Where were the regulators?
It seems to be a common theme in this fiscal year that the regulations set in place to stop fraud, bad lending practices and stomp out the fires below the cooked books have entirely failed. This past year has been one of excess for Wall Street, the Politicians and the CEOs and hierarchy of the many now taxpayer owned businesses.
Investors should demand more from their investment managers. Case in point was Madoff who seemingly made off with likely billions of dollars while destroying investments by paying off earlier investors with money that came from later investments. The classic ponzi scheme was ran perfectly for years, but it could not prevail through a number of withdrawal requests stemming from people needing cold hard cash in a less than booming business cycle.
Now the losses will come at the cost of taxpayers as the SIPC will step in to make reimbursements of up to $500,000 per investor if the funds are proven to have been stolen. Though hedge funds are generally open to a limited number of investors, Madoff’s fund accepted billions of dollars from feeder funds that pooled money from smaller investors then poured the cash to Madoff’s hedge fund.
The signs were clear that something wasn’t right. Madoff was posting huge gains with never a down year or even a quarter. The SEC alleged that wrongdoing may have taken place since 1999, surely he would have some kind of losses in 2000-2002 when the market tanked. Instead his fund was one of few that was able to post gains.
If investors can’t trust the regulators nor the investment managers who can they trust? Can we simply trust in recessions to shine light into who’s cheating? Without this recession, Madoff’s fund would have likely ran for much longer. Many of his biggest investors weren’t going to make quick withdrawals.
In any case the fraud charges need to be intensified. This is where all cheaters should get a dose of what harm they have done. Unfortunately the fraud laws are relatively lax, he’ll likely get a few years in jail with cable TV and nearly free roam wherever he pleases. To stop fraud at the source, executives need to know the harsh penalties they’ll get for fraud. Unfortunately many get the preferred treatment and walk free in a matter of months.
But really, where was the regulation?
