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How about a bailout for Madoff's victims?

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Christopher Cox, the chairman of the Securities and Exchange Commission blames career administrators at the SEC for their failure to investigate Bernie Madoff.

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.

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Last updated: November 25, 2009: 08:58 AM

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