Whistle Blown

Genevievette Walker-Lightfoot had evidence in 2004 that Bernie Madoff was committing fraud; no one listened

Published in 2013 Maryland Rising Stars — January 2013

In 2004, Genevievette Walker-Lightfoot, a lawyer in the Office of Compliance Inspections and Examinations at the Securities and Exchange Commission, was asked to analyze the trade account documentation of an investor whose strategies had been questioned by industry insiders. As she sat at her desk, she tried to make sense of the bizarre data blinking on her screen.

Too many trades, she noticed, were settling outside the “T+3” framework.

“Generally equity settles T+3—trade date plus three business days,” Walker-Lightfoot says. “So if you execute a trade Friday, by Wednesday, that trade should settle. But I saw trades being settled T+2, T+4, T+6, on weekends—trades don’t settle on weekends.” She started combing through for exceptions, but couldn’t find any.

“You can have trades that execute, say, T+1, like a straight cash transaction,” she says. “That’d be like one in 100 transactions; you don’t see 90 percent outside of the normal framework of a trade,” which is what she was getting. She came away with only one explanation. “I was looking at the Holy Grail of fraud,” she says.

The investor? Bernie Madoff.

“We could have been heroes,” Walker-Lightfoot says. “We would have saved many people a lot of money—investors who would have saved the market a lot of irreparable damage.”

Instead, despite Walker-Lightfoot’s whistle echoing through the halls of the SEC that day, Madoff continued operating unchecked for years. In 2009, he would plead guilty to 11 federal felonies. His Ponzi scheme is considered the worst instance of financial fraud in U.S. history.

Walker-Lightfoot, who deems herself “the most unlikely of unlikely candidates to become a securities lawyer,” became fascinated with securities law at The Catholic University of America’s Columbus School of Law. She interned at the Financial Industry Regulatory Authority (FINRA) and the SEC, and worked as a senior trading analyst at the American Stock Exchange. Someone else sitting in the SEC chair that day might not have noticed the problem. “My securities background in the trading area allowed me to understand how trades go off, front to back,” she says. “There’s the life of a bill in Congress; there’s the life of a trade. If you’ve never worked in that environment, it would be like looking at hieroglyphics.”

Walker-Lightfoot took her findings up the ladder, sending a nine-part outline to her superiors. “First question: Where are the trade confirmations? … If you’d asked for the trade confirmation,” she says, “you’d have certainly found fraud because you can’t have a trade confirmation for a trade that never existed.”

A 477-page report conducted by the Office of Inspector General in August 2009 concluded that the agency had received more than ample information to warrant a thorough examination of Madoff, yet a competent investigation was never performed. From then-assistant director Eric Swanson (who later wed Madoff’s niece, although the OIG report cited no conflict of interest), she says, “I got a shake, and a nod, and an, ‘OK, we’ll look into this,’ which normally meant we will. But we didn’t.”

So she kept pushing. Perhaps a little too hard.

“I got the call to pack it up,” she says. “All the information was taken away. After three years at the SEC—to sort of be screaming, ‘Hey! Fraud over here! Don’t you at least want to look at it?’ ‘No, we don’t want to look at it. In fact, we don’t even want you to look at it’—the tenor really changed. I used to be very proud to work there, and it began to be a place that made me not feel that way.”

Eventually Walker-Lightfoot filed a hostile work environment claim against the SEC in 2005, which settled in her favor, and in early 2006 she left for the Federal Reserve Board. That’s where she was when Madoff was arrested in December 2008. She remembers thinking: “Oh my God. I was right!”

News of her whistle-blowing attempts has helped her build her Columbia-based private practice, which opened for business in October 2011. “Mostly I’ve been working with firms and individuals from word of mouth with the Madoff issue,” she says. “People trying to prove or show fraud in certain types of lawsuits that they’re bringing. … Securities law will still be a part of my practice, but also arbitration, ethics and general compliance.”

Walker-Lightfoot says the SEC is on the upswing. “I think that as certain people left or were sort of asked to leave, certain road blocks were removed,” she says.

“The funny thing is—and people think I’m lying when I say this—when I came to college, I wanted to work for the government,” she says. “I believed in working for the greater good, as corny as that may sound. And I actually did it. That little working-class upbringing, minority child from Long Island came here, and she actually did it. That is something I’m immensely proud of.”

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