The first in what promises to be a long series of steps to resolve the Madoff scandal took place yesterday. The SEC has entered into a partial settlement of its enforcement action against Bernard Madoff. Under the terms of the proposed agreement, Mr. Madoff consented to the entry of a permanent injunction prohibiting future violations of the federal securities laws. Mr. Madoff also agreed to continue the temporary relief imposed by the court’s order of December 18, 2008, which includes, among other things, the asset freeze order prosecutors in the criminal case used in their unsuccessful attempt to have Mr. Madoff remanded to jail.

The judgment submitted to the court for approval leaves open the questions of disgorgement, prejudgment interest and/or a civil penalty. For purpose of determining those issues in the future Mr. Madoff, the facts in the SEC’s complaint will be deemed established — Mr. Madoff will not be able to contest those facts.

That complaint is based largely on the admissions of Mr. Madoff to senior employees of his firm that he was running a Ponzi scheme. It paints a picture which suggests that Mr. Madoff operated the scheme alone, which has been his position. SEC v. Madoff, Civil Action No. 08 CV 10791 (S.D.N.Y. Filed Dec. 11, 2008).

The U.S. Attorney’s office has filed a criminal complaint against Mr. Madoff, who has been released on bail, but is confined to his New York apartment. U.S. v. Madoff, No. 08 Mag. 2735 (S.D.N.Y.) An indictment is expected in the near future. Key questions under investigation involve the scope of the fraud as well as whether others were involved. In addition, there are an ever growing number of private suits.

The partial settlement with the SEC yesterday is the first small step in resolving this scandal. Clearly, the open issues in the SEC’s judgment will not be resolved for a considerable period of time. In the more immediate future will likely be the return of the criminal indictment. The key issue there of course is whether anyone in addition to Mr. Madoff is named as a defendant.

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