SEC Misses Again


The good news is disgraced investor Bernie Madoff's $50 billion dollar Ponzi scheme was noticed back in 1999 by an astute financial expert-the bad news is he wasn't from the Securities and Exchange Commission. Massachusetts investor Harry Markopolos in a written report to the SEC in 2005 stated "It's highly likely that Madoff Securities is the world's largest Ponzi scheme." In the report , he says he knew his research could ruin people's careers and asked the SEC be discreet about circulating the report and his name. The report highlighted 29 red flags about Madoff's business, however this report went ignored by the SEC, and they continued to ignore Markopolos' warnings over the next decade. Markopolos became suspicious of Madoff consistent 12% returns in both up and down markets. Madoff's reportedly employed a common investment strategy involving buying stocks of major companies, then hedging those investments by buying options contracts. With the help of a mathematician, Markopolos crunched Madoff's numbers which time after time didn't add up. The overall market performance could not have consistantly produced Madoff's alleged 12% returns.

The SEC wrote to Markopolos in a 2005 email stating that "they found no evidence of fraud". Were they looking at the same data? If a little known investment manager from Boston can uncover the biggest fraud in US financial history why can't the Federal Government? The incoming Obama administration is screaming for more regulation of the securities markets, but I have a better idea: How about he takes some of that $700 billion stimulus money, and buy a few calculators for his people at the SEC?

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