"Unlikely Player Pulled Into Madoff Swirl" 

...Moreover, in the years leading up to his involvement with Ms. Madoff, Mr. Swanson aggressively pursued an enforcement action against a company whose board included his future father-in-law, Peter Madoff, and whose chief executive was one of Mr. Madoff's closest friends.

Former colleagues in the regulatory world and professional adversaries described Mr. Swanson as a straight arrow, earnest by-the-book Midwesterner who worked long hours and received excellent job evaluations. Several said they always saw him act aggressively but fairly in his years at the commission and that they never saw any evidence of him favoring any company, including Madoff Securities.

"I remember him as a very hard-working, dedicated and smart guy," said Joseph Lombard, a former market regulation counsel to Arthur Levitt Jr. when he was the S.E.C. chairman in the 1990s. "You have people at the agency, like anyplace, who are more or less committed to the enterprise. Eric was all in. He believed in the ability of regulation to make markets better. He was an advocate of aggressive action against people who had fallen short." - 12/18/08, New York Times, Stephen Labaton

Three times in three paragraphs, Eric Swanson is described as aggressive in his approach to his work at the SEC. Swanson, of course, is the former SEC investigator who married Shana Madoff, Bernie's niece and compliance officer, in 2007. The Swansons are both lawyers.

After Bernie was arrested last December, the Swansons hired public relations consultant, Eric Starkman, who seemingly changed public perception about the couple overnight. "Unlikely Player" along with a sister piece in the Wall Street Journal linking Shana Madoff Swanson to the Girl Scouts put to bed concerns about Eric Swanson's involvement in the Madoff family business.

But on closer inspection, Eric Swanson's career is checkered with evidence that he was far from aggressive, especially when it came to the Madoffs, and his competence is questionable in at least once instance. 

From 2002 to 2005, Mr. Swanson was involved in developing a case against the National Stock Exchange. At the time, Peter Madoff was a director and Madoff Securities was a significant investor in the company. The case, which was settled in 2005, was unusual in that it was one of the few to name a top executive of the company as a defendant. It accused David Colker, the exchange's founder and chief executive, of violations. Mr. Colker is a close friend of Peter Madoff. The commission penalized the exchange and Mr. Colker for failing to enforce investor protection rules from 1997 to 2003. The commission concluded that the exchange had failed to properly monitor a rule that prohibited dealers from trading for their accounts ahead of customer orders.

[Note: The National Stock Exchange (NSX) is a Midwest stock exchange formerly known as the Cincinnati Exchange and is unrelated to NASD.]

Labaton understates the NSX case. According to a 5/19/2005 SEC  administrative ruling, NSX openly and flagrantly violated SEC regulations year in and year out for more than six years. As a result, NSX brokers made untold millions cheating their customers.

NSX encouraged the cheating by failing to enforce "compliance by its dealer firms (known as "designated dealers") with two important provisions of its rules: the market order exposure ("MOE") rule and the customer priority (or trading ahead) rule".

On top of trading violations, NSX destroyed email correspondence that was supposed to be retained for five years.

What punishment did Eric Swanson "aggressively" mete out to NSX for cheating customers and destroying evidence?  NSX was required to set aside a million dollar reserve for an independent audit and David Colker, NSX CEO, was censured. A slap on the wrist.

As an aside, anyone who claims the Madoffs operated the brokerage side of the business honestly is full of crap. Bernie and Peter knew NSX was violating SEC regulations and they profited from those violations. Destruction of email correspondence is right up the Madoff alley, too, as we now know.

Peter and Bernie were certainly closely associated with NSX. In January 2004, NSX sponsored a Swiss ski trip for the Madoffs and a dozen of their friends and business associates.

But did the Madoffs influence Eric Swanson's investigation of NSX?

Mr. Swanson has told friends that he met Ms. Madoff at a breakfast at the offices of A. G. Edwards in St. Louis in October 2003. At the time, Ms. Madoff was on a compliance committee of an industry group. It held regular meetings around the nation with regulators and industry executives and lawyers to examine market and regulatory trends.

The two maintained what one associate described as a professional relationship, occasionally seeing each other at industry meetings. In April 2006, they became romantically involved while he was visiting New York. On Dec. 8, her birthday, he proposed to her. They were married soon afterward and he had an opportunity to meet many of the members of his new family.

Labaton again understates the case. Peter Madoff was a member of the A.G. Edwards board of directors. A. G. Edwards is headquartered in St, Louis and, outside of New York, Missouri is the only other state where Bernard L. Madoff Investment Securities LLC is registered.

Shana Madoff wasn't on the compliance committee of just any old industry group. She was appointed to the NASD Market Regulation Commitee in 2003 (p. 61).

Anyone who has ever had an affair with a fellow employee or business associate will treat Swanson's claim that he met Shana Madoff in October 2003 but didn't jump in bed with her until April 2006 with a healthy dose of skepticism. People lie all of the time about affairs to save themselves embarrassment.

Putting personal considerations aside, Eric Swanson has an even bigger reason to lie about his affair. His in-laws pulled off a $50 billion scam that operated for at least twenty years under the noses of some of the most sophisticated investors in the world and he doesn't want to be linked to it. The last thing Swanson needs is to be seen as having done financial favors for his future father-in-law because he was sleeping with his daughter. I'm sure the SEC shares Swanson's concerns, too.

While the precise date has not been made public, we know Eric Swanson left the SEC some time after April 2006 to join Ameriprise. The date is important because we don't know if Swanson left the SEC before or after he knew the Markopolos-inspired Madoff investigation was going nowhere.

Dating the beginning of the affair to April 2006 also permits Shana Madoff to claim she was busy "tending" to her cancer-stricken brother up until the time of his death on April 18, 2006.

In the three years after that meeting, Ms. Madoff was spending time away from the firm to tend to her brother, Roger, who was battling leukemia. She and Mr. Swanson, who was a comfort to her after Roger Madoff's death at age 32 in 2006, grew close and began dating that year, their spokesman said. - WSJ

To put it less delicately, the Swansons would have us believe that Eric was such a comfort to Shana in the two weeks after Roger died, they started having sex. But the Swansons don't provide an explanation as to how Eric got close enough to Shana to be such an irresistible source of comfort in the first place. Did Eric sit shiva with the Madoffs?

Exactly how much time Shana needed to spend away from the firm tending to Roger is another interesting question. Roger was married and I'm sure he had around-the-clock medical staff to look after his physical needs. If Shana was really spending time away from the firm because she was having an affair with Eric, she doesn't look like such a nice person.

No one in the media, as far as I know, has specifically said Swanson, 41, was a bachelor until his marriage to Shana Madoff and other details about Swanson's life are scarce.

According to the Minnesota Judicial Branch, Eric John Swanson was admitted to the Bar in October 1993. He last renewed his license in September 2008 and gave his address as 450 N. End Ave., New York 10282.

His faculty bio on the University of Minnesota Carlson School of Management website states that Swanson clerked for the Honorable Donald S. Russell of the United States 4th Circuit Court of Appeals in South Carolina before joining the SEC in 1996. Russell, appointed by Nixon in 1971, was 90 years old in 1996.

Swanson was scheduled to teach the Carlson School course in January 2008. Ameriprise is headquartered in Minneapolis which might mean Swanson intended to spend time at the corporate office that month but by January 2008, he had left the company to work for BATS.

Was the transition to BATS voluntary?

To be continued.