Gut the SEC, catch the next Madoff
Two of the victims of Bernie Madoff’s Ponzi scheme are suing the Securities and Exchange Commission for ‘negligence.’
While it’s not clear whether their case will go anywhere, it’s undeniable that the SEC failed miserably in the Madoff case. Many private citizens tried to help the agency do its job; a 29-point, 17-page report on Madoff, entitled “The World’s Largest Hedge Fund is a Fraud” was submitted to the SEC by accountant Harry Markopolos several times. According to the lawsuit, the SEC received eight complaints about a Madoff Ponzi scheme.
So what should be done to minimize the chances of this kind of failure in the future? The typical response is that the SEC needs more money and wider powers to catch the next big securities fraud. But the SEC’s own statistics show that its budget more than doubled between 2001 and 2008—and Markopolos’s testimony on his attempts to get the SEC to see the light on Madoff illustrates that the failure had nothing to do with lack of money.
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