SEC's Meagan Chung Pleads Innocent

In one of the longest news articles I can remember reading in the New York Post, the SEC's Meagan Chung -- the woman who investigated Bernie Madoff in 2005 and cleared him of fraud -- tries, unconvincingly, to defend herself. Instead, she comes across as even less competent than we thought:

[Said Cheung:] "If someone provides you with the wrong set of books, I don't know how you find the real books." ...

Regarding Madoff specifically, Cheung said, "I never met the man."...
Markopolos gave the investigators a long memo that flatly said that "Madoff Securities is the world's largest Ponzi scheme."...

Soon after, in January 2006, the New York branch of the SEC opened an enforcement case on Madoff based on Markopolos' claims. The document authorizing that probe is signed by three SEC staffers: Cheung, attorney Simona Suh, and Assistant Director Doria Bachenheimer.

But after interviewing Madoff... the SEC probe "found no evidence of fraud," according to a case closing recommendation signed off by those three staffers.

The first quote here is utterly damning: Cheung seems to be saying that unless a fraudster actively cooperates with the SEC, there's no way he's going to be caught: The SEC just checks books against themselves, rather than against any kind of reality.

And the second is even worse: Cheung led the investigation, which included interviewing Madoff, but she herself "never met" him.

What's most striking is that Cheung shows no remorse at all: she never even says that she wishes she had uncovered the fraud, or that she's sorry she didn't. Instead, we get this:

"Everyone in the New York office behaved ethically and responsibly and did as thorough an investigation as we could do," said Cheung.

Did we ever live in a world where professionals take responsibility for their actions? I guess not:

"I supervised some lawyers and I was supervised by many levels above me. I'm just mid-level management."

It's just as well that Cheung has left the SEC already, for personal reasons. She certainly wouldn't be happy there now.

Comments

[ValueInvestor:]

Pretty appauling. My auditors check every single account balance down to the penny at every month end. I don't know how the SEC can say there's no way he could've be caught.

How hard is it to match equity run and cash balances on a month or year-end basis to the records Bernie was keeping. Seems like a pretty simple check to me. All the SEC had to do was go to his broker, or custodian or both and check the records. A $50 billion differential shouldn't bee too hard to find. Cheung should be fired for cause.

Jan 07 03:00 PM

[bricki:]

Time to add an exemption to the cruel and unusual punishment amendment for financial regulators who don't do their jobs.

Jan 07 03:19 PM

[Thomas J. G...:]

This seems easy to catch, if you have the Markopolos lead. You say, "I don't need to know how you do what you do, just show me (with the phone numbers so I can call and verify you have the assets you say you do) that you have the 30/40/50 billion net assets that your customer statements say you do. Or send in big 5 and say prove to them you have 50 billion. Seems really elementary when someone's saying it's a ponzi scheme, ?do you have the assets".
I think Markopolos should get the SEC whistle blower award. He did his part in a very timely manner.
Those who advocate greater regulation have to show that they can build the gov't organization that can execute the enforcement. Here they had the lead and they couldn't even find the fraud. We had all kinds of regulation and it didn't save Madoff investors or fannie mae and freddie mac.

Jan 07 03:48 PM

[RIA 99:]

Government regulation is a bureauractic job which does not attract and keep creative, out-of-the-box people. Shortly after the regulator is created and empowered it degenerates into a set of checklists which are used by the employees doing the actual leg work. Since Madoff satisfied the checklist, no further investigation was deemed necessary.

I wish this wasn't true, but it is: The police will never catch every home burglar and the SEC will never catch every financial fraudster.

Jan 07 03:59 PM

[happysoul77777:]

She sounded incompetent. Any auditor worth of any salt should have detected this fraud!

The true problem is that the SEC has been in bed with the market makers, brokers and dealers. Their judgements have been clouded.

Jan 07 04:49 PM

[Roger Knights:]

Good article, as usual. But I'm confused about the dates, because these two statements conflict:

"the woman who investigated Bernie Madoff in 2005 ..."

"in January 2006, the New York branch of the SEC opened an enforcement case on Madoff"

Jan 07 05:24 PM

[EricG:]

It's Meaghan not Meagan

Jan 08 08:30 AM

[secmaven:]

Chung's statements are beyond belief...unless she and her fellow staffers were on the take from Bernie just like his feeder hedge fund managers were.

Jan 08 02:01 PM

[notsosmart:]

there is no ethics or shame left.there is no accountability or punishment handed out. those incompetent sec people may have found better paying jobs because they made no waves.thats why we had to pass whistleblower protection laws.cover up is the name of the game from the pres. on down.the watergate lesson turned into dont get caught.sad

Jan 08 03:38 PM

[axelrod608:]

Anyone who has ever dealt with a bureaucracy understands the problem. If you want to catch crooks, you contract the work to people who do forensic accounting and who get bonuses for finding fraud. Government bureaucrats - 99% of them - do enough to get by.

We need to determine whether getting by or finding crooks is the object.

Jan 08 05:45 PM

[Paul V. Azz...:]

We do not know enough to blame Chung or absolve her.

I think it's unfair to put this case at her door, especially since she is now a private person.

The blaming articles and comments I read are all smart with hindsight.

If there was fraud involved in Madoff's office, as is probable, they could easily have come up with documents "showing" where clients' assets were held.

Who can say what happened, and what documents were presented, and whether there was sufficient third-party confirmation ?

Jan 08 06:30 PM

[Robert Ash:]

Does anyone else's nuclear alarm bells go off when they hear the SEC confess "we couldn't have possibly uncovered Madoff's Ponzi scheme", even after having it spoon fed to them by Markopolos? The implications of this confession are enormous. If they couldn't uncover Madoff's $50B, what type of fraud or non-compliance CAN they uncover? Do they just sit at their desks waiting for fraudsters to give them a phone call handing themselves in? The SEC is rotten to the core. Better to start from scratch with something that would have the culture of an attorney general's office; you really can find professionals who know how to use subpoenas if you want. Those of us who want to see competent regulation of the financial system return so capitalism can prosper once again must resist the cries from the free-market ideologues that more regulation can't possibly be the answer since incompetent regulation hasn't worked so well.

Jan 08 06:37 PM

[AJ Clausen:]

I like

"Everyone in the New York office behaved ethically and responsibly and did as thorough an investigation as we could do," said Cheung.

Luckily the SEC can investigate insider information crimes from 10 years ago, but somehow cannot discover fraud on such a scale. Maybe in political correct America it was not "ethical" to investigate a person like Madoff.

And

"I supervised some lawyers and I was supervised by many levels above me. I'm just mid-level management."

I think I heard this kind of excuse once before.

Jan 09 01:35 AM

[Gross Bill:]

Gawd, Felix you can't even copy her name from an article correctly and you call yourself a "writer."

It cracks me up to read how many people KNOW how easy it should have been to catch him. The same people that will know on Monday who should win the Giants-Eagles game. Even though his investors never raised a brow, and Goldman never took their suspicions to the SEC.

Everybody is looking for someone to blame and I guess it is going to be this mother of two, ex-employee. At my job, we always blame the people who leave also-it's so easy.

I just don't understand why people care about this case so much. Everyone of these "investors" who thought they were getting something too good deserves to lose it all.

Jan 10 04:35 PM

[WMBANZAI7:]

If she is a poor mid-level employee she could have passed the buck upstairs. She could have taken the file to the Director of Enforcement and said look at this, what if this is true? What do you want me to do boss?

But apparently she did not, because she is not saying anything like the above. Instead she is pleading the ethical moron defense. This is how they think in the SEC?

Feb 05 12:21 AM