Bernie Madoff swindled an estimated $50 billion from investors in his hedge fund, and in March 2009, pleaded guilty to securities fraud. He was sentenced to 150 years in jail. But if the Securities and Exchange Commission (SEC), which is charged with regulating the securities business, had been doing its job, Madoff could have been stopped years earlier.
In a scathing report issued last week, the SEC’s inspector general, H. David Kotz, summarized six substantial complaints that the agency received about Madoff dating back as far as 1992. The SEC conducted two investigations and three examinations into the complaints, and never identified Madoff’s Ponzi scheme.
The good news is that Kotz found no evidence of blatant wrongdoing in the SEC—no one was paid off to whitewash the investigations. The bad news is that the inspector general found plenty of evidence of screw-ups.
Several different teams of examiners looked into the complaints, yet Madoff was able to dazzle, confuse and intimidate them so that they never found out what he was really doing. Then, after the examinations were closed, Madoff gave himself the SEC seal of approval. In his report, Kotz wrote:
Madoff proactively informed potential investors that the SEC had examined his operations. When potential investors expressed hesitation about investing with Madoff, he cited the prior SEC examinations to establish credibility and allay suspicions or investor doubts that may have arisen while due diligence was being conducted. Thus, the fact the SEC had conducted examinations and investigations and did not detect the fraud, lent credibility to Madoff’s operations and had the effect of encouraging additional individuals and entities to invest with him.
Bureaucratic ineptitude
So how did this happen? Essentially, Madoff used the inherent nature of governmental agencies to his advantage.
We probably all have stories of bureaucratic ineptitude. All organizations have issues with politics, turf wars, not-my-job, lack of direction, miscommunication, falling-through-the-cracks, brown nosing, not-pulling-your-weight, etc., etc. In my opinion and experience, these issues are worse in governmental organizations, where connections outrank skill and it’s impossible to get rid of underperformers.
Psychopaths exploit these conditions to the max. They are experts at using upheaval and confusion to their advantage. But in Bernie Madoff’s case, it seems that what he used the most was ignorance.
In his report, Kotz repeatedly says that the people assigned to investigate Madoff were “inexperienced.” How inexperienced were they?
2004 investigation
In an investigation initiated in 2004, touched off by the discovery of an e-mail that provided a step-by-step analysis of why Madoff must have been engaging in fraud, one of the junior examiners was five years out of college, and the SEC was his first job. Another examiner had worked on only four cases before being assigned to the Madoff case.
So it looks like the SEC sent a few 20-somethings to deal with Bernie Madoff. The psychopath distracted them with his stories of the securities business and intimidated them by dropping names of his high-up connections. When they actually persisted in asking for documents, Madoff became angry. “His veins were popping out of his neck,” one of the investigators said.
When the young examiners reported their difficulties to superiors, they got no support. In fact, the “were actively discouraged from forcing the issue,” Kotz wrote.
Why did they receive no backup? My guess is that higher-ranking bureaucrats at the SEC knew Bernie Madoff, either personally or by reputation, and did not want to go up against a man who was former chairman of the NASDAQ stock exchange and a legend in the securities business.
The investigators repeatedly caught Madoff in lies and inconsistencies. But instead of seeking independent verification, they accepted Madoff’s explanations as plausible.
2005 investigation
In 2005, a former investment manager turned whistleblower, Harry Markopolos, submitted his third complaint about Madoff to the SEC. The title: The world’s largest hedge fund is a fraud.
An SEC regional Enforcement department took the case. Here’s how the complaint was handled, according to Kotz:
It was assigned to a team with little to no experience conducting Ponzi scheme investigations. The majority of the investigatory work was conducted by a staff attorney who recently graduated from law school and only joined the SEC 19 months before she was given the Madoff investigation. She had never previously been the lead staff attorney on any investigation, and had been involved in very few investigations overall. The Madoff assignment was also her first real exposure to broker-dealer issues.
The Enforcement staff, which I assume means our young attorney, discounted the Markopolos report and questioned his motives. Furthermore, they (she) believed Madoff did not fit the “profile” of a Ponzi scheme operator because he was a reputable member of society.
The Enforcement staff did not understand options trading. They did not understand Madoff’s purported trading strategy. They were told that they were not sufficiently prepared to take Madoff’s testimony. They went forward with the scheduled testimony anyway.
Here’s a final note about the Enforcement staff investigation that Katz included in his report:
Shortly after the Madoff Enforcement investigation was effectively concluded, the staff attorney on the investigation received the highest performance rating available at the SEC, in part, for her “ability to understand and analyze the complex issues of the Madoff investigation.”
Systemic failures
The report of H. David Kotz, Investigation of failure of the SEC to uncover Bernard Madoff’s Ponzi scheme, is fairly readable, even for those of us who don’t understand the securities business. What was released last week was the 22-page executive summary. The full report, which will apparently come out soon, is over 400 pages.
The summary is an eye-opening look at the systemic failures of an important agency that was supposed protect the interests of American investors. It shows, in brutal detail, how many opportunities to bust Madoff were missed, and why. If you don’t want to read the 22 pages, an article in the New York Times, Report details how Madoff’s web ensnared SEC, provides a good summary.
Misconceptions
The issue of Madoff not fitting the profile goes, I believe, to the heart of the problem: People cannot conceive of the fact that evil can masquerade as reputable.
Of course, there was a time when many of us lived under the same misconceptions: The trappings of respectability reflect actual respectability. People in positions of responsibility play by the rules. There’s good inside everyone.
It’s only after our own run-ins with psychopaths that we’ve learned differently.
The bottom line is this: Society doesn’t understand that some people are evil, no matter how good they look. Many government agencies, along with other organizations, are structurally incapable of coping with covert evil. This creates an environment of confusion, inexperience and denial that enables psychopaths to flourish.
Well said Donna! “The trappings of respectability reflect actual respectability” ..hence I think the need for many P’s to surround themselves with a genuinly loving, caring, and morally sound partner…the better to obfuscate their true nature. Many of our LF contributors have spoken of how well liked and respected their P was – which of course reinforces our committment to them and leaves us shattered and confused when the mask comes off.
Madoff’s scheme, cloaked under BIG MONEY and respectability, and intimidating to the “watch dogs” (puppies, it seems), sent to “keep him honest” is no more a suprise than the fact that “puppies” were sent to “inspect him,” or that when Madoff “growled” at these “puppies,” they got no support from their superiors.
The “power position” conveyed by “big money” and “respectability” based on that position is so typical in our society, and I think has ALWYAS been, and I see no reason to believe won’t always BE, is seen in politics and big business.
Not too many years ago it was a widely known rumor (based on fact and first hand knowledge of many in my state) that a certain large chicken producer had thousands of illegal aliens in their chicken processing plants ini my state. A friend of mine worked for INS and I mentioned to him and asked him why it was allowed to go on when such was so “widely known.”
He informed me that his bosses had told him and his co-workers to never investigate that company—which at that time was heavily backing highly placed US senators and the sitting president.
Several years later, this company was “raided” and thousands of workers fled the plant, and several more thousand were arrested and the company heavily fined.
I have asked myself many times WHY? this happened, and why THEN? Why after 15 or more years of this being an “open secret” in my state would the company suddenly get raided for the same thing they had been doing for years?
As I understand it now, the company is back to hiring hundreds of illegal aliens again.
Our county is now inundated with huge crews of illegal aliens working for large natural gas producing companies. How do I know they are “illegal aliens?”
One, they do not speak English, and they will run like heck from anyone approaching in any kind of “uniform.”—my youngest son works for the Boy Scouts of America which has a large reserve on which there are many sizemograph crews working laying out lines through the woods and at his approach upon them in a “Uniform” which appears “official” they will scatter like quail.
Donna, I agree that many agency personnel do not “get it” about covert evil and law breaking, but I DO BELIEVE that “higher ups” do use and allow illegal activity on the part of “well placed” and “well heeled” psychopaths knowingly.
In the last year or so, LF has highlighted several prominent government officials who one way or another were “unmasked” by their grandiose behavior and flagrant law breaking, such as use of prostitutes while pretending to try to “clean this up” and trying to sell a Senate seat, and bribe taking.
I personally don’t think this is anything “new” in the US, as a reading of history of the early US political formation will show that most if not many of our “Sainted” founding fathers were as “entitled” and “self-serving” as many in office today. A hisotry of the founding of the US railroads and other “big busienss” will also show that this corrupt way of doing business between government and “private” businessmen has, and always will, continue. Busienss as usual, standard operating procedure, and so on.
The “public” can’t stop it, the voters can’t stop it, and I don’t really think it will ever be “controlled” as long as there are evil humans on the face of the earth. That may sound like I am pretty cynical and I guess in some ways I am. However, I do think there is hope for the INDIVIDUAL to learn about psychopath, and as individuals, to protect ourselves from the naivite that gets us personally sucked into a psychopathic vortex on a smaller level, but one which effects us more personally.
I think he would have gotten away with it until his passing if the market hadn’t tanked. The money ran out and he couldn’t get his hands on more cover money. I’ve seen several articles of much smaller con men being outed for their financial service shenanigans. How about that guy who tried to fake his death by jumping out of his plane because his scam was unraveling? The recession has washed away quite a few cloaks of respectability.
What gets my gall is the when it involves MONEY, the perp is a mastermind and OF COURSE regular people wouldn’t have caught on. When what they have stolen is love and sex, the VICTIM is weak and stupid and got what they deserved. It’s the same game- just different prizes.
Nicely put Glinda —-> What gets my gall is the when it involves MONEY, the perp is a mastermind and OF COURSE regular people wouldn’t have caught on. When what they have stolen is love and sex, the VICTIM is weak and stupid and got what they deserved. It’s the same game- just different prizes.
I co-sign that – it is painfully true.
Thank you Donna,
the article was timely for me, since this has been on my mind lately too.
Although Madoff used his “cloak of respectability” to manipulate the SEC workers, it’s possible that he could have gotten away without it. Perhaps he would’ve used the pity ploy. That’s the one they work when respectability doesn’t. Bernie might have told them that he has cancer and shaved his head to show chemotherapy. Then he would tell them that his doctor said stress is what caused it.
My point is that they use HUMAN NATURE to deceive us. The particular trait of deferring to respectability is just one of many traits they can manipulate. They aren’t human themselves so that frees them up to perceive our humanity better than we ourselves can perceive it. We can’t see the forest for the trees, but they can because they have neither forest nor trees.
Like Oxy explained about how she trains each animal species differently depending on their nature, she is familar with and aware of their nature, but the animal isn’t. It just reacts according to its nature, unaware that it could outwit Oxy if it just could change its behavior to something else. The P can change its behavior at will according to what suits the situation.
In Madoffs case, it sounds like he used charm and rage to control whenever the questions got too deep. Only a robot would not have been affected – or someone aware of his nature.
The Ps also have distinguishing personality traits lurking beneath their facade. They must reveal their traits in order to play their game: charm/rage/pity in rapid succession. So they can be spotted if you know what to look for.
The other thing about the Ps, is that they are unable to distinguish genuine emotion from false emotion. To them, it is all about what’s on the surface. So you can pretend any emotion and they will buy it. I’ve tried it with my xP. It works easily. It just feels icky. The problem is if you try it on someone who turns out not to be a P, you are just as bad as a P.
I’m starting to understand that what is required to win against all Ps is that we live in a world where we do not trust anyone until they have proven themselves. Obviously we at LF already live there and we are sad. When the whole world learns to live that way, it will be sadder.
Donna,
Thanks for this really great article. And to everyone who has posted- for MORE fodder for thought. Amazing how appearances and some pretty rudimentary intimidation/manipulation skills can go so far! I am so glad they got this dirtbag.
The whole ‘public persona’ thing has been in my thinking lately so this article is timely. No matter a big money man, spiritual shaman, carwash manager. Whatever place they choose as their space of operation and supply, they will use words and appearance to create doubt and denial.
And don’t get me wrong by what I am about to say. I am over the moon they catch men like Madoff. HOORAY!
But I am galled, like Glinda, at the lack of recognition of the ordinary pettypath.
Glinda said:
‘What gets my gall is the when it involves MONEY, the perp is a mastermind and OF COURSE regular people wouldn’t have caught on. When what they have stolen is love and sex, the VICTIM is weak and stupid and got what they deserved. It’s the same game- just different prizes.’
It completely stuns me that psychopaths can live seemingly small-potatos-lives and wreak SO much emotional/physical havoc, and not be considered malignant/dangerous. At best we call them assholes, and often lovable rogues. BARF!!!
That the negative consequences created by these pettypaths is often overlooked and the victims accused of not taking responsibility for their own victimization ENRAGES me.
What will it be like in the future. Will there be brain surgery for these people? Will we find a genetic ‘fix’ for them, or will they just kill all of us off?
Sorry, I am pissed off at the world today. At the evil in it.
Terrific article, even though “its nothing new” to know that these powerful people are often psychopaths. I have been legally abused to the max. My ex partner solicitor paid the judge off and had corrupt police jail me and announce me insane when I tried to recover my home and assets and expose him. The solicitor I hired to represent me at the time (unbeknown to me at the time) was his best mate. My ex partner pyschopath is still opetating locally and is now a billionaire. My ex psychopath dentist partner goes to work with his alcoholic hangover and shaking and has recently got away with hundreds of thousands of dollars of insurance fraud.
To me now, its a joke. I am cynical because i have lived through this type of reality repeatedly during my lifetime. “What you see does not exist”, was what my psychopathic parents taught me. What i love about this article most is its title, “Psychopaths thrive amid confusion, inexperience and denial”. This sums it up beautifully. This is exactly what my teacher is trying to create in our art class purely so that she can control and get her narcissitic supply. It is vomit producing content to watch it for four hours three times a week. Especially when you have the knowledge, it is almost unbearable torture to have to sit there and “act” like someone you personally despise to get her to overlook you. And even then, you know will have your turn in the hotseat when her jealousy consumes her.
Off I go to my lovely class today. It should eat her soul to know that I have chosen the subject “psychopaths and criminals” as my theme for my art work. But it doesn’t. Because she denies she is one. She is full of grandure and wears the invisible kings lothes while she struts naked around the room. And every one says “ooh” and “ahhh” what beautiful clothes you have on today oh mighty King. You are the antzpantz and we want to be like you oh naked one!”
Slimone,
yeah, I’m pissed off all the time too. Knowing that the world sucks…Like John Lennon said, “living is easy with eyes closed” and “life is what happens while you’re making other plans.” I get the feeling that he must’ve run into a psychopath, that’s why he dropped out of music for so long.
And in the end, he ran into the worst psychopath of all.
Speaking of dodging bullets, it was 1980, I was a wild teenager and liked to hitchhike everywhere I went, tempting fate, meeting people, scaring the crap out of myself and feeling invincible, just like a narcissist. And like a narcissist, I had a big chip on my shoulder – hey I was 15 and I knew everything.
I always wondered when some guy was going to proposition me, expecting me to be a hooker. One day, a guy in a small green truck picked me up just south of seattle, . Within a few minutes he asked, “How much?” I had been waiting over a year to hear those words, so I could let the perpetrator have it.
I showed him my thumb, “See this thumb? It means I need a ride, that’s all it means.” I gave him a look of utter disdain.
He looked sheepish and said, “I’m sorry, I guess I’m just a horny toad.” He pointed to a large rubber frog on the dash that was mounted by a smaller toad. “See? I’m the big one”
He dropped me off a few miles down the road. For some reason I felt sorry for him and even felt bad for being so rude.
Fast forward about 15-20 years later. My P and I are watching the news. The Green River murderer had been caught long ago and we all knew his name was Gary Ridgeway and we all knew what he looked like. But that newscast showed an old photo of him that evening. It was a photo from the 1980s. It was the guy in the green truck. I told my P. He just looked at me.
Today, I can’t help thinking that he was actually nicer than my P, cuz he let me go. Plus he killed his victims quickly with a hammer, while my P liked to bleed you dry then cast you into such despair that you killed yourself. Just like his ex-girlfriend killed herself by stepping out into traffic.
Ridgeway took his victims’ lives, my P will not settle for less than your soul.
Interesting comment above, Skylar
I had the rare opportunity to read the Prosecutor’s “Indictment” of Gary Ridgway just this past weekend – I didn’t ask how the person GOT the copy, and I didn’t want to know, but it WAS official.
You were one of the lucky ones – he specifically chose ‘victims’ who were desperate for the money – it was the height (back then) of the “crack” explosion in Seattle, and so many women fell into “the life” because they were addicted.
The prosecution laid out each crime upon each woman (if you’ve read Ann Rule’s book “The Green River Killer” or the book written by Dave Reichert, the long-time investigative detective, subsequent Sheriff, and now legislative representative, “Chasing the Devil,” you would see a LOT of what Norm Maleng wrote into the indictment, quotes by Ridgway, and Ridgway’s ‘rationale’ for killing so many women that he considered to be the “Garbage” of society. Ridgway said, roughly, since I don’t have the 80 page document in front of me, that “you guys [cops] can’t do anything about them; you arrest them and they post bail and they’re back out on the streets within an hour. “I DID SOMETHING ABOUT THEM, because you guys couldn’t.”
Oh, he was all stammery and stuttery when he was quoted from tapes, and he is a coward – anyone who put up the least resistance, or backtalked him BEFORE they got into his truck had, at least, a chance to live….BUT so many of his victims were just “kids” – disaffected youth, addicts – his youngest victim, I believe, was 14, playing at being much older of course. There were a slew of young women (girls, really) between the ages of 15 and 18, a lot of 20 year old streetwise prostitutes, who knew how to read people. And THEY were taken in. If they spoke the street-lingo, they didn’t have a chance. They begged and cried for their lives, their families, their children – all to no avail. They were dealing with a “creature” without conscience.
NEVER, EVER, EVER “turn your back on a psychopath” – they would kill you as soon as look at you. It might take time; then again, it might not.
As a prospective double BA in Psych and Criminal Justice, I found the indictment a fascinating read; I kept comparing the information to what I’ve learned here on LF and wanted to share those few insights with e1 here. I could only read it in small doses – say 7 – 10 pages at a sitting, but I got through the whole thing in 2 days.
I am glad he’s locked up forever. There is speculation that there are more GRK victims found, and linked – and those young women’s deaths, since they were not revealed PRIOR to trial, are NOT covered by Ridgway’s plea bargain for his cowardly, chickens**t life; he will probably be indicted for MORE murders, and at that time, he will not be in a position to plea bargain his way out of the death penalty here in WA state.
Personally, I believe that prison officials should turn him loose in the General Population, and let them have their way with his scrawny, cowardly “behind.” “Squeal like a pig!” lol
My condolences to those families of the victims and to anyone who has been a victim of a P or an S – it’s easy when the perpetrators who lie with impunity (Some girls asked him, “Are you the Green River Killer? To which he would reply “no…do I look like a guy like that?” Which was then their undoing. His reasoning, as he explained it to the interviewing Psychiatrist: “Once I had them in my truck, they were MINE…I knew I ‘had them’ and could kill them, take the money I’d paid them, plus any other money they had on them, and ‘just dump ’em somewheres’ .”
They got him for 48 murders – plea bargained him down to find MORE bodies with his help; they’ve found more bodies that link TO him – somewhere upward of 20 more; he has no more playing pieces on the chessboard – CHECKMATE! Game over, you lose – YA LOSER!
So be aware, even hypervigilant, if you must – these poor ladies weren’t, and the ripples in the pond continue to this day, in the aftermath of destruction by this one-man killing machine.
~Jewels~
I wish people could connect this to the 2008 Presidential campaign. 0bama is a narcissist who thrived on the lack of investigation into his background. Whenever he needed to distract from unpleasant facts, he played the race card for misdirection.
Just like the Ps in so many people’s lives, he will be defended and his true nature will not be realized until he has done untold damage.