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SEC Compliance Official Recused on Madoff

Written by CBS News investigative producer Laura Strickler.

The director of the Securities and Exchange Commission's (SEC) Office of Compliance Inspections and Examinations, Lori Richards, has recused herself from the Madoff investigation.

The SEC confirmed the recusal to CBS News but would not disclose why Richards had chosen to remove herself from the inquiry. An SEC spokesperson would not say if any other SEC staff had recused themselves.

As head of compliance, Richards oversaw Eric Swanson, assistant director of market oversight at the SEC. In 2007, Swanson married Shana Madoff, the niece of Bernard Madoff. The reception was reportedly held at the Bowery Hotel in Manhattan. Shana Madoff worked as a compliance lawyer for Madoff's firm.

On December 16, 2008, the Chairman of the SEC, Christopher Cox released a statement about Madoff that included the following, "I have therefore directed the mandatory recusal from the ongoing investigation of matters related to SEC v. Madoff of any SEC staff who have had more than insubstantial personal contacts with Mr. Madoff or his family, under guidance to be issued by the Office of the Ethics Counsel. These recusals will be in addition to those currently required by SEC rules and federal law."

In testimony before the Senate Banking Committee, Richards said, "I am not participating in the current investigation or examinations of the firm."

Richards faced some tough questions from Senators on the Banking Committee asking how the SEC, and in particular Richards'compliance division, had missed so many red flags on Madoff.

Bernard Madoff was arrested on December 11, 2008 after confessing that he was the mastermind of a $50 billion Ponzi scheme according to court documents.

By Laura Strickler

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