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SEC Madoff sleuth botched probe, got bonus for next try

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Madoff and his pursuers I'll let this one speak for itself: One of the key people involved in the Securities and Exchange Commission's probe of Bernard Madoff got a cash bonus last year. What's more, his or her boss signed off on the $1,200 (U.S.) payment just two weeks after the regulator's Office of Inspector General, or OIG, issued its final report on how the SEC failed to spot the $50-billion Ponzi scheme.

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The bonus was purportedly the result of a follow-up investigation, rather than the original, botched version.

In an audit of the agency's employee recognition, recruitment and retention programs posted on the SEC's website, the OIG is clear about how it feels, particularly after its probe into why the agency failed to uncover the Madoff scheme, citing inexperienced staff and examinations that were planned inadequately and were too limited in their scope.

It had even recommended that the SEC chairman share these failures with managers and that appropriate action - including "performance-based action" - be taken. One wonders if that got passed on. Here's the rub:

"We found during our review that one of the key participants in both the 2005 examination and 2006 investigation of Madoff received a $1,200 cash award in April, 2010. The narrative justification for the award indicated that it was made, in part, to reward the employee's efforts in 2009 pertaining to a follow-on investigation of Madoff. The award nomination was signed by the employee's branch chief and assistant regional director on Sept. 14, 2009, just two weeks after the Aug. 31, 2009, issuance of the OIG's final investigative report on the commission's failure to uncover the Madoff Ponzi scheme. Moreover, both the employee being rewarded and the assistant regional director who recommended the award were cited in the report for numerous performance issues and were subject to potential disciplinary action at the time the award recommendation was made."

Was there any saving grace?

"We did find that SEC postponed payment of the award to the employee until April 25, 2010, after the SEC's receipt of a report from Fortney & Scott LLC, which concluded that the employee's actions did not warrant formal disciplinary action. However, the Fortney & Scott report did not dispute the serious performance issues pertaining to the employee raised in our report, including the fact that the 2005 examination of Madoff in which the employee had played a critical role was inappropriately focused, conducted without obtaining critical independent data, closed with unresolved issues remaining, and relied too heavily on the representations of Madoff. "

The report did not name the employee or manager.

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Weak rebound or double-dip? Fears are mounting that the United States may be heading for a double-dip recession after a string of depressing numbers. But is it really that bad, or just a slowing recovery? I'd bet on the latter myself.

The uglier forecasts picked up last week, when the U.S. Commerce Department reported that the economy expanded at an annual pace of 1.3 per cent in the second quarter. To make matters worse, it revised its reading of first-quarter growth to just 0.4 per cent.

Then on Monday, the Institute for Supply Management's factory index dipped to its weakest showing in two years. And today, the ISM's reading of the services sector also dipped - while it's still showing growth, it's the slowest growth in about 18 months.

"The odds of the economy going back into recession are at least one in three if nothing new is done to raise demand and spur growth," former U.S. Treasury Secretary Lawrence Summers said in a column for Reuters.

"If these judgments are close to correct, relief will soon give way to alarm about the United States's economic and fiscal future."

How serious is the threat? Senior economist Jennifer Lee of BMO Nesbitt Burns said there's no question fears of a double-dip are rising, though she discounts that possibility, as do other economists.

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"I think it's a weaker recovery," Ms. Lee said, adding BMO projects GDP will continue to expand, though not at a robust pace. "We're not in the double-dip camp."

Capital Economics agreed.

"The small drop in the U.S. ISM non-manufacturing index in July, to 52.7 from 53.3, suggests that the economy is not slipping into a recession but instead that growth is very weak," said senior U.S. economist Paul Dales. "... Taken together with the sharp fall in the ISM manufacturing index in July, the two ISM surveys are pointing to annualized GDP growth of just 1.5 per cent."

Europe back in spotlight There appears to be no stopping the spread of the euro debt virus.

Having taken something of a back seat to the debt ceiling debate in the United States, Europe is again the focus of the markets today. The inoculation, meant to halt the crisis at Greece, Ireland and Portugal, simply didn't work.

Borrowing costs in Italy and Spain remain elevated today, though down slightly from their peaks. Italy's Premier Silvio Berlusconi was speaking to parliament today, while his finance minister met with the chief of the 17-member euro zone's finance group.

"Our banks are liquid, they passed the stress tests, and Italian families are less indebted than others among the major economies," Mr. Berlusconi said. "If to our deficit we add the savings of our families, we'd be second in the European Union in terms of solidity."

Spain's Prime Minister Jose Luis Rodriguez Zapatero returned from vacation to deal with the crisis.

"The steam is slowly building in the sovereign debt pressure cooker as the realization slowly dawns that the [bailout fund]doesn't have the funds to prevent a full scale financial meltdown, which would only leave the [European Central Bank]as the last line of defence," said CMC Markets analyst Michael Hewson.

Adding to the general fears, France's Société Générale said it probably won't meet its 2012 targets as it writes down its Greek debt.

At the same time, the Swiss National Bank surprised markets by cutting interest rates to help stem the climb of the franc , which has surged as a "safe haven" currency. The franc did fall in the wake of the announcement, which included other steps as well, though senior currency strategist Elsa Lignos of RBC warned the dip would be short-lived unless the central bank follows the move by actively selling the currency.

"The SNB has not said explicitly that it will intervene yet only that it 'will take further measures … if necessary,'" she said. "We stress that verbal intervention is unlikely to be enough - unless we get a drastic improvement in risk appetite, the SNB will need to actually sell [the franc]for the effect to last."

Japan's PM calls for support The Bank of Japan heads into a two-day meeting tomorrow amid calls from politicians, including the prime minister, to help bolster the economy, prompting speculation of intervention in currency markets as the yen remains strong.

"Japan's economy is in the process of recovering from disaster, so we must closely watch currency moves," Prime Minister Naoto Kan said at a cabinet meeting, according to Reuters. "We want the BOJ to continue to support the economy."

Japan's strong currency has been an issue as the country struggles to rebound from the devastation of mid-March, and some observers expect some form of monetary easing when the central bank ends its meeting on Friday.

Of pork prices and China Rarely has there been so much focus on pork prices. But they're important now as an indicator of sorts for China, the engine of the world's economic rebound.

Pork accounts for about 3 per cent of the basket used by Beijing to measure inflation. And markets have been watching inflation closely for signs of what the People's Bank of China may do to further tighten monetary policy to cool the economy.

But, Qinwei Wang, the China economist at Capital Economics, notes today, pork prices fell in the second half of last month, which should reassure markets somewhat.

"It is too soon to sound the all-clear," Capital Economics said. "But given that consumer price inflation in everything except pork was stable over the first half of the year, this should provide reassurance that inflation dangers are easing, and with them, the need for continued monetary tightening."

Annual inflation in China is running at 6.4 per cent at last count.

Vancouver shows signs of easing Vancouver's hot housing market showed signs of easing in July, with sales falling 21 per cent compared with June and prices holding steady after almost two years of steady increases, Globe and Mail real estate writer Steve Ladurantaye reports today.

The Real Estate Board of Greater Vancouver said there were 2,571 sales in July. That's below the 10-year average, but still a 14 per cent increase compared with July 2010. The number of listings increased slightly, up 0.8 per cent from June.

RIM unveils new devices Research In Motion Ltd. embarked today on one of the most ambitious launches in its history, as the struggling smart phone giant tries to halt a decline in market position and strike back against its fast-moving rivals, The Globe and Mail's Iain Marlow reports.

The Waterloo, Ont.-based technology company took the unusual step of simultaneously launching three new models around the world in an unprecedented effort to build on its success in international markets.

The bid to show global strength comes at a crucial time for RIM, which has ceded market share in North America but posted 67-per-cent year-over-year growth in international revenues as it conquered emerging markets in Africa and South Asia.

Agrium climbs Canada's Agrium Inc. is riding the boom in agricultural products to bumper results.

Agrium said today its second-quarter profit climbed to $718-million or $4.54 a share, diluted, from $518-million, or $3.28, a year earlier. Sales rose to $6.2-billion from $4.4-billion.

"Despite this spring being one of the wettest and latest in history across much of North America, our diversity throughout the value chain enabled us to deliver record earnings," said chief executive officer Mike Wilson.

"Growers in the eastern U.S. corn belt and Western Canada in particular were not able to plant all the acreage, or apply all the nutrients, they would have liked to this spring," he said in a statement.

"Global crop and crop nutrient markets remain tight. The combination of all these factors is expected to bode well for crop input demand this fall and Agrium will be there to provide the products necessary for growers to maximize their yields and returns."

In International Business today China projects its steel production will slow in the second half of the year after a strong first half, running counter to the bullish view of the world's largest iron ore miners that expect firm demand for the steel making commodity, Leslie Hook of The Financial Times reports from Beijing.

In Economy Lab today There's an important case in which a fall in productivity will increase incomes, and recent Canadian experience appears to be consistent with this exception. Our preoccupation with productivity may be misplaced, Stephen Gordon writes.

In Personal Finance today Gold's price is going up and up, but research carefully if you're thinking of selling .

Many of us fume silently when restaurant bills are split evenly – and in our view, unfairly.

From today's Report on Business

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