A cliché commonly used when discussing justice in America is,"You do the crime, you must do the time."
Fair enough. However, why is that standard of justice nearly non-existent when it comes to a despicable swindler like Bernie Madoff?
Madoff is the American businessman and former chairman of the NASDAQ stock exchange who was arrested on December 11, 2008 and charged with engineering the largest investor fraud ever committed by a single individual in world financial history.
Madoff created an elaborate "Ponzi Scheme" in which he swindled well-schooled bankers, Wall Street investors, charities, and individuals out of $50 billion dollars.
That number $50 billion is hard for most people to comprehend. Think of it in familiar terms: George W. Bush sent $17 billion of your money to bail out automakers in December.
Bernie Madoff swindled three times that amount from professionals and others that should have known better.
Despite the enormity of his crimes and the harm inflicted on countless numbers of innocent people, Madoff is a free man, after posting a $10 million bond.
While the U.S. Congress and prosecutors sort out the greatest hoax in history, the mastermind of deceit continues to enjoy a life of luxury and opulence made possible by that very hoax.
Madoff's successful run of felonies has put enormous pressure on the Securities and Exchange Commission (SEC), the government agency created in 1934 to regulate the stock market and prevent corporate abuses relating to the offering and corporate reporting.
For a complete history of the SEC, refer to reference (1).
The burning question running through the halls of Congress and minds of jilted investors is: Why did the SEC fail to catch this bottom-feeding crook? How in the hell did one man manage to steal $50 billion from some of the most sophisticated and tough-minded money people in the world in the heavy regulated environment of financial investments?
Has Bernie Madoff ever been investigated by the SEC?
In fact, the SEC did investigate Madoff at least eight times since 1992 as reported by the Associated Press, Reference 2.
From the linked reference this summary in part:
"The many fruitless probes into Bernie Madoff:
Starting in 1992, federal regulators on many occasions examined various aspects of Bernard Madoff's business operations, but they never turned up the alleged $50 billion Ponzi scheme that led to Madoff's arrest last month. The history of regulatory failure in the Madoff scandal:
1992
Securities and Exchange Commission
Madoff's name comes up in a probe of Florida accountants who allegedly sold unregistered securities.
1999
SEC examiners review trading practices at Madoff's investment advisory firm.
2001
The SEC's Boston office receives information from securities industry executive Harry Markopolos raising questions about the steady stock market returns of Madoff's firm.
2004
The SEC looks into whether Madoff's firm engaged in improper trading practices.
2005
The SEC interviews Madoff and members of his family, finding no improper trading practices.
2005
An industry-based regulatory office finds no improper trading practices by Madoff's firm.
2005
SEC investigators meet with Markopolos, who alleges that Madoff's firm is "the world's largest Ponzi scheme."
2006
An SEC enforcement investigation finds that Madoff and one of his clients misled regulators. As a result, Madoff agrees to register as an investment adviser.
2007
The Financial Industry Regulatory Authority examines Madoff's firm. No regulatory action results."
Eight alleged investigations and a $50 billion Ponzi scheme goes undetected? Who in the hell were the SEC "investigators"? Big Bird and the Cookie Monster from Sesame Street?
Amazingly enough, Harry Markopolos, while working at a rival firm, wrote in 1999 that Madoff was running a Ponzi scheme. Markopolos now looks like a certifiable genius, a fact that is of little comfort to those whom Madoff robbed, or SEC commissioners and employees who are left looking like complete fools, or worse.
The bottom line seems to be that, as of now, no single explanation makes sense in the bizarre Bernie Madoff crime spree.
Allan Sloan, senior editor at CNN Money Fortune (Reference 3) filed this report, in part:
"CNN Money Fortune
"NEW YORK (Fortune) -- Yes, there really are times when life imitates art. A case in point: the Bernie Madoff scandal, in which the disgraced investor bears a startling resemblance to Zero Mostel's sleazy theater promoter in one of my favorite flicks, "The Producers."
"What do the real-life Madoff and Mostel's fictional Max Bialystock have in common? They used the same principles to pull off a big-time financial fraud. These are: If you're going to steal, steal big. If you're going to cook the books, make up numbers of your own - don't try to doctor the real ones. And, finally, if you're going to fleece people, turn down enough potential investors so that those whose money you take feel so honored that they don't do basic homework to find out about you.
"No, I'm not making light of what Madoff did, which has ruined the lives of people who went to sleep feeling rich and woke up poor, and which has devastated worthy charities. I'm just trying to show you how the world works, and why we see the same things, year after year, decade after decade, with frauds like Madoff and the Bayou hedge funds and other less famous sleazoids.
"How could the Securities and Exchange Commission, which admits it had gotten tips about Madoff for years, bring some penny-ante insider-trading claim against Dallas Mavericks owner Mark Cuban while failing to see that Madoff was ripping off billions from the likes of Elie Wiesel's foundation?
"Not to prejudge the SEC's investigation of itself, but I'll bet the answer will turn out to be that things have always been this way and probably always will be. If commission enforcers get a bigger budget and are treated with respect rather than being dissed (including, I'll bet, by some of Madoff's victims) as an obstacle to free markets, things may improve. But don't expect a fraud-free era to ensue.
"I'm saying this not out of cynicism but because I know how regulators generally work. I've seen it for years, in fields ranging from department stores to oil-drilling partnerships. You're likely to get caught if you run a few inches outside the baseline, because regulators are set up to catch that. But run so far out that you're playing on a whole different ball field? You can get away with that if you're enough of a financiopath, and your luck holds.
"Take the mutual fund "market timing" scandal kicked over by Eliot Spitzer back when he was New York's respected attorney general rather than its disgraced "love guv." As you may recall, many foreign-stock mutual funds - which, like all mutual funds, are regulated up the wazoo by the SEC - were allowing hedge funds to do quick trades that ripped off the funds' long-term investors by diverting profits from them to the hedgies. (This really should have been called "skimming," but that's another story.)
"Spitzer's folks got tipped to this game by an informant - but it turned out there had been plenty of hints, such as hedge funds telling clients about their "timing" activities. The reason the SEC didn't find this during its routine audits was that it wasn't looking for it. Who'd have thought that funds would be so stupid as to risk their most valuable asset - their reputation - for the relative crumbs the hedge funds threw them?
"No one picked up on our fictional friend Max Bialystock because he made up a fraud from whole cloth - he sold investors 25,000% of a ghastly, tasteless musical, "Springtime for Hitler," that was designed to fail and let him keep the money, but became a huge hit. Like Madoff, Bialystock didn't have enough money to pay off investors who wanted their dough.
"Both scamsters also generated an aura of exclusivity by not taking money from just anyone. "It's due diligence by crowd, and it doesn't work," says Jim Mintz, whose Mintz Group specializes in background checks.
"There's a big move on for the SEC to regulate hedge funds. It's a worthy idea. But trust me. If a big fund is engaged in a big fraud, the SEC's unlikely to find it without an outside tip. Or maybe even with one. That's how things worked with Madoff. And how they work in the real world. And how they'll probably always work. "
Which brings up an interesting point about deposed New York Governor Eliot Spitzer: Was the powerful Democrat spending too much time and money on ladies of the night at the Emperor's Club to catch Bernie Madoff?
A video on Finance Yahoo (Reference 4), provides even more information on the Bernie Madoff story and is worth viewing.
References:
(1) History of SEC [url=http://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission]http://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission[/url]
(2) [url=http://www.google.com/hostednews/ap/article/ALeqM5iIXcRJuIjbkGKM5GT0txn4-1CJowD95H7FI80]http://www.google.com/hostednews/ap/article/ALeqM5iIXcRJuIjbkGKM5GT0txn4-1CJowD95H7FI80[/url]
(3) [url=http://money.cnn.com/2009/01/05/magazines/fortune/sloan_madoff.fortune/?postversion=2009010506]http://money.cnn.com/2009/01/05/magazines/fortune/sloan_madoff.fortune/?postversion=2009010506[/url]
(4) [url=http://finance.yahoo.com/tech-ticker/article/152910/SEC-Investigated-(And-Fooled-by]http://finance.yahoo.com/tech-ticker/article/152910/SEC-Investigated-(And-Fooled-by[/url])-Madoff-Eight-Times?tickers=^dji,^gspc,dia,spy,qqqq
