The Madoff Scandal Widens to Include IT

The SEC announced on Friday that it is charging two computer programmers for their alleged participation in the Ponzi scheme for which Bernard Madoff pleaded guilty and headed off to jail last March.

In its complaint, the SEC alleges that, “Madoff and his lieutenant Frank DiPascali, Jr., routinely asked (Jerome) O'Hara and (George) Perez for their help in creating records that, among other things, combined actual positions and activity from... market-making and proprietary trading businesses with the fictional balances maintained in investor accounts.”

The SEC further alleges that O’Hara and Perez tried to cover their tracks by deleting hundreds of files, withdrew hundreds of thousands of dollars from their investments through the company, told Madoff they wanted to stop helping him, and then accepted larger salaries and substantial bonuses for their promise to keep quiet.

It will be interesting to watch this case unfold. I was hoping it would get into issues of whether the IT professionals were considered just uninvolved support staff or key participants in the scheme. Considering the evidence SEC claims to have, I don’t think we’ll hear those arguments in this case, but keep an eye out for how the defense comes together. Fraud prevention is a growing area of concern for government, health care, insurance, financial services, and other industries... which means we could be seeing more cases questioning the responsibility of IT to identify and/or prevent such issues.

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Comments

re: The Madoff Scandal Widens to Include IT

Chris,SOX and its requirements are built around fraud detection. Had a reputable firm be auditing the financial statements of Madoff, his fraud and the actions of the IT personnel would have been quickly uncovered.The underlying question was why a firm of Madoff's size was allowed to utilize an understaffed and compliant auditing firm. The SEC examiners should have raised this as a red flag long before this unraveled.

re: The Madoff Scandal Widens to Include IT

Thanks for the post... I agree completely. What's more, reg flags had been raised, but ignored.The SEC is understandably taking a lot of heat for missing this, and hopefully they'll see some ramifications too(if nothing else, I'd like to hear what they're doing to assure more thorough oversight in the future).