Ripoff 101: Madoff Ponzi Scheme Sends SEC Agents Back to Schoo

Ripoff 101: Madoff Ponzi Scheme Sends SEC Agents Back to School
The Securities and Exchange Commission, which failed to detect a $65 billion Ponzi scheme run by Wall Street money advisor Bernard Madoff for nearly two decades, is sending its agents back to school to learn the basics of uncovering such financial scams.

In light of the recent Madoff scandal, the largest such scam in Wall Street history, federal securities regulators say they are increasing training for staff members. The 90-minute refresher courses being offered to SEC workers include titles such as “Basics of Ponzi schemes, affinity fraud and related schemes” and “Exam issues and techniques for detecting Ponzi schemes, affinity fraud and related schemes.”
Classes on Ponzi Schemes, Whistleblowers Offered
The first class was given March 9 and another is set for this week, officials said. SEC supervisors said the classes are designed to increase training for detecting methods used by many swindlers, including creating false financial statements, keeping two sets of books, and lying about investment returns. Such “yellow flags” can be signs of a larger financial fraud, SEC officials said.

The SEC also is offering brush-up classes for employees on how to handle whistleblower tips and other information, which can assist in detecting and prosecuting financial crimes. Recently, whistleblower Harry Markopolos testified before a congressional hearing that he alerted the SEC in 2005 about what he suspected was wrongdoing by Madoff, but the agency never followed up in a meaningful way.
Madoff Admits Ripping Off Investors
Earlier this month, Madoff admitted he swindled thousands of clients who deposited money in his investment brokerage. Instead of purchasing securities as promised, Madoff simply pocketed the money and, in a classic Ponzi scheme, paid early investors profits with money contributed by newer investors.

He faces up to 150 years in federal prison when he is sentenced on June 16, 2009. He has insisted that he acted alone and that neither his wife nor his sons, who ran an affiliated business, were in on the scam. However, federal authorities recently arrested his longtime accountant and charged him with lying about having conducted independent audits of Madoff’s businesses.