Yesterday, word came out that Madoff took in a new investor for $10 million just six days before he revealed his fund had failed.
The SEC may have had limited resources to monitor the thousands of hedge funds operating in the U.S. It may not have had the manpower to look at every trade on every set of books to see if it was legal. But, it could have set up a system so that the funds had to show a government examiner the total value of a firm's portfolio.
With portfolio size data, there could have been simple rule. A fund would have to keep 10% or 20% of its capital in liquid financial instruments or cash in the event of large redemptions. If the market moved in a way that cut the fund's total value, it would at least have some "dry powder" to cover customer demands.
It is easy to say this would not have worked. Redemptions at some funds topped 20% of total assets. Funds like Madoff's could have committed fraud by showing the SEC fake books. But most managers would not have risked violating federal law.
Would a simple set of rules on redemptions have stopped the failure of some funds and the inability of other funds to return money? It may not have worked for all funds, but even if it made a few keep a buffer large enough to save some investor fortunes, it would have been worth the effort.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
1-04-2009 @ 12:27AM
anonymous said...
" I serve Marc Rich, the best trader that ever lived, Baar none. You make as much money as you want serving him. No rules…just go for it.""But much more interesting is the question of what role billionaire Marc Rich plays in this fund"....
"Corporate gadfly Yolanda Holtzee doesn't mince words"
.""I think people take her seriously because she has good instincts and actually produces cases," says former senior SEC official Ari Gabinet, now an executive at Vanguard Group Inc., the fund management giant."
" The SEC and NASD review her emails. Earlier this year, when Mary Schapiro was appointed to head the NASD, the Wall Street self-regulatory group gave Ms. Holtzee an early heads up, according to people familiar with the matter. She has been called by the SEC to testify in Washington, and a software firm sued her for her negative comments in an Internet chat room. The case was dismissed."On her Yahoo user profile, she lists her hobbies as: "Making $$$ for my clients" and for Bear Stearns Cos., Lehman Brothers Holdings and Jefferies, three of her favorite stocks.""Ms. Holtzee refers to her company, Alcap LLC, as an "investment club""
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1-03-2009 @ 1:04PM
Beltway Greg said...
Christopher Cox handled the SEC about as well as "Brownie" administered FEMA. If you want to understand what happened in the past few years check out the meeting held in April of 04 (SEC) and review the last few years of the Reagan administration. Republicans always seem to get themselves into trouble with their lassiez-faire attitudes towards business self-regulation. Look at what recently happened in Tennessee. Farmers (most) would cover your yard in chicken and cow manure if the government would permit it.
And don't start screaming because I grew-up working for farmers and I shoveled out many a hog barn in the spring and I'm a registered Independent since 1980 who cast his first two votes for Reagan.
1-05-2009 @ 11:13AM
Dipesh said...
Hedge fund industry does require consolidation through tougher regulations by authorities. Keeping an eye on the major/critical transactions would certainly prevent another Madoff scandal.We are learning with every incident and let us learn how to ensure that this type of scam does not recur in future.
http://hfundsonline.com