Bernard Madoff’s new victim: the SEC

What happened

The Securities and Exchange Commission’s chief enforcement officer, Linda Thomsen, is stepping down, days after the SEC was harshly criticized in Congress for failing to detect Bernard Madoff’s apparent $50 billion Ponzi scheme and other corporate fraud. (The New York Times) Madoff Monday agreed to a partial settlement of SEC civil charges, including a permanent freeze on his assets. (Reuters)

What the commentators said

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“Call it the revenge of Bernie Madoff,” said Scott Reeves in Minyanville. New SEC Chairwoman Mary Schapiro wants to “beef up” her agency’s tarnished reputation, and Thomsen’s mishandling of Madoff made her a liability. Maybe the new enforcer, reportedly tough-guy former federal prosecutor Robert Khuzami, will bring some “much-needed adult supervision.”

Replacing Thomsen will be Schapiro's "first major test," , said David Weidner in MarketWatch. Thomsen “wasn't tough enough,” but she “came highly recommended” when she joined the SEC in the mid-1990s. She had several small wins, but “few big busts,” and her division had too-close ties to the industry and an inexperienced staff.

She was also “hamstrung” by former SEC Chairman Christopher Cox, said Neil Roland in Financial Week, whose anti-regulation policies left her in a “no-win situation.” And it should be noted that even as she got caught in the Madoff “political crossfires,” Thomsen was in charge of securing Madoff’s big concession Monday—he agreed not to contest the SEC’s civil charges.

It's worth noting that when Schapiro laid out her plans to revive the enforcement branch, said The Wall Street Journal in an editorial, she “never uttered the word ‘Madoff.’” That’s because the private market—notably, fraud investigator Harry Markopolos—spotted Madoff’s fraud while “SEC lawyers couldn’t seem to grasp it.” Whoever replaces Thomsen, investors should remember that their own skepticism is their best protection.