Regulators: An Apology

Readers of these and other pixels may have garnered the entirely mistaken impression that US financial industry regulators demonstrated stunning incompetence in their non-pursuit of various allegedly fraudulent investment schemes.

Such attacks, including the vicious assault by former SEC chairman Christopher Cox involving the word “Madoff” and the phrases “deeply troubling,” “credible and specific allegations,” “repeatedly brought to the attention of SEC staff,” and “apparent multiple failures over at least a decade to thoroughly investigate,” were, in light of new information, unfair, unsubstantiated, inappropriate and defamatory. Specifically:

NEW YORK (AP) — The trustee in charge of untangling the mess left behind by Bernard Madoff told a packed auditorium Friday there was no indication the disgraced money manager had bought securities for his clients for over a decade.

“We have no evidence to indicate securities were purchased for customer accounts” in the past 13 years, said Irving Picard, the court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities LLC.

Obviously, neither FINRA (Queen Mary Schapiro, chief executive or similar since 1996 (13 years, if you’re counting)) nor the SEC (Queen Mary, chairman) have jurisdiction over a business that does not purchase securities for customer accounts.

Further, this information provides a full and satisfactory explanation of the allegations by purported whistleblower Harry Markopolos that, inter alia, Madoff’s trading of his customer funds was invisible to the markets.

Any implication that the loyal, hard working and intellectually gifted staff of both FINRA and the SEC could not pour piss out of a boot if the instructions were written on the heel is unreservedly withdrawn with our deepest apologies for any distress that may have been caused.

Trustee: No evidence Madoff bought any securities

by Tom Hays

AP via Breitbart Feb 20 2009

Madoff creditors get first report

by Beth Healy

The Boston Globe Feb. 21 2009

Related

SEC Chief Pursues Tougher Enforcement

by Stephen Labaton

The New York Times Feb. 22 2009

The SEC Watchdog Who Missed Madoff

Don’t Blame Me: Cheung

by Lorena Mongelli and Dan Mangan

The New York Post Jan. 7 2009

Statement Regarding Madoff Investigation

Dec. 16 2008

Comments

[john s. gordon:]

your tongue is firmly embedded in your cheek sir.
> jack

Feb 24 08:22 AM

[Rong:]

Please, some of you who have a better grasp of our great financial system than I, comment on how the Madoff investors stand with regard to SPIC claims.

Feb 24 08:36 AM

[canonicalman:]

This guy MUST be a lawyer. Only one would latch onto this kind of explanation.

Feb 24 10:56 AM

[One Eyed Guide:]

I am in total agreement with this article.

In fact, I am shocked, just shocked to think that anyone would expect any of the SEC investigations of Madoff to have uncovered any improper trades if there were no trades.

Feb 24 12:02 PM

[jackooo:]

SEC is useless.

Feb 24 12:37 PM

[James H. Wang:]

I do agree with you that the Madoff fraud, though certainly not helpful to the markets, probably shouldn't be getting the attention it is currently getting regarding the SEC. I also agree that it's harder to catch than people appreciate, even if it seems blindingly obvious in hindsight.

However, I wouldn't say that the SEC is innocent of mishandling itself.

For instance, banning short selling? Endlessly hounding vocal investors that aren't bullish, like Greenlight Capital? Loosening various regulations and not even taking a cursory glance at many books?

I agree that the SEC is getting too much flak for the Madoff case. They should get far more for everything else they did wrong.

Feb 24 01:43 PM

[jdl51:]

The SEC and the other regulators should just get out of the way and let the markets straighten it out. We can see how well that worked,

Feb 24 02:40 PM

[Bundee:]

SEC employees, like all employees from all other federal agencies, get their marching orders from the higher ups. If the higher ups say "investigate" they investigate. If they are told "don't investigate" they don't investigate. With whisle blower protections so limited for federal employees few are willing to do the right thing and stop the madness.

Regulators that are not allowed to regulate are worse than no regulators at all.

Feb 24 06:30 PM

[Bundee:]

"In today's regulatory environment, it's virtually impossible to violate rules." —Bernard Madoff, money manager, Oct. 20, 2007

I'm not sure if I should get mad or laugh at this quote.

Feb 24 06:43 PM

[Jason Rines...:]

A Lawyer, lobbying in DC. I am more interested in whom decided on cutting the SEC's budget and when. I know the answers, I just hate the truth.


On Feb 24 10:56 AM canonicalman wrote:

> This guy MUST be a lawyer. Only one would latch onto this kind of
> explanation.

Feb 24 08:27 PM

[Jason Rines...:]

Brilliant. The media hype on Madoff deflects attention away from those whom were responsible for doing the only real job government is supposed to be and that is a policeman.


On Feb 24 01:43 PM James H. Wang wrote:

> I do agree with you that the Madoff fraud, though certainly not helpful
> to the markets, probably shouldn't be getting the attention it is
> currently getting regarding the SEC. I also agree that it's harder
> to catch than people appreciate, even if it seems blindingly obvious
> in hindsight.
>
> However, I wouldn't say that the SEC is innocent of mishandling itself.
>
>
> For instance, banning short selling? Endlessly hounding vocal investors
> that aren't bullish, like Greenlight Capital? Loosening various regulations
> and not even taking a cursory glance at many books?
>
> I agree that the SEC is getting too much flak for the Madoff case.
> They should get far more for everything else they did wrong.

Feb 24 08:29 PM

[d_teller:]

I enjoyed (comiserated with) the article posted above, by Mr. Newton.

FWIW, in the October 2008 issue of "Portfolio" magazine, beginning on page 84, ther's an article by Scott Paltrow, entitled "S.E.C. No Evil", which details the (misfeasance) or (following the Boss' injunction to 'Go Easy on Business') that I believe is a must read...

THE SEC DELIBERATELY REDUCED ITS ENFORCEMENT AND FINES, for even...criminal and egregious cases. At the present time, there's obviously going to be a lot of catch-up, and this may provide significant revenue going forward.

In the case of Madoff, with funds segregated from the actual trading section, and with "blinded" investors (both institutional and individual), there's no way the SEC could have known that the shenanigans were ongoing...except that numerous complaints and allegations were suppressed/ignored.

Remember, this article was written BEFORE the Madoff announcement. So Cox's policies of non-enforcement and slap-on-the-wrist fines led to a lot of fleecing, and a lot of pain, not just here, but in foreign banks and funds.

A major hurdle for the S.E.C. going forward, is the lack of trust by whistle-blowers; the loss of investigative reporters for the print media who have the talent and insight to follow this trail; the loss of S.E.C. personnel who actually wanted to pursue corruption...etc.

Feb 24 09:32 PM

[Kunst:]

No securities, no exchange, no commission. No problem.

Feb 25 02:22 AM

[rich c:]

A fun article.

Having set in my share of NASD/FINRA and/or SEC audits, having to spend waaaaaay too much time picking through trade blotters and confirmation, matching those against customer accounts, etc.

Good forbid they actually find problems that were artfully masked. What we're learning is that the BIGGEST red flag of all (no trading activity) went undetected. No trades in a brokerage firm is like having no tires in a car factory.

Even the Feds of yester year were smart enough to know that no dirty laundry in the cleaners might signal a front for the mob. 13 years of (assumed) audits and no dirty laundry should have been a clue, don't you think??

Feb 25 11:32 PM