by Deb Cupples | Bernie Madoff was regarded as a Wall Street wizard. He attracted hundreds of high-rolling clients -- and swindled them out of billions.
It took years for him to get caught, despite the fact that whistleblower Harry Markopolos had repeatedly contacted the SEC (starting around 2004, under the anti-regulation Bush Administration) with evidence that Mr. Mardoff's hedge fund was a scam. [The video below is of Mr. Markopolos, being questioned by Rep. Alan Grayson.]
Now, Mr. Madoff is known simply as Federal Inmate #61727-054. Apparently, he wasn't working alone. The SEC reports:
It's all well and good that Mr. Madoff has been sentenced to many decades in prison BUT his clients will likely never get much their money back. This reminds me of the old cliché: An ounce of prevention is worth a pound of cure.
One way to increase prevention of fraud against us ordinary investors is for Congress and the President to allow the SEC to help protect us (i.e., by properly funding the agency and refraining from tying the agency's regulatory hands).
The SEC was created in 1934, after the 1929 stock market crash had wiped out millions of hardworking Americans. Here's the SEC's own mission statement:
"The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. "
The SEC Chairperson, who sets the tone for SEC operations, is appointed by the U.S. President.
One of my favorite SEC chairs was Arthur Levitt (1993-2001), precisely because he devoted effort to protecting us ordinary investors.
One of my least favorite SEC chairs was Harvey Pitt (2001-2002), because he cared more about being kind and gentle with Wall Street players at the expense of us ordinary shareholders. Even business magazines openly attacked Mr. Pitt's apparent conflicts of interest and industry friendliness.
Chris Cox, another Bush-appointed SEC chair, essentially admitted (though not until after our nation's financial system started crumbling) that regulators (including himself, I suppose) should have better promoted corporate-accountability -- instead of taking the so-called "free market" (read "anti-accountability") approach that the Bush Administration had espoused.
Too little, too late: we taxpayers ended up funneling more than $1 trillion to some of the same executives who had driven our nations' financial system and economy into a deep ditch.
Another way to reduce fraud against us ordinary investors is caution. Research might help, though one cannot validate much of the investment-related research one comes across. Public companies, for example, often submit annual reports to the SEC -- then turn around and restate their earnings (usually downward).
Yes, earnings restatements are legal.
For more info on , check out the Investors WatchBlog -- run by former SEC branch chief Pat Huddleston -- which has lots of examples of the kinds of fraud that ordinary investors face.
Other Buck Naked Politics Posts:
* Real Bonuses Based on Fake Profits
* Cheney Trying to Re-frame Bush?
* Follow the Money: Sen. Conrad Against Public Option
* Air Traffic Controller on Phone with Girlfriend During Crash
* 40 More Years in Afghanistan?
"This reminds me of the old cliché: An ounce of prevention is worth a pound of cure."
As a lawyer, it should have reminded you of the principle of "Innocent until proven guilty." Instead, fueled by your neurotic assumption anyone in business must be doing something wrong, if only you could catch them at it, your knee jerk statist reaction is to insist upon more government intrusion and control. "More rules! More regulations! More hordes of taxpayer payrolled bureaucrats!" Yeah, *that's* the answer.
I am amazed that Arthur Levitt still holds a place in your "us ordinary investors" heart. You do remember Enron, don't you? That particular boil festered all during his time at the helm of the SEC. I guess you just can't regulate 'em all.
Posted by: Sandon Flowers | August 15, 2009 at 02:08 PM