Opportunity Lost: The story of Bernie Madoff and the Securities and Exchange Commission
Bernie Madoff was a celebrated personality in the investment domain in the United States. He repeatedly provided his clientele with returns on their investments much higher than the market averages. His scheme was to use the money of new investors to pay the returns for existing investors. Until one day it was impossible for him to pay all the investors he owed which is when his fraudulent Ponzi scheme was exposed.
The investment activities and annual reports of Bernie Madoff’s company were under the SEC’s jurisdiction. The Securities and Exchange Commission (SEC) is an independent regulatory agency of the United States, formed with a mission to safeguard the investors and to maintain an unbiased and organized market. The SEC is responsible for implementing regulations that govern the market such as demanding periodic reports from capital markets which is vital for investors to make thorough assessments before investing. But the SEC failed to stop Bernie Madoff’s scheme because of many reasons.
In the February 2009 congressional hearings, it was proved with strong evidence that SEC was tipped off about Bernie Madoff’s activities on several instances but did not reciprocate on the information. Harry Markopolis stated in hearing that he had sent detailed letters to the SEC cautioning about Bernie Madoff’s movements but the SEC didn’t bother to do a proper investigation as it was too busy handling matters of higher priority. First reason for this behavior as claimed during the hearings was that SEC was overfriendly with prominent Wall Street investment houses and was reluctant to respond to any tip-offs about them. This phenomenon is usually called as agency capture.
In 2006, Meghan Cheung SEC official signed the investigation which cleared Bernie Madoff to continue his scheme in spite of repeated warnings form Markopolis. She later stated in 2009 that she was a mid-level staff person and should not be blamed for the failure of SEC. This is reasonable considering the fact that a mid-level staff person did not want to go against a giant capitalist.
Another reason for SEC to fail in stopping Madoff could be the rivalry between the agencies of New York and Boston. Markopolis first approached the Boston office where he was treated well. But the New York office which administers the Boston branch decided to close the investigation for good.
Finally the SEC’s personnel were questioned on this failure. It was believed that the SEC had not hired the right candidates for the job. SEC preferred young attorneys instead of well experienced candidates. Also, sometimes the best staffs of SEC are hired by the same investment giants that the SEC is monitoring which makes the situation ten times worse.
Yes, the failure to stop Bernie Madoff will lead to changes in the way SEC officials work. Because of the ignorance of SEC in following the tip-offs and many other factors, Bernie Madoff was able to continue his fraud scheme which caused loss for many common citizens. This lead …
