Chairman Cox Admits SEC Staff Failed To Properly Investigate Madoff

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.

The Siemens FCPA Case: A Record Settlement And A Warning To All

SSiemens AG resolved FCPA charges with the Department of Justice, the Munich Public Prosecutor’s Office and the SEC with multiple guilty pleas and the payment of $1.6 billion in fines, penalties and disgorgement of profits, including $800 million to U.S. authorities. This is the largest monetary sanction ever imposed in an FCPA case, according to DOJ. In announcing the settlement, the Department again cautioned companies that it will continue to crack down along with other regulators around the globe on FCPA violations. U.S. v. Siemens Aktiengesellschaft, Case No. 08-367 (D.D.C. Filed Dec. 15, 2008); see also SEC v. Siemens Aktiengesellschaft, Case No. 1:08-cv-02167 (D.D.C. Filed Dec. 15, 2008).

Under the terms of the plea agreement:

1) Siemens AG pled guilty to one count of failure to maintain internal controls and one count of books and records violations;

2) Siemens S.A. Argentina pled guilty to one count of conspiracy to violate the books and records provisions of the FCPA;

3) Siemens Bangladesh Limited pled guilty to a one count information charging conspiracy to violate the anti-bribery and books and records provisions; and

4) Siemens S.A. Venezuela pled guilty to a one count information charging conspiracy to violate the anti-bribery and books and records provisions.

Under the agreements, Siemens will pay a fine of $450 million, the largest criminal FCPA fine since the Act was passed in 1977. The company also agreed to retain an independent monitor for four years.

The charges are based on violations in Latin America and the middle east. From 2000 to 2002 four Siemens subsidiaries – Siemens Turkey, Siemens France, Osram Middle East and Gas Turbine – were awarded 42 contracts valued at more than $80 million with the Ministries of Electricity and Oil of Iraq under the United Nations Oil for Food Program. These contracts were secured by paying over $1.7 million in kickbacks to the Iraq government. The company netted over $38 million in profits. As with other OFP cases, the contract price was inflated prior to the submission of the contract to the U.N. for approval. The payments were improperly recorded on the books and records of the company.

Siemens’ subsidiaries in Latin America also violated the FCPA. Beginning in September 1998 and continuing through 2007 Siemens Argentina made over $31 million in corrupt payments to various Argentine officials. These payments were improperly recorded in the books and records as “consulting fees,” “legal fees” and other types of legitimate payments. These payments were made to obtain favorable business treatment in connection with a $1 billion national identity card project.

Siemens Venezuela also made corrupt payments beginning in October 2001. The subsidiary made over $18 million in corrupt payments to various Venezuelan officials to obtain favorable treatment in connection with two major metropolitan mass transit projects. Again, the payments were not properly recorded.

Finally, Siemens Bangladesh admitted that from May 2001 to August 2006 it made corrupt payment of over $5.3 million. The payments were made to obtain favorable treatment during the bidding process on a mobile telephone project.

At a press conference held to announce the resolution of these cases, Acting Assistant Attorney General Friedrich stated that “Today’s filings make clear that for its business operations overseas, bribery was nothing less than standard operating procedure for Siemens.” Mr. Friedrich went on to note that Siemens executives had off-the books slush funds, employed shell corporations to funnel payments and at times used “suit cases filled with cash” to facilitate the payments.

The company also settled charges with the Munich Public Prosecutor’s Office and the SEC. With the former, Siemens AG agreed to pay about $569 million which includes a fine and disgorgement. To settle with the SEC, the company consented to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records provision. In addition, the company agreed to disgorge $350 million in profits which does not include those in the payment under the Munich settlement.

These actions are based on the cooperation of Siemens. The extensive cooperation of the company, praised by DOJ, included conducting a full investigation of the matter, making the results of that investigation available to the Department, taking appropriate personnel action regarding those involved, instituting remedial actions and accepting responsibility for its actions.

In announcing the settlement the Department and the FBI again emphasized that the FCPA is a key area of emphasis. To root out violations U.S. authorities will continue to team with enforcement authorities around the globe, as they did here.