Tuesday, December 16, 2008

Bernie Madoff, An Example Why Regulation is Important

When one give their money to a financial institution, investment broker or banker, etc., it is utterly important that strict regulations are adhered to. If this was done, we would not continue to read about Madoff's 50 Billion Dollar ponzi scheme nor read about how he has wiped out many individuals, schools, organizations and companies money, thus forcing many to shut down.

The SEC was tipped off about Madoff, but did nothing or put it another way, "SEC was slow moving". Now as we are looking at Madoff's worldwide scheme, the SEC need to accept some of this blame for not shutting this man down sooner, versus later.

Madoff may have avoided scrutiny, regulatory experts said, in part because he simultaneously operated a legitimate, regulated and high-profile business as one of the largest middlemen between the buyers and sellers of stock. In that role, he helped to create NASDAQ, the first electronic stock exchange, and advised the SEC on electronic trading issues. He was a large campaign contributor and a familiar of senior regulators.

"Bernie had a good reputation at the SEC with a lot of highly placed people as an innovator as somebody who speaks his mind and knows what's going on in the industry. I think he was seen as a valuable resource to the commission in its deliberations on things like market data," said Donald C. Langevoort, a Georgetown University law professor who specializes in securities regulation and served with Madoff on an SEC advisory committee.

In other words, since he is "one of us", we will just bypass investigating his financial house, umm ponzi scheme.

For anyone to think or believe that Madoff is just an outlier, think again. Hedge funds have very little regulation and it was Madoff who was operating under the Hedge Funds guidelines. So, the question is this, "are Hedge Funds on the up and up or are they one phone call away from being outted as a "ponzi scheme"."
At the same time, Madoff's separate investment business operated on the outskirts of regulation, during a period when the government has intentionally allowed private, unregulated transactions. Private investment pools, such as hedge funds, are subject to limited oversight, and Madoff constructed his investment business to avoid most of it. The SEC said Madoff did not register with it as an investment adviser until September 2006.

Finally, experts say the Madoff case may simply point to the inherent limits of regulation.

This is all scary. It should be.

We are talking about one man who has defrauded 50 Billion Dollars which is touching everyone worldwide. This is outrageous.

And now this.
Regulators now suspect that he may have run a second investment advisory business that was never registered with regulators, according to people familiar with the investigation.

The SEC does not have the resources to examine investment advisers on a regular schedule. Instead, the agency prioritizes examinations of companies based on their risk profile, which is basically a process of judging books by their covers. People familiar with the process said the SEC tends to focus on high-risk investment strategies, such as trading in derivatives.

In other words, showing the SEC Regulators one set of books, but operated under another investment organization, the one that milked 50 Billion Dollars from many people.

It is things like this that happen which makes many wonder, "Why in the hell should we have given Wall Street 700 Billion Dollars when many are just crooks?" Harsh words, indeed but this is the reality we are looking at.

Lastly, Madoff may have run the biggest ponzi scheme, but he is not the only one. The phrase "When it Rains it Pours" is very applicable here. Now we are just waiting and wondering if the rains will every stop.

Not any time soon.

Read the article, here.

Home Page