SEC Criticized For Allowing Madoff Fraud

Bernard Madoff, chairman of Madoff Investment Securities, returns to his Manhattan apartment after making a court appearance Wednesday, Dec. 17, 2008 in New York. The judge in Madoff's fraud case has set new conditions for his bail, including a curfew and ankle-monitoring bracelet for the disgraced investor.
AP Photo/Jason DeCrow
Disgraced investor Bernard Madoff appeared at a federal courthouse in Manhattan today to complete paperwork for his bail as anger at the Security and Exchange Commission's failure to prevent or even investigate Madoff's fraud mounted for a second day.

Madoff, wearing a baseball cap and a black jacket, said nothing to reporters as he walked out of the building and drove away in a sport utility vehicle. He was at the courthouse to sign over his Upper East Side apartment and his homes in Palm Beach and the Hamptons to cover his $10 million bond.

Madoff has already surrendered his passport, and now will be required to wear a monitoring bracelet and be confined to his Manhattan apartment from 7 p.m to 9 a.m. His wife was required to surrender her passport as well.

Madoff's bail conditions also required that he find people to co-sign for him, and his wife and brother had already done so. Madoff had been required to find two additional co-signers to vouch for him, but with the scandal swirling around him, he was unable to do so.

The judge responded by modifying the bail package, and gave lawyers until next Monday to come up with additional paperwork.

Meanwhile, the nation's top securities regulator made a shocking admission, reports CBS News correspondent Bob Orr: that government auditors had repeatedly failed to thoroughly investigate allegations that Madoff was running a scam.

"Credible allegations about Mr. Madoff had been made, over nearly a decade, and yet never referred to the Commission for action," said Christopher Cox, the chairman of the Securities and Exchange Commission. Still, Cox says there is no evidence of any deliberate wrongdoing at the SEC.

"It is an outrageous failure," said Jacob Frenkel, a former SEC Attorney, in an interview with Orr.

Frenkel says that government investigators were far too willing to accept Madoff's explanations about his books without really digging into them.

"The fact is, when they did go in to the Madoff operation, and Bernie Madoff would say, 'Look at this and look at this,' … The SEC would say thank you and not pursue it, "Frenkel said.

Now the SEC is investigating what went wrong. One area of interest involves former inspector Eric Swanson, who at one point led a team looking into Madoff's finances, Orr reports.. Swanson left the SEC in 2006. Now he's married to Madoff's niece, a top lawyer for Madoff's firm. Swanson says he did nothing wrong, and promises to cooperate.

Follow the Madoff Money Trail
A look at the people and institutions that have lost millions in the alleged Bernie Madoff Ponzi scheme.
Another twist in the case involves Attorney General Michael Mukasey. Mukasey today rescued himself from the Justice Department' prosecution of Madoff because his son is a lawyer representing a Madoff company executive, Orr reports.

CBS News has learned that President-elect Barack Obama has picked Mary Shapiro--a veteran financial regulator--to head the SEC during his administration. Cox had previously said that he planned to step down at the end of the Bush administration.

Madoff was arrested on charges that he carried out what prosecutors say he called a $50 billion Ponzi scheme that has left investors around the world in financial ruin.

CBS News Investigative Producer Pia Malbran reports that Miami businessman and former Philadelphia Eagles owner Norman Braman, called Madoff a "first-class crook" who should go to jail for the rest of his life for carrying out the elaborate Ponzi scheme, which Braman calls the "scam of the century."

"He had a great reputation. He was respected," Braman told CBS News in an exclusive interview.