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Internal Investigation Lessons Learned from the Feds’ Ponzi Scheme Probes [High-School Sports Best Practices Alert (Jan. 2014)]

Author: Michael L. Buckner, Esquire (Shareholder)

Federal inquiries into Ponzi schemes, including the former operation run by Bernard (Bernie) L. Madoff, provides important lessons for interscholastic professionals conducting investigations of alleged violations of high school athletic association rules. For example, Madoff’s June 17, 2009, interview with the Securities and Exchange Commission (SEC) inspector general revealed he was surprised the agency did not discover the Ponzi-scheme years ago. Further, Madoff briefed the SEC on two approaches wrongdoers use to evade investigators:

  • Make it hard for investigators to find documents by creating a convoluted and scattered paper trail.
  • Be as cooperative as possible (the approach favored by Madoff).

Madoff’s interview also contained the following four best practices that can be used by high school investigators in interscholastic athletic association cases:

  1. Check the basics. Madoff indicated “the young investigators who pestered him over incidentals like e-mail messages should have just checked basics like his account with Wall Street’s central clearinghouse and his dealings with the firms that were supposedly handling his trades.”
  1. Follow-up. Madoff noted, in 2006, SEC “investigators actually asked for his clearinghouse account number on a Friday afternoon, but then never followed up.”
  1. Verify testimony. SEC staff repeatedly relied only on “Madoff’s own testimony and records — which were lies and fabrications.”
  1. Manage the investigation team. SEC “files also tell a tale of unseasoned, poorly managed people who were uncertain about what to do and unwilling to ask for help.”

Sources: Diana B. Henriques, “Lapses Helped Scheme, Madoff Told Investigators,” The New York Times, October 31, 2009, A1; Michael Corkery, “Jailhouse Interview: Madoff Rips SEC, Calls Shapiro a ‘Dear Friend’,” The Wall Street Journal Blog (October 30, 2009), http://blogs.wsj.com/deals/2009/10/30/jailhouse-interview-madoff-rips-sec-calls-shapiro-a-dear-friend/.

Contact Michael L. Buckner (954-941-1844; mbuckner@bucknersportslaw.com) for additional recommendations relating to conducting internal investigations of alleged rules-violations.