A TIMELINE AND FRAUD TRIANGLE ANALYSIS OF THE SEC’S MADOFF PONZI SCHEME INVESTIGATION

David C. Williams
Lincoln Memorial University

ABSTRACT

In 2008, Madoff Investment Securities was closed by the SEC. Owner Bernie Madoff was
charged and later convicted for operating the largest Ponzi scheme in U.S. history. Even though
the SEC investigated Madoff Investment Securities multiple times over a 16-year period, and even
though at least six outsiders tried to warn the SEC of a potential Madoff Ponzi scheme, it took the
crippling financial landscape of the “great recession” to bring down the Madoff empire. The
following article revisits the SEC investigation of Madoff Investment Securities, pointing out
lapses in the SEC investigation based on SEC Inspector General H. David Kotz’s report,
Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi scheme (SEC Case No. –
OIG-509). Based on a review of the SEC Inspector General’s report, further analysis suggests the
potential for internal collusion at the SEC. Due to a series of lapses in performance of
investigative duties; the SEC internal investigation should be reopened.

Keywords: Forensic accounting, Ponzi scheme