Madoff Probes Widen, Multiply

Dec 18 2008 | 3:15am ET

While Bernard Madoff managed to avoid going to jail immediately by reaching a new bail agreement, the probes into his alleged $50 billion Ponzi scheme have widened and multiplied.

Madoff was unable to meet the original terms of his bail, but remains free on $10 million bond after agreeing to the indignities of a curfew and an electronic ankle bracelet to monitor his movements. His wife was also forced to surrender her passport; Madoff gave his up when he posted bail a week ago.

Ruth Madoff has also become a subject of the investigation, according to Bloomberg News, although she has not been accused of any wrongdoing. The Securities and Exchange Commission has reportedly found evidence that she may have helped track payments. Earlier reports indicate that investigators have found her name on documents related to transactions they are scrutinizing.

The ranks of those probing the Madoff scandal are also getting more crowded. The U.S. Congress is planning an inquiry when it reconvenes in January, while a regulator on the other side of the Atlantic tries to get a handle on how the alleged fraud may have affected investors in its country. They join the SEC, Justice Department, Federal Bureau of Investigation, Securities Investor Protection Corp., Rockland County, N.Y., district attorney and Massachusetts secretary of state in looking into Madoff.

The Autorité des Marchés Financiers, the French markets regulator, has contacted investment firms about their exposure to Madoff’s funds, Reuters reports. AMF offered firms advice on how to handle losses in the Madoff scandal, including suspending subscriptions and closing funds. The regulator wrote that “a good number” of French firms “are suspect to be impacted, in varying degrees, by the Madoff affair.”

Closer to home, Rep. Paul Kanjorski (D-Pa.), the head of the House of Representatives subcommittee on capital markets, said his panel with investigate the alleged fraud and regulators’ failure to catch it earlier.

“Unfortunately, these events have only further weakened already battered investor confidence in our securities markets," Kanjorski, said in a statement. "And they have raised even more troubling questions about the effectiveness of our regulatory system.”

One of the most troubling questions is whether Madoff’s close relationship with the SEC—or his niece’s relationship with a top SEC official—contributed to the regulator’s failure to detect the fraud, despite several inspections investigations of Madoff and his firm, and a host of tips and accusations. SEC Chairman Christopher Cox this week announced an internal probe to look into why the agency failed.

Madoff was reportedly a regular visitor to the SEC, and served on several agency advisory panels. In 2000, Madoff served on a panel on stock-market trading rules.

In addition, Madoff’s niece, Shana, is married to Eric Swanson, who served as an assistant director for compliance inspections and examinations at the SEC. Swanson supervised an inquiry into Bernard L. Madoff Investment Securities’ securities trading business in 1999 and 2004.

A spokesman for Swanson, who married Shana Madoff last year, and says his relationship with her did not begin until years after the investigation he led, Reuters reports. While the couple met in 2003, they did not begin dating until 2006, the year Swanson left the regulator after 10 years.

Shana Madoff worked as a compliance lawyer at her uncle’s firm.

Lori Richards, the SEC’s director of inspections and examinations, said that the agency “has very strict rules prohibiting SEC staff from participating in matters involving firms where they have a personal interest. Subsequently, Mr. Swanson did not work on any other examination matters involving the Madoff firm before leaving the agency.”

Given the sensitivities piqued by Madoff’s relationships with the SEC, U.S. Attorney General Michael Mukasey recused himself from the case because his son represents one of Madoff’s employees. The criminal complaint against Madoff was filed by the U.S. Attorney for the Southern District of New York, which is a part of Mukasey’s Justice Dept. Deputy Attorney General Mark Filip will now be the senior official overseeing the case until the inauguration of President-elect Barack Obama next month.

Marc Mukasey is the attorney for Frank DiPascali, who was reportedly the employee with the most day-to-day contact with the Madoff firm’s investment advisory clients. In addition, Mukasey’s wife is a former board member at Ramaz, the Jewish school in Manhattan that appears to be one of Madoff’s victims. The attorney general is also an alumnus of the school.

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