In what can only be viewed as a stunning and unprecedented admission, SEC Chairman Cox issued a Release stating that the staff had failed to properly investigate Bernard Madoff, the Wall Street giant who is claimed to have admitted running a $50 billion Ponzi scheme out of his brokerage firm. Mr. Cox’s admission comes in the wake of a swirl of rumors and claims about where Wall Street’s top cop has been while Mr. Madoff apparently looted Wall Street.

In his press release, the Chairman said that “Since [the]Commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff’s vast scheme remained undetected by regulators. … Our initial findings have been deeply troubling. The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of the SEC staff, but were never recommended to the Commission for action.” This statement directly contradicts earlier staff statements that they were on top of the matter.

The Chairman’s statement went on to note that he has directed an internal investigation by the Commission’s Inspector General. The investigation is going to cover not just the reasons for failing to follow up on the available evidence, but also the internal policies of the agency. The review will include all staff contact and relationships with the Madoff family and firm and the impact of those contacts, according to the Chairman. This statement at least suggests that personal relationships and contacts may have impeded staff action.

The Chairman’s statement concludes by noting that in the current investigation into the Madoff matter he has ordered a “mandatory recusal” of staff assigned to it currently According to the Chairman, his means any “SEC staff who have had more than insubstantial personal contacts with Mr. Madoff or his family” will be precluded from working on the investigation.

The Chairman’s candor here is unprecedented and refreshing. While the failure of the SEC here is significant and clearly not in keeping with its once proud history, perhaps the Chairman’s straight forward admission will signal a new era and the beginning of a return to that tradition. It is time for Wall Street’s top cop to be on the patrol again.

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