Bernard Madoff's Ponzi scheme continues to unfold. Yesterday's WSJ featured gossipy tales of high fliers caught up in the fraud, including Steven Spielberg and DreamWorks CEO Jeffrey Katzenberg. Schadenfreude isn't the prettiest human emotion, but I suspect that I'll be reminding myself "it could be worse" when I'm looking at my shrunken year-end statements. At least I haven't lost millions.
David had blogged before about the marginalization of the SEC in the current financial crisis--it was likewise AWOL in the Madoff fraud, and this bad boy was clearly within its purview. The beleaguered Chairman Christopher Cox issued a surprisingly frank statement yesterday. One highlight:
The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.
One of today's lead WSJ stories highlights a potential conflict involving Madoff's niece, Shana Madoff, who married former SEC attorney Eric Swanson last year. Swanson supervised the SEC's inspection program in charge of trading oversight.
Maybe David was right back in September. It's certainly more evidence for the SEC as potted plant theory.
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1. Posted by Rob - Credit Card Debt Law on December 17, 2008 @ 20:50 | Permalink
I won't defend the specific actions of the SEC, but I do feel that it is easier to criticize the actions of government when you are looking back instead of when the decisions are made. Hindsight is 20/20, after all.
The result of the Enron and Worldcom scandals at the end of the dot com bust was Sarbanes Oxley, with the goal to increase transparency into the books of corporations at a cost of millions of dollars to our businesses. At the time, it seemed like the cost would be worth it. But given AIG, Bear, Lehman, Fannie, and Freddie, as well as the billions of dollars lost by financial institutions, is it even possible to consider this legislation anything other than a complete failure?
With the system of checks and balances, as well as layers of bureaucracy, government is slow. It will undoubtedly miss things. It's quite concerning that they missed something of this magnitude of course.
But what is more concerning to me is that the people investing millions (and collectively billions) of dollars either did not, or could not, discover the fraud through their own due diligence. I would far prefer the strengthening of self help measures to aid investors acting in their own best interest than efforts to internally strengthen SEC enforcement.
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