A document released Friday details a prison interview conducted on June 17 by the SEC inspector general in which Madoff says he had the impression that "it never entered the SEC's mind that it was a Ponzi scheme." He also told the interviewer he wished he had been caught "six or eight years" earlier.
The disgraced financier confided that he didn't bring an attorney with him when he testified in an inquiry by the SEC's enforcement division because he believed he didn't need one - and he was trying to fool the government investigators into thinking he had nothing to hide.
The details emerged in a summary of Inspector General David Kotz's interview with Madoff at the Metropolitan Correctional Center in Manhattan, released along with hundreds of other documents related to Kotz's extensive investigation of the SEC's stunning failure to detect Madoff's fraudulent scheme for 16 years.
As the SEC inspectors carried out probe after probe of his business, Madoff said in the interview he was "worried every time" that he'd be caught. "It was a nightmare for me," he said. "I wish they caught me six years ago, eight years ago."
Madoff, 71, a former Nasdaq stock market chairman, pleaded guilty in March to charges that his secretive investment-adviser operation was a multibillion-dollar Ponzi scheme that destroyed thousands of people's life savings and wrecked charities.
It was possibly the largest-ever Ponzi: the classic scheme in which investors are paid with other investors' money rather than actual profits on their investment.
He is serving a 150-year sentence in federal prison in North Carolina.
Kotz also issued a statement Friday saying his probe found no evidence to support Madoff's claim of having a "close relationship" with SEC Chairwoman Mary Schapiro, who previously headed the Financial Industry Regulatory Authority, the largest non-governmental regulator for all securities firms doing business with the U.S. public.
In the interview, Madoff called Schapiro a "dear friend," saying she "probably thinks, I wish I never knew this guy." Like the SEC, FINRA made periodic exams of Madoff's brokerage operation, which functioned separately from his investment business hidden from regulators' view.
An internal review by FINRA found a regulatory breakdown on the part of the organization in the Madoff case.
In his interview with Kotz, Madoff said the SEC never asked him about his tiny accounting firm run by David Friehling, who is expected to plead guilty Monday to charges in the scam. It seemed incongruous that, with more than $65 billion in private investments he claimed he oversaw for thousands of people, Madoff used what seemed to be a small-time auditor with a minuscule office in suburban New City in Rockland County.
Authorities say that the accountant Friehling appeared to have rubber-stamped Madoff's records.
Kotz's report of his investigation, made public in early September, painstakingly detailed how the agency's investigations of Madoff were bungled, with disputes among inspection staffers over the findings, lack of communication among SEC offices in various cities and repeated failures to act on credible complaints from outsiders forming a sea of red flags.
An inspection of Madoff's operation in 2003-04, for example, "was put on the back burner" even though the exam team still had unresolved questions, Kotz found.
Madoff said in the interview that the SEC examiners "never asked" for basic records to corroborate his operations.
Madoff's former finance chief, Frank DiPascali, is cooperating with prosecutors after pleading guilty in August to helping Madoff carry out his fraud.
Madoff was asked in the interview whether he was concerned about DiPascali's testimony. His answer: "No, he didn't know anything was wrong, either."