The U.S. Securities and Exchange Commission “never took the necessary and basic steps” that would have led to the agency uncovering Bernard L. Madoff’s $65 billion Ponzi scheme, according to the full report issued Friday by the agency’s Inspector-General.

The 450-page report, in which 122 individuals were interviewed and 140 testimonies were taken, documents in great detail the failings by the agency to follow up on several complaints against Madoff.

In the report, SEC Inspector-General H. David Kotz wrote that  “that the SEC received numerous substantive complaints since 1992 that raised significant red flags concerning Madoff’s hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading and should have led to a thorough examination and/or investigation of the possibility that Madoff was operating a Ponzi scheme.”

Despite five investigations and examinations, the SEC failed to detect Madoff’s scam, Kotz’s report noted. “Had these efforts been made with appropriate follow-up, the SEC could have uncovered the Ponzi scheme well before Madoff confessed,” the report said.

Kotz further criticized the SEC, saying it put inexperienced personnel on the probes and that the investigations were too limited in scope. “There were systematic breakdowns in the manner in which the SEC conducted its examinations and investigations and for that reason, the [Office of the Inspector-General] is issuing under separate cover two audit reports providing the SEC with specific and concrete recommendations to improve the operations of both the OCIE [Office of Compliance Inspections and Examinations] and Enforcement.
Kotz wrote that SEC Chairwoman Mary Schapiro should review the findings of the report with the agency’s OCIE and Enforcement divisions’ management and focus on the “performance failures by those employees who still work at the SEC, so that appropriate action (which may include performance-based action, as appropriate) is taken, on an employee-by-employee basis.”

Schapiro issued another letter in response to the report reiterating her commitment to improving the SEC’s performance. “As I stated earlier this week, it is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors,” she wrote. “In the coming weeks we will continue to closely review the full report and learn every lesson we can to help build upon the many reforms we have already put into place since January.”

The SEC has been criticized by Congress over its failures in detecting the Madoff scheme. Several high-level SEC officials left the agency in the wake of the controversy.

Madoff was first charged by the SEC on Dec. 11, 2008 with bilking investors in a multi-billion-dollar Ponzi scheme. He was later hit with criminal charges and entered a guilty plea on March 12 to all charges. He is now serving a 150-year prison term.

This article originally appeared in On Wall Street.

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