Wednesday, December 17, 2008

On the Madoff Situation

I haven't written anything about the Madoff scheme yet. There have been so many economic events to keep up with that it can be a bit like trying to plug holes in a dike. However, here are some points.

1.) This is crap. According to the SEC:

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.

Yet they did nothing. As per the usual course over the last 10+ years, regulations were not enforced. In fact, it's as though there were no regulations in effect. Meaning -- what is the actual purpose of the SEC when a $50 billion dollar scheme can go unnoticed for this long? Does everyone just go to the office and play cards all day long?

2.) There is no way this is a solo job. Again from the SEC

SEC investigators are currently working with the trustee and other law enforcement agencies to review vast amounts of records and information involving Mr. Madoff and his firm. Those records are increasingly exposing the complicated steps that Mr. Madoff took to deceive investors, the public and regulators. Although the information I can share regarding an ongoing investigation is limited, progress to date indicates that Mr. Madoff kept several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.

The steps Madoff employed were "complicated". There were "several sets of books and false documents." Bottom line -- my guess is his whole firm is involved. Again -- where in the hell were the regulators?

Yesterday on CNBC there was an interview with a defrauded couple. They received monthly statements that showed transactions in individual stocks. They weren't the only people who received this information -- my guess is everybody did. That means the degree of sophistication involved is huge. Again Ii return to my thesis -- everybody at his firm is suspect.

This is a disaster. It indicates how far we have come from the idea of having a regulatory authority overseeing the market to insure the market is honest, fair and provides level playing field. We need to get back to that place. Now.