bricki

Madoff's Investors Don't Deserve Compensation or Sympathy

In general I agree with the idea that investors must be cognizant and suffer the consequences of the risk they assume when giving their money to other people. Certainly for cases where fraud is not part of the picture this is necessary for markets to function properly.

And of course there is little or no precedent for this. After all, did the ENRON retirees get compensation for the rape of their assets? In many cases their loses were at the hands of programs they had little control over.

But - the moral problem in this case is the failure of the SEC - they are supposed to provide some form of protection against the ultimate form of risk that occurred in this case - complete fraud. While the investor must be responsible for his actions, and the reliability of his choices is it completely reasonable for the investor to factor in the mis, non and malfeasance of the SEC in this case? Since the SEC failed in this case, should they not be liable too?

Of course the problem is that liability of the SEC devolves to the taxpayers - and this they become the ultimate payers. So why should taxpayers pick up the bill for this? SEC regulation doesn't come with a guarantee against fraud, only some (weak it seems) attempt to minimize it.

So ultimately I think that Madoff's victims should not be compensated. There is no precedent for it, and even the strongest point in their favor, that the failure of the SEC is not a normal risk factor, does not rise to the level that justifies the establishment of a new public entitlement as there is no guarantee the SEC will be infallible in preventing market risk of this sort.