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Madoff and the SEC’s Revolving Door


The long-awaited investigative report by the Securities and Exchange Commission’s (SEC) Inspector General on how the SEC bungled multiple investigations of Bernard Madoff is set for release this week. Unfortunately, according to media reports, the long suffering investing public will not receive the report until the SEC itself has had a chance to review it.

The team that produced this report on one of the most long-running and convoluted frauds in the history of Wall Street included Inspector General H. David Kotz who came to the SEC-IG post in December 2007 after five years as Inspector General and Associate General Counsel for the Peace Corps. The Deputy Inspector General, Noelle Frangipane, also came to the SEC from the Peace Corps where she had served as Director of Policy and Public Information.

This lack of Wall Street cronyism by the top two in the Inspector General’s office might have been refreshing to some in Congress and compensated for their not knowing the difference between puts and calls and peaks and troughs and the intricacies of Mr. Madoff’s split-strike conversion strategy (he splits with your money while converting you to a pauper). But the background of the member of the team heading up the Inspector General’s Office of Investigations, J. David Fielder, should have rang serious alarm bells to Congressional investigators.

For the ten years leading up to July 2007, J. David Fielder worked for the SEC as a Senior Counsel in the Division of Enforcement. In February 1999, he moved to the Division of Investment Management, first as Senior Counsel on the Task Force for Adviser Regulation, then as Advisor to the Director. In November 2000, SEC Chairman, Arthur Levitt, appointed Fielder Counsel to the Chairman.

In July 2007, Mr. Fielder was invited to join the corporate law firm, Haynes and Boone LLP, as a partner. In other words, Mr. Fielder’s government issue rolodex filled with the names, home numbers and email addresses of his colleagues at the SEC along with the investigatory matters in his head is deemed fungible currency among corporate law firms and can be freely exchanged for partner status, instantaneously moving one from the lowly wages and attendant lifestyle of public servant to the rarefied bracket and luxuriant trappings of corporate law firm partner.

But what happened next is where things get interesting. In March 2009, just as the SEC Inspector General was hot in pursuit of Madoff aiders and abettors, Mr. Fielder gave up his lucrative partner status at Haynes and Boone to accept the lowly post of Assistant Inspector General of Investigations, working under a boss from the Peace Corps. In other words, he gave up big bucks for a demotion at the SEC.

What Mr. Fielder did might not raise alarm bells were it not happening on a regular basis throughout the corridors of Washington and Wall Street. To understand the implications, this maneuver deserves an appropriate name. A revolving door is assumed to mean one gets all the right connections as a public servant and cashes them in to the highest bidder in private industry. That concept doesn’t typically entertain the door revolving back to public servant status. On Wall Street, they call a maneuver like that a round trip: you buy 100 shares and eventually sell the same 100 shares. You end up back where you started: a round trip.

Just how many lawyer round trippers are involved in the Madoff investigation? Enough to raise a strong stench of circular corruption.

Linda Chatman Thomsen left the SEC in February and has now returned to the corporate law firm that represents many of the largest Wall Street firms, Davis Polk & Wardwell LLP. Ms. Thomsen, who served as head of Enforcement at the SEC, also achieved partner status in this round trip. Ms. Thomsen is married to Steuart Hill Thomsen, a partner in the law firm, Sutherland Asbill & Brennan LLP, which brags as follows in its brochure: “Many of our financial services attorneys have worked in the federal government, including regulatory agencies such as the SEC, FINRA and the Department of Justice.” Mr. Thomsen represents “many in the financial services industry” including “securities fraud cases.”

Linda Thomsen’s February 4, 2009 appearance before the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises left Chairman Paul E. Kanjorski (D-PA) and Committee Member Gary Ackerman (D-NY) smoldering over her smug attitude and refusal to answer questions. Congressman Ackerman erupted at one point, telling Ms. Thomsen and her colleagues: “You have single handedly diffused the American public of any sense of confidence in our financial markets if you are the watchdogs…”

Congressmen Kanjorski and Ackerman’s outrage was set off by earlier testimony that day from whistleblower Harry Markopolos who presented the multi year, documented complaints he had filed with the SEC advising that the Madoff operation was a giant Ponzi scheme, without any serious action on the part of the SEC. Markopolos said the agency “roars like a mouse, bites like a flea” and “when an entire industry you were supposed to be regulating disappears due to unregulated, unchecked greed, then you are both a captive regulator and a failed regulator….”

On May 14, 2009, Wayne Jett, Managing Principal and Chief Economist of Classical Capital LLC summed up Ms. Thomsen’s more recent SEC tenure as follows in a published letter to the SEC:

“As SEC’s director of enforcement, Thomsen presided over the firing of her investigating attorney, Gary Aguirre, in 2005 shortly after Aguirre disclosed to Paul Berger, Thomsen’s immediate subordinate, evidence of insider trading by a hedge fund. Berger learned that Aguirre’s evidence pointed to Wall Street player John Mack [the head of Morgan Stanley] as the “tipper” in insider trading by Pequot Capital, a major hedge fund. Berger fired Aguirre and closed the investigation of Pequot…

After a statute of limitations expired foreclosing further action against Mack, Berger resigned from the SEC to accept a position with a major Wall Street law firm — the same law firm which had contacted the SEC on behalf of investment bank Morgan Stanley to inquire whether Mack was exposed to any pending investigation. Berger pursued his new position as he exercised authority in the Pequot investigation and in the inquiry by Morgan Stanley.

Two Senate committees investigated Aguirre’s firing and a joint minority report found appearances of impropriety. The report was followed by resignations of the SEC’s inspector general, chief economist and three commissioners. A new SEC inspector general investigated and recommended disciplinary action against Thomsen for her conduct in the Pequot/Mack/Aguirre matter. But the Enforcement staff issued its own press release denying misfeasance. Commissioners voted to take no action against Thomsen despite the inspector general’s report, and laudatory comments followed her eventual resignation.

In other words, if you’re only a domestic diva like Martha Stewart, SEC round trippers may see fit to throw you to the wolves. If you’re a major Wall Street firm generating tens of millions in billable hours to round trippers and their legal colleagues, you may get a gift-wrapped get out of jail free card.

This isn’t just my suspicion. U.S. District Court Judge Jed Rakoff smelled something fishy in the August 3rd deal the SEC cooked up with Bank of America. The Judge refused to approve what he perceived as a measly SEC settlement of $33 million in a lawsuit over Bank of America withholding from investors information that it had approved of Merrill Lynch paying out billions of dollars in bonuses as part of its rescue acquisition of the firm. (Both firms required life support from the public purse known as TARP.) Bloomberg News quotes Judge Rakoff as follows: “I would be less than candid if I didn’t express my continued misgivings about this settlement at this stage…When this settlement first came to me, it seemed to me to be lacking, for lack of a better word, in transparency. I did not know much about the facts from the complaint. I did not know much, or really anything, about the basis for the settlement.”

That was the same view held by the Congressional questioners in the Madoff matter at the February 4, 2009 dust up with top SEC officials. After many rounds of pointed questions produced unresponsive answers, round tripper Andrew Vollmer, then Acting General Counsel of the SEC, explained why. He and his fellow SEC panelists were claiming executive privilege. This position elicited the following outburst from Congressman Ackerman: “Your value to us is useless…Our economy is in crisis, Mr. Vollmer. We thought the enemy was Mr. Madoff. I think it’s you…you were the shield…You come here and fumble through make believe answers that you concoct and attribute it to executive privilege….”

On April 2, 2009, another of Wall Street’s favorite law firms, WilmerHale, announced that Andrew Vollmer would be returning to the firm as a partner. According to the press release, before joining the SEC, Vollmer was a vice-chair of WilmerHale’s Securities Department.

The idea that highly paid corporate lawyers have an insatiable altruistic bent to periodically serve as low wage staffers at the SEC is worthy of its own Congressional hearing. Any serious reading of the facts will likely prove these lawyers are going to protect that big Wall Street firm that represents their next big pay day and fast track to partnership.

And just what does the Madoff fraud have to do with the big firms on Wall Street? The multi billion dollar proceeds of the fraud were wired in and out of JPMorgan Chase where Madoff maintained his firm’s account. Also, Madoff partnered with Citigroup’s Smith Barney, Morgan Stanley, Merrill Lynch and Goldman Sachs to compete head on with the New York Stock Exchange in a venture called Primex Trading as reported here at CounterPunch on January 15, 2009.

PAM MARTENS worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at








Pam Martens has been a contributing writer at CounterPunch since 2006. Martens writes regularly on finance at

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