SEC:Linda Chatman Thomsen announced Monday she will leave the agency

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Madoff Claims Another Victim
Liz Moyer, 02.09.09, 04:13 PM EST
The SEC's embattled enforcement chief quits the agency.
Bernard Madoff has chalked up another victim in his alleged $50 billion swindle: the Securities and Exchange Commission enforcement chief who failed to detect it.

Linda Chatman Thomsen announced Monday she will leave the agency, less than a week after members of the House Financial Service committee lambasted her over the SEC's bungling of the Madoff affair and for appearing uncooperative during a hearing on the matter.

SEC Chairman Mary Shapiro has promised to overhaul the agency's enforcement efforts in light of the Madoff scandal, which erupted in December. At a speech in Washington Friday, she said the SEC would do some "serious self-evaluation." Its inspector general is already investigating the missteps that allowed the Madoff ponzi scheme to go on undetected even after several near misses.

"I have also spent much of my first week and a half on the job in meetings with my fellow commissioners and the agency's senior staff to discuss other ways in which we can reinvigorate the SEC's enforcement program, including improving the handling of tips and whistle-blower complaints and focusing on areas where investors are most at risk," Shapiro said. "I anticipate that we'll be making further improvements in the coming weeks and months to ensure swift and vigorous enforcement."

The SEC didn't immediately name a successor to Thomsen, a 14-year agency veteran, though it was reported over the weekend that person could be former Assistant U.S. Attorney Robert Khuzami, currently the general counsel for the Americas at Deutsche Bank (nyse: DB - news - people ).

Thomsen, a Harvard Law graduate, joined the SEC in 1995 and was appointed director of enforcement in 2005. She worked on the investigations of banks in the Enron collapse, the auction rate securities probe, and the fraud trials of Waste Management's (nyse: WMI - news - people ) former chief financial officer and Chancellor Corp.'s former chief executive officer, among others.

"Linda's achievements have been nothing short of extraordinary, even heroic, in an era of unprecedented challenges in our securities markets," Shapiro said in a statement Monday.

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But the agency's inability to detect the Madoff Ponzi has brought a firestorm of controversy. Last week's hearing in the House Financial Services committee featured a contentious star witness, whistle-blower Harry Markopolos, who detailed his attempts to gain the attention of higher-ups at the SEC for a decade without success.

"The SEC would have trouble finding first base at Fenway Park if seated in the Red Sox dugout and given an afternoon to find it," Markopolos said in his written testimony. "Taxpayers have not gotten their money's worth."

The SEC, armed with a report from Markopolos detailing his suspicions of fraud at the Madoff firm, investigated in 2006 but didn't do anything other than ask Madoff to register his investment adviser, which is where the alleged fraud is said to have occurred. A much earlier case could also have detected a fraud, but the SEC never went after Madoff himself, only the adviser firms that brought money in for him to invest.

A defensive Thomsen and several other members of the SEC staff attempted to answer lawmakers' questions during the hearing last week but appeared reluctant to divulge too much because the Madoff investigation is ongoing.

Rep. Paul Kanjorski, D-Pa., the chairman of the committee, accused the agency of impeding his investigation, calling it an "abuse of authority."

Shapiro sent a conciliatory note after the hearing to Kanjorski. "There needs to be a full accounting, both of Mr. Madoff's activities and why we did not detect the fraud, which we truly regret," the letter said. "I hope that I can set up a prompt meeting with you so that we can determine a course forward that will meet all of our interests."

Madoff was arrested in December after confessing the fraud to his sons, law enforcement officials said, though he has yet to be indicted.

On Monday the SEC said it reached a proposed partial settlement with Madoff, making permanent a temporary injunction on moving assets. Madoff agreed to the proposal without admitting or denying wrongdoing. If the court agrees to the proposal, Madoff will be barred from violating the anti-fraud provisions of federal securities laws.