Madoff Free On Bond, But Not From Scrutiny

Bernard Madoff enters his house through a crowd of cameras in New York, Wednesday, Dec. 17, 2008. AP Photo/Seth Wenig

Bernard Madoff spent his first day under electronic monitoring Thursday as President-elect Barack Obama said the scandal brought on by the disgraced investor "has reminded us yet again of how badly reform is needed."

The effects of the $50 billion fraud has spread around the globe, and a Michigan-based foundation created to grant money to get healthy food into urban areas is among the latest to say it is going out of business because of the scandal.

Obama mentioned the Madoff saga as he named three veteran regulators to help clean up financial debacles that he said occurred because government overseers "dropped the ball." The Securities and Exchange Commission has come under fire for failing to detect Madoff's alleged deception despite repeated warnings, especially from a Massachusetts investor who has been sounding the alarm for the past decade.

He told a colleague in the late 1990s when he first noticed something was amiss, "This has to be a Ponzi scheme," according to a report in The Wall Street Journal.

Madoff had his bail conditions modified Wednesday. He must be at the Upper East Side residence from 7 p.m to 9 a.m. and wear an ankle-bracelet to monitor his movements. His wife was ordered to surrender her passport.

Cameras awaited Madoff as he walked out of the courthouse Wednesday toward his black SUV. Minutes later, a smirking Madoff was swarmed by more cameras as he entered his apartment building, with the scrum at one point turning into a shoving match between Madoff and a journalist.

Madoff's chaotic return to his $7 million apartment came on a day when the fallout over the scandal spread through the nation's capital, with the Securities and Exchange Commission taking heat and Congress jumping into the fray.

The chairman of the House capital markets subcommittee, Rep. Paul Kanjorski, D-Pa., announced an inquiry that will begin early next month into what may be the biggest Ponzi scheme ever and how the government failed to detect it. The SEC is also looking into the relationship between Madoff's niece and a former SEC attorney who reviewed Madoff's business.

In all likelihood, the alleged scammer is only the first of his ilk to come to light, says Richard Parker, an economist and professor at Harvard's Kennedy School of Government.

"I think these are like cockroaches or termites," he suggested to co-anchor Harry Smith on The Early Show Thursday. "There are always more that you don't see. ... There's always, in every economy, somebody who's embezzling.

Follow the Madoff Money Trail
A look at the people and institutions that have lost millions in the alleged Bernie Madoff Ponzi scheme.
Madoff, who has already surrendered his passport, made his appearance in the courthouse to shore up conditions of his bail package. The judge had required him to find two additional co-signers to vouch for Madoff, but he was apparently unable to find anyone as the cloud of scandal swirls around him.

Judge Gabriel W. Gorenstein responded by approving a modification to the bail package. As a result, Madoff had to sign over his Upper East Side apartment and his homes in Palm Beach and the Hamptons.

In Washington, SEC Chairman Christopher Cox again found himself on the defensive after days of withering criticism that his agency did not do enough to root out the fraud.

"We have thus far no evidence of any wrongdoing by any SEC personnel," Cox told reporters at SEC headquarters. "We need to go about this in a thorough, professional way."

SEC Inspector General David Kotz is looking into the agency's failure to uncover the alleged fraud in Madoff's operation. One area Kotz said he will examine is the relationship between a former SEC attorney, Eric Swanson, and Madoff's niece, Shana, who are now married.

As an SEC attorney, Swanson was part of a team that examined Madoff's securities brokerage operation in 1999 and 2004. Neither review resulted in any action against Madoff. In a statement about Swanson's role, the SEC compliance office cited its strict rules prohibiting employees from participating in cases involving firms where they have a personal interest.

A spokesman for Swanson said that he and Shana Madoff met at a breakfast in October 2003, started dating in April 2006 and married last year.

Another potential conflict also emerged in Washington on Wednesday.

U.S. Attorney General Michael Mukasey removed himself from the probe because his son, Marc Mukasey, is representing Frank DiPascali, a top financial officer at Madoff's investment firm. The Justice Department refused to say when Mukasey became aware of the conflict but confirmed he was removing himself from all aspects of the case.

DiPascali was the Madoff employee who had the most day-to-day contact with the firm's investors. Several described him as the man they reached by phone when they had questions about the firm's investment strategy, or wanted to add or subtract money from their accounts.

The events unfolded the day after Cox delivered a stunning rebuke to his own career staff, blaming them for a decade-long failure to investigate Madoff.

Credible and specific allegations regarding Madoff's financial wrongdoing going back to at least 1999 were repeatedly brought to the attention of SEC staff, Cox said. He said he was gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate the allegations or at any point to seek formal authority from the politically appointed commission to pursue them.

Cox's critics said that targeting the staff was Cox's attempt to salvage his own reputation.

"He put in place the people he is now shifting the blame to," said Ross Albert, a former SEC senior special counsel and federal prosecutor and now a private attorney in Atlanta.

Senate Majority Leader Harry Reid, D-Nev., suggested Cox bears some of the responsibility for what went wrong.

"I served in Congress with Christopher Cox, but I don't think he's going to make the All-Star team," said Reid.
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