According to the Wall Street Journal, the SEC discovered in 2006 that Madoff had misled the agency about how he managed customers' money. Moreover, investor Henry Markopolos spent the past decade trying to convince the agency that Madoff's returns were too good to be true. Markopolos and his friends tried to replicate his returns using complex mathematical models and could not.
Barron's reported that no one understood how Madoff made money and that the investors were pressured to never reveal that they had money with him. Ever hear of an asset manager who did not want rich people to brag about how well they did with them? But people did not need to try that hard to figure out that Madoff is a crook. All they needed was common sense.
Anyone who promises investors consistent double-digit returns is either a crook or a fool. The stock market does not work that way. It never has. The one aspect of this scandal that baffles me is how Madoff was able to convince sophisticated people at banks, charities and some of the nation's wealthiest families that the reality of the market did not apply to them.
Apparently, some people thought that Madoff was doing something illegal -- exactly what they did not know or care as long as they stayed rich. The people who were snookered by Madoff deserve no bailout for being so greedy.
Cleaning up the Madoff scandal will take years. Investors will be lucky to recoup pennies on the dollar.
Madoff is currently under electronic monitoring. His wife reportedly is seeking to hire her own lawyers. Odds are remote that regulators will able to find where the money all went.
President-elect Barack Obama is vowing to overhaul the nation's financial regulatory system to prevent a recurrence of the Madoff scandal. Whether proposed SEC Chair Mary Schapiro is the right choice, is an open question. She currently is chief executive of the Financial Industry Regulatory Authority, or Finra, a nongovernmental, self-regulatory body for the securities industry. My colleague Daniel Solin argues that Obama made a poor choice and that Schapiro "has spent her career protecting the securities industry from investors."