The SEC knew that Bernie Madoff was misleading them about how he was handling his customers' money in 2006, the Wall Street Journal reports, and noted multiple violations which, if investigated, would have laid bare his Ponzi scheme. Instead, Madoff’s firm was told to register as an investment adviser, which it did, and Fairfield Greenwich, a hedge fund that placed money with Madoff, was told to disclose more information about him to investors. The inquiry was dropped.
The investigation was the result of a nearly decade-long crusade by Harry Markopolos, who began looking into Madoff’s strategy for a competing firm in 1999. “It doesn’t make any damn sense,” he told a colleague. “This has to be a Ponzi scheme.” Markopolos went to the SEC repeatedly, and the commission finally confronted Madoff in 2006. But investigators concluded, after interviewing Madoff and several others, that the violations “were not so serious as to warrant an enforcement action.”