The Securities and Exchange Commission gave a cash bonus to a key participant in the agency's failed investigation of Bernie Madoff even as the employee faced potential disciplinary action, according to government inspectors.
In an audit this week, the Inspector General's Office at the Securities and Exchange Commission (SEC) said the $1,200 cash award in the spring of 2010 underscored a broader issue with the agency's cash awards program.
"The lack of adequate documentation to support cash and time-off awards and approval by division and office heads of awards to employees potentially subject to disciplinary action jeopardizes the integrity of the awards program," the inspector general said.
The inspector general's report reviewed the agency cash awards program, finding that bonuses often lacked sufficient documentation.
"While we agree it's useful to incentivize employees through cash awards, we often find ourselves needing to direct our limited resources to monitoring the markets and pursuing enforcement actions," SEC spokesman John Nester said in an email Tuesday, responding to the report.
"That is one of the reasons why our reward program is significantly smaller than those of other federal agencies, and average individual awards, according to the inspector general, are nominal," Mr. Nester said.
The inspector general's report was reported on Monday by the Project On Government Oversight (POGO).
In August 2009, the inspector general finished an in-depth investigation into the SEC's failure to uncover the Madoff fraudulent investment scheme. That report found that early SEC examinations of Madoff were too limited and conducted by inexperienced personnel.
The inspector general recommended that "appropriate action" be taken on an "employee-by-employee" basis of those involved in the failed Madoff examinations.
One of the participants in both a failed 2005 examination of Madoff and a 2006 investigation nonetheless managed to receive a $1,200 cash award from the SEC in 2010, according to the report.
The employee was not rewarded for earlier Madoff work but was credited with efforts in 2009 "pertaining to a follow-on investigation of Madoff," the report said.
After a review by an outside law firm hired by the SEC, officials eventually concluded the employee's actions "did not warrant formal disciplinary action," the inspector general's report said.
Still, the inspector general said the law firm report did not dispute "serious performance issues" about the employee, the report said. The report did not identify the employee.
Michael Smallberg, an investigator at POGO, said the reward raised serious concerns about how cash bonuses are distributed.
"By rewarding an employee whose ineptitude contributed to the massive investor losses, it appears the SEC has made a mockery of its inspector general and the system of merit-based awards at the agency," he said.
Madoff is serving a 150-year prison sentence after pleading guilty to the massive Ponzi scheme.
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