Like we know that there are mice in all New York restaurants, we know that government agencies do not function with the greatest efficiency. And like a restaurant that has been closed down by the Health Department, when Bernie Madoff came out, we knew that something really, really gross had to have happened at the SEC. But that still didn't really prepare us for the SEC inspector general's long-awaited report on how the SEC overlooked the Madoff fraud, which is like looking at the congealed mouse droppings behind the stove.
For instance: Former Office of Compliance Inspections and Examinations director Lori Richards loved the 2001 article Erin Arvedlund wrote for Barron's, in which she questioned Madoff's strategy and returns, so much that she sent a copy of it to an underling!
She attached a note
on the top stating that Arvedlund is "very good" and that "This is a great exam for us!" However, OCIE did not open an examination, and there is no record of anyone else in OCIE reviewing the Barron's article until several years later.
One wonders whether, if the note had had a smiley face, it would have had more of an effect.
The folks at the SEC loved a good story, you see. Some years later, after one of their hugely inexperienced SEC investigators on staff went to visit Madoff at his office,
He described Mr. Madoff as "a wonderful storyteller" and "a captivating speaker" ... the examiner said he found it "interesting" but also "distracting" because they were there "to conduct business."
In the end, though, don't worry, he finally did get around to asking him some questions about "business."
As to why Madoff did not collect fees like all other hedge-fund managers, they accepted his response that he was not "greedy" and was happy with just receiving commissions.
Mind you, these bits are just from the executive summary.