CNBC's Charlie Gasparino Madoff Update, Did the Feeders Know What Was Going On ?

Inside the twisted loyalties and conflicts that kept Wall Streets top cop from catching one of the biggest Ponzi schemes in history. Since the story of Bernard Madoffs massive Ponzi scheme broke, a recurring theme has been shock over how Wall Streets top cop—the Securities and Exchange Commission—missed so many red flags. Knowing more about who did the SECs investigations makes it all less surprising. In 1999 and then again in 2004, Eric Swanson, an assistant director in the inspections division of the SEC, was part of the team that examined Madoffs brokerage firm. During those exams, the SEC team said it found almost nothing wrong, certainly not the fraud that the firms chief executive, Bernard Madoff admitted to last Thursday evening, as he sat in the FBIs New York offices with his one wrist handcuffed to a chair and the other holding a telephone he used to contact his attorney, the famed white-collar lawyer Ira Lee Sorkin. Madoff sat in the FBIs New York offices with one wrist handcuffed to a chair and the other holding a telephone he used to contact his attorney. Swanson doesnt lead the SEC office in charge of such inspections; Lori Richards has that job. But he is noteworthy for another reason: Swanson married Madoffs niece, Shana, in 2007, and knew members of the Madoff family well. Shana was the Madoff firms compliance counsel, one of the people in charge of making sure the firm played by the rules. The two had met at industry conferences. In 2006, while at the SEC, Swanson sat on a panel sponsored by the Securities Traders Association, a leading market trade group that deals with regulators and the government over policy issue. Also on that panel was Robert Colby, the head of market regulation at the SEC, and Mark Madoff, Bernards son, who worked at the firm as well. Adding another level of intrigue, Swansons future and current father in law, Peter Madofff, is in charge of compliance for the Madoff operations. Swanson is now the general counsel for a company called BATs, which is an electronic trading company. As most people on Wall Street know, Bernard Madoff is one of the fathers of the electronic trading business, having been one of the founders of the Nasdaq stock market. After I broke the story of Shana Madoff's relationship with Eric Swanson Monday night on CNBC, the criticism of the SEC's handling of the case and its conflicts heated up. The following day, SEC chairman Chris Cox launched an internal investigation on how the SEC dropped the ball, despite numerous "credible and specific allegations regarding Mr. Madoff's financial wrongdoing, going back to at least 1999, (that) were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action." I doubt an in-house investigation will do much to satisfy the SEC critics given the size and scope of the scandal and the Swanson-Madoff family connection, which has been a particular source of tension among the many investors who lost big money from the Madoff scam. If you live in New York, you dont have to look far to find victims. A friend of mine is a member of the exclusive Glen Oaks country club in Long Island, which was one of the pools of wealth the Madoff operations focused on. He told me at least 100 of the clubs approximately 200 members lost money, I know of at least 10 people who lost $20 to $30 million each, he said. He also told me that while Madoff himself may be Public Enemy No. 1, the SEC is a close second. What they cant understand is how securities regulators ignored at least one letter calling Madoffs operations a Ponzi Scheme, and a slew of red flags including nearly two decades of uninterrupted positive returns, and an auditor who worked out of a tiny one-man shop in upstate New York.

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News & Politics

[spyknife]

Madoff made the Stanford scam look like loose change. Madoff is a genius jew. A normal person would find it difficult to steal half a billion, this guy stole FIFTY BILLION. And his punishment is a lifetime in a US holiday camp prison.

[lanoshome]

Some people who attack Mr. Madoff might be anti-Semites, but the vast majority of them are in fact more concerned with the man's criminal activity than with his ethnic/religious background.

[boston65boston65]

People attacking Mr. Madoff are anisemites.

[SirWinstonChurchill]

With all the greedy Democrat lowlifes who lost money, Madoff just might become a national hero...