We now know the SEC received "credible and specific allegations" of wrongdoing by Madoff over the past decade and ignored them. More troubling is the news that an SEC attorney who participated in investigations into Madoff's firm in 1999 and 2004 recently married Madoff's niece.
Industry insiders do not believe the SEC was really "asleep at the switch." The SEC is a toothless tiger that more often than not protects the interests of the industry it is supposed to regulate. Commissioner Cox has carried out that mandate more brazenly than any other Commissioner in recent memory.
Here's one of many examples:
In May, 2004, Senators Patrick Leahy (Chairman of the Senate Judiciary Committee) and Russell D. Feingold, a member of the Senate Judiciary Committee, wrote to Commissioner Cox. They asked him to give investors a choice between the mandatory arbitration system imposed on all investors who have disputes with their brokers and going to Court.
The mandatory arbitration system is run by the securities industry for its own benefit. Studies have shown that it deprives aggrieved investors of a fair hearing. The North American Securities Administrators Association has joined in the call for passage of the Arbitration Fairness Act of 2007 which would eliminate mandatory arbitration in all consumer disputes.
Commissioner Cox's response to this pro-investor call to action? Nothing. Just like the response of his agency to warnings about the Madoff scam.
If the SEC and Commissioner Cox were in the private sector, they could be sued by Madoff's victims for gross and wanton negligence. These investors relied on independent oversight by the SEC. Unfortunately, the SEC is immune from suit. Otherwise, it would be a slam-dunk for investors to get reimbursement.
Shouldn't the government be accountable for the negligence of its agency? We are bailing out financial institutions that caused the current meltdown. We are likely to bailout automobile companies whose poor business decisions brought them to the brink of bankruptcy.
How about a bailout for the Madoff investors who relied on the SEC? How about an overhaul of the SEC to make it serve the interests of investors it's mandated to protect?
The resignation of Commissioner Cox would be a great start.











Reader Comments (Page 1 of 1)
12-17-2008 @ 4:02PM
BHarrison said...
No "bail out" for these generally wealthy investors . . . how do they warrant any more considertion that thoses who have lost monies on 401Ks, retirement investments, etc.
I cannot even imagine who would have the audactiy to even ask such a question. This is "soooo pandering" to the "wealthy" that it isn't even humorous.
These parties can seek recourse in the normal manner of lawsuits to redress the fraud that has been committed against them. (They can afford that a lot more than the poorer middle class can). Our legal system is the appropriate place for them to seek recovery of their monies . . . and I hate to see the attorneys "get wealthy" off of this legal work . . . but that is the way our society workds.
12-17-2008 @ 5:59PM
Mfen said...
Bravo to the first commenter. Now I'd like to add my comments: I am a car nut, and American Car industry supporter. I am generally against gov't intervention or for that matter regulation or interference. In other words, the only involvement our gov't should have on industry is to assure that we are globally competitive. To that end, we should not be placing orders with Airbus for the next generation of aerial tankers that will be used in our military operations. Nor should we be bailing out our nations automotive industry. What we should do is be creating a competitive environment for them to compete globally in. Where we failed to do that was in other nations where gov't has subsidized these industries, we have not. In other nations where these industries function without much in the way of regulation, we have regulated our industry leaders to near extinction.
How about a bail out for the general aviation industry? Adams Aircraft, is but one technologically leading US aircraft manufacturer innovator that we have recently lost due to the extensive regulation of US industry here, and the credit crunch. This company was one of the first creators of the VLJ (Very Light Jet) industry. It has more than 100 million in back orders for production, but could not move forward due to the credit crunch. The assetts of this fine American Technological innovator are now Russain owned and production will soon begin overseas of this now Russian company. It is one of three new aviation firms to fall to this sort of problem.
Our US Auto industry has long had the technology and know how to leap frog all other national auto companies and again dominate the global automotive industry...they chose instead to find ways, short term ways to turn significant profits, pay absorb anent union wages to labor and ridiculous white collar wages and bonuses to management. The result is clear and we are now paying the cost of that...we have no choice to assist the auto companies, but we should not bail them out. We should take a seat on the board, and advocate for the companies to resume product differentiation, innovation and quality controls that put us into the future, with in demand products.
Our financial industry innovated some of the most amazing financial instruments in the world. So much we realize that they are clearly tools of destruction: Junk Bonds, Zero down mortgages, wrap mortgages and more. These "instruments" are nothing more than agreed upon concepts, that enabled us to feel like a whole lot of money is available to us for personal or other consumption. Net result is, there is nothing to consume but the greed itself because these instruments are negative tools, as they do not create more money, they just reallocated it based on roi.
Bernie Madoff is the pinnacle of this in 2008 as was Micheal Milikin in the late 70's and early 80's.
Reality is, we should only bail out these industries long enough to leave them to their own devices,and stay out of their way.
There is more....but too much to write and I've been working since 4am so I'm beat...later
12-17-2008 @ 7:12PM
Kent said...
I just don't understand the mind-set of our elite on Wall-Street and government (especially, Cox) not resigning by taking responsibility for their action/inaction. Is that due to our cultural values? I don't think so. Barnie Franks, Chris Dodd and Chuck Schumer seem unfazed about their culpability for this economic melt-down.
12-18-2008 @ 10:53AM
IPM said...
Not everyone was a wealthy investor.
Many people who are older had all of their life savings with Madoff. Some as little as $40,000. Where does an 80 year old sickly widow go to apply for a job?
12-18-2008 @ 12:06PM
Sheldon L said...
No bailout:
1) We have police monitoring traffic but you still have to look both ways or you may get run over.
2) Film companies do their best to process your film and guard against mishaps. However, even if your priceless wedding photos are ruined all you get is an apology and a free roll of film.
3) NFL officials have blown calls this season that affected the outcome of games even though their mission is to enforce the rules and make sure everything is fare.
If investors were too foolish to diversify and believed they could earn out-sized market returns without understanding how year after year than they have to take responsibility for their actions.
It is a sad affair but even the discussion of a bail out is utter nonsense!
12-20-2008 @ 10:01PM
J said...
A bailout would set a terrible precedent.
Investors need to do their due diligence when they invest.
The taxpayers/gov't does not reap the benefits when investors win. Hence, the taxpayers should not reimburse/bailout investors when things go sour.
So please, any talk of such a bailout is simply ridiculous.
12-20-2008 @ 10:01PM
John Smith said...
A bailout would set a terrible precedent.
Investors need to do their due diligence when they invest.
The taxpayers/gov't does not reap the benefits when investors win. Hence, the taxpayers should not reimburse/bailout investors when things go sour.
So please, any talk of such a bailout is simply ridiculous.
12-21-2008 @ 8:49AM
Kerri said...
For years, Bernie Madoff, all-around nice guy, pulled billions of dollars of foreign and domestic money into his investment fund. His lure? He promised the implausible combination of good returns and low risk%uFFFDand people believed him.
Painfully, the allegations of fraud surrounding the Madoff affair are also exposing the fundamental fallacy of the global economy. Like Madoff's trusting investors, the rest of the world was willing to assume that the U.S. economy as a whole was a low-risk, good-return investment. This belief drove the entire structure of global trade and finance for the past 10 years. And when the subprime crisis showed this assumption of low risk to be false, the financial crisis resulted.
12-23-2008 @ 10:57AM
Barbara said...
Several years ago I became ill, needed surgery and then found ou my illness was because of a genetic syndrome that did not affect me until later in life because I had healthy habits. My health inusrance(through my husbands employer), then stopped paying the bills,we paid our deductable,plus monthly prem. of over 1/3 of his income, and we were left w/ about 5,000.00 in bills. His employer had problems contributing to the self funded plan, and down sized employees by letting 35+ go(all older or had used there insurance in the past few months for major illness). I called around, to my congressman, the state insur. commision etc..They all told me the same, it is difficult to regulated self funded health plans and it was our fault for working for a company with a self funded plan.I was told to pay the outstanding bills,even though the insurance company had original approved the payments, and literally shut up. So, me being ill, my husband unemployed, we at ramen, picked up aluminum cans etc.. to pay our bills. He has a job now, but the company has a self funded health plan, so we choose not to participate. Since we are low income earners, it obviously doesn't matter to anyone when we need help, even when we do the right thing. And the nerve of the person at our state insurance commision to say that people who work at companies who have self funded plans get what the desrve, that is terrible. We live in an area w/o alot of jobs and at least we work.No bailouts for Madoffs victims. They should have known better. He made them feel special and honored that he allowed them to invest with him. It's an expensive lesson for some, put maybe they will learn this way. If Uncle Sam bails them out they will expect it in the future. That's human nature.