. Mr. Kotz noted the decision to release the summary was made by SEC Chairman Mary Schapiro, not by his office.
Write to Suzanne Barlyn at suzanne.barlyn@wsj.com
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