LI company suspected Madoff in 2003, SEC report says
The Securities and Exchange Commission failed to follow up on signs of Bernard Madoff's Ponzi scheme found when a routine examination of an East Setauket-based company revealed concerns he might be running a fraud, the agency's internal watchdog said.
An SEC compliance examiner told his branch chief, Diane Rodriguez, about internal e-mails at Renaissance Technologies Llc, which indirectly invested in Madoff's fund through a swap agreement with another firm. The e-mails said Madoff's business might be a fraud, Inspector General H. David Kotz wrote in a report released Friday.
Renaissance e-mails said Madoff's secrecy, auditor and fee structure were significant red flags, the report said. Nathaniel Simons, portfolio manager for a Renaissance fund, said he didn't understand how Madoff made money or why he used a fee structure that gave such a large percentage of profits to feeder funds.
"As we don't know why he does what he does, we have no idea if there are conflicts in his business that could come to some regulator's attention," Simons said in an e-mail dated Nov. 13, 2003, according to the report. "Throw in that his brother-in-law is his auditor and his son is also high up in the organization and you have the risk of some nasty allegations."
Madoff carried out his fraud - investigators say he bilked investors of $13 billion to $21 billion - for more than 16 years as the SEC assigned inexperienced investigators and accepted "implausible" explanations of his business, the report said. The information Renaissance used to analyze Madoff's business was also available to the SEC, the report said.
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