Is the S.E.C. More or Less Scary Today?

I dare you to read this Times report of the S.E.C.’s “investigations” of Bernie Madoff over the years and not gasp in amazement at the agency’s ineptitude. If the S.E.C. were a ship, it would be lying on the ocean floor; if it were a restaurant, it would have poisoned all its customers; if it were a government agency, it would have — oh, wait. Yes.

The Madoff crime will continue to provide work for many lawyers for many years to come. After the S.E.C.’s report, it is hard to believe that the S.E.C. itself won’t be a target of further legal action.

But what I’m wondering is this:

Let’s say you are currently running your own shady investment scheme. Perhaps you, like Madoff, have anticipated many times over the day that you would be exposed. And yet you haven’t yet been. Do the current revelations about the S.E.C.’s ineptitude give you comfort, believing the agency is congenitally incapable of rooting out fraudsters unless they confess to their own sons, or are you more frightened today than you were yesterday, believing the agency cannot possibly perform any worse than it has in the past and that your days are numbered?


Fred T.

I'm reminded of a news story I saw when I was a teenager living in a metro area that talked about how teens were being recruited to be car thieves because they wouldn't see a day of jail until they stole something like 10 cars.

I briefly considered becoming a car thief, but I'm a perpetual victim of Murphy's Law when it comes to not-quite-on-the-straight-and-narrow activities.

Me? My days are numbered. Er, um, WOULD be numbered.

Terry

I would be worried about new competing shady investment schemes - now that everyone knows how low the barriers to entry into the market are.

AlleyGator

I believe the best way to guarantee a large profit in a competitive market is to obtain privileged information that the rest of the market does not have, since it grants you a competitive edge.

So thinking economically, I doubt that the examinations into the SEC's fallacies bode well for all the other fraudsters.

N.B.

So, the question is: how does the new balance between payoff and punishment look.

The criminal has an essential element that is different from rest of us: the mind.

Looking at it from that angle, no amount punishment will deter a determined crook to swindle. In fact, quite the opposite: Bernie Madoff probably was frustrated as to how easy it all was and would have loved a little more challenge, if not relished it.

jimi

Between this and the kidnapper in Cali, isn't anyone questioning the effectiveness of 'government regulation'?

M.B.

The quote from the Chairwoman of the SCC (in refrence to the skills of the investigators), proves that the agency still has not got it: "better training, more attention to outside tips and the recruitment of “new skill sets”"

The problem does not seem to be the investigators but the vast bureaucracy above that provides huge obstacles and disincentives for anyone to stick their neck out.

ben

I love the parallels in the commentary about the ship at the bottom of the ocean, the poisoned restaurant customers and the list could go on like "it it were a government agency it would be star-struck by the hedge fund managers it audits.

It was a brilliant move by Madoff to proactively go out to his
clients (the scammed people) and proclaim that he's been
audited multiple times by the SEC, and that he passed with flying colors! He couldn't have taken better advantage of the audit than that! The only thing that could of course,
would be if he were to have the SEC auditors invest in his high return "steady as a rock" investment!

To top it off as a stroke of genius too, is that he didn't
waste a yota of his precious energy to invest a single
dime of the loot either, but just simply sticking it in a bank account is perfect!

Jake

I think the SEC is more scary to the people trying to follow the agency's regulations than to the people trying to break them.

For scammers, their biggest threat is probably from their partners in crime. Somebody gets mad at you about something or gets into other legal trouble and then they rat you out.

kevin

Less scary. I don't think they'll win another national championship in the SEC this year.

Sorry, college football starts today, so I had to...

melee

Seeing the new suggestion that the SEC be paid by its own "customers" gives new meaning to the word "fear".

Pete

I saw SEC in the headline and immediately thought it was an article on college football. Needless to say i was disappointed.

Eric M. Jones

The bureaucracy at work. The (real) conservatives are right that we need far less government. The proliferation of various new departments and divisions and their duplication and lack of communication is a tragedy.

I predict (sadly) that Harry Markopolos and others who tried to do the right thing won't be rewarded for it.

I just finished Clifford Stoll's "The Cuckoo's Egg" where he tried to stop an international computer spy, and had the almost impossible task of trying to get the Feds (FBI, CIA, NSA, etc.) interested. Stoll concluded that most of their secretive natures were just a way to conceal the fact that they were doing nothing.

My solution is Jail, Jail, Jail. Prosecute the parties who neglected their jobs. Let's see more frog-marched fellons on TV. Then let's imprison the Torturers and those that ordered it, and those who knew about it and did nothing. Perhaps next time when a soldier is ordered to abuse a prisoner, he will refuse.

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Dan

I can guarantee you all that the SEC is becomming more "scary." I used to work there and now defend people before the agency. They have retooled the top ranks with former New York federal prosecutors who usually "took no prisoners" in their prior lives as criminal prosecutors. My guess is they will start turning over more formerly civil cases to the Justice Department for criminal prosecution. They have recently started charging CEO's with securities law offenses even though they personally were not personally charged with any fraud. The SEC has many hard working, intelligent and smart employees who are hopping mad at all the criticism being heaped on the agency. Believe me, you don't want to mess with them now.

Ty Poster

"believing the agency is congenitally incapable of rooting out fraudsters unless they confess to their own sons,"

Therefore, if the scammers only have daughters or no children at all, they are safe from prosecution.

David

Florida, a revived Alabama, Georgia, a rising Old Miss, LSU...yes, the SEC is indeed a scarier conference to play in.

econobiker

Figure that the only difference between the S.E.C. and the Financial Industry Regulatory Authority during this time was who paid the people working at those entities...at least on paper.

Probably alot of industry bribes or "We'll hire you when you quit the S.E.C. or get laid off by a new administration." deals floating around the S.E.C. though...

Paul

The SEC will always be the conference to beat, with such powerhouses as Florida, Alabama, LSU, et al.

GianCMS

The truth of the matter was that Madoff pulled off a rather undetectable Ponzi Scheme for a significant amount of time. The reason that he was able to do this, apart from the obvious unawareness of the S.E.C. was that the markets were in really good shape. Some books went as far as saying that the new high of the stock market was to be a new permanent plateau. Wow, were those who said and thought this wrong. If you compare the graphs of the Great Depression and last year's depression you will notice that the tendencies are rather similar. WIth the decline in the market Madoff basically ran out of funds. People were starting to get paranoid and wanted their money back; evidently, he did not have this money. If I were running any kind of scheme I would not fear the S.E.C. so much due to the fact that as long as the market is in good shape, there is enough money to play around and people feel secure that their money will not be lost, it is not likely to be discovered.
Of course, one must consider the other side. Now that Madoff has been discovered they will probably be more aware of how these things may be run and may be slightly more cunning catching those who are guilty. I wouldn't dare to run any kind of scheme anyway its rather shameful, especially if you are caught. The S.E.C. must ultimately feared though, because as they catch more people they will become more astute at catching the next. One learns from one's mistakes.

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Kevin in McLean, VA

In football yes, basketball not so much. And keep in mind that the SEC includes Vanderbilt.

All kidding aside, if I'm a shady investment broker my only worry is that more shadesters will enter the market because the SEC ain't going to get any better. We're talking about a government agency you know. They'll talk about reform, overhaul, shifting paradigms, etc and then go out and keep on doing what they've been doing just as poorly as they always have.

MartinieCMS

Bernie Madoff's Ponzi Scheme was a well elaborated plan, props to Madoff, his one mistake was telling his sons about it. Madoff, economist of century according to many, is now going to serve 150 years in prison for his economic "successes."

The problem is not Madoff and other entrepreneurs who are committing fraud by stealing from others and skipping a step in the legal market system, it is the organizations who allow such schemes to be perpetrated. For several years, in fact almost two decades, Mr. Madoff knew his opponent, the S.E.C., wasn't acting against his mischievous and colossal stock increases and revenues, first because the market was going so well prior to the crash (Dow Jones recorded all time high in October 9, 2007), second investigations elaborated by the S.E.C. were either incomplete or failed, and third Madoff is no college drop out. Madoff knew his "devils" very well and knew how to keep them at the margin. Bernie Madoff attracted many clients from whom he could continue his scheme with, once Madoff had hundreds of clients who are amongst the wealthiest in the country, he could pull strings here and there. Because Mr. Madoff seemed to be going extremely well and keeping most if not all of his clients happy at the time, his power was something to be feared, obviously a sentiment shared by the S.E.C. which prevented them to take action against one of the most wealthy and influential individuals of the American society.

The fact the scheme was revealed by his son's and not the S.E.C. demonstrates the incapability to take action. Wealthy-men, growing entrepreneurs, and politicians who are currently committing fraud, truly still have time, the S.E.C will not become into a functional market system crime detector overnight, however, if more "entrepreneurs" are caught committing fraud, the S.E.C. will come down hard on them and they will have the opportunity to eat lunch in the same prison corridor as Bernie Madoff.

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