Baltimore Sun – If there is anything we have learned from the crisis in the financial sector, it’s the urgent need for more regulation. Had federal regulators been more vigilant or wielded greater powers, all this suffering and heartache might have been averted. That’s the story we’ve been told, and it must bring a rare smile to the face of Bernard Madoff.

Mr. Madoff was the manager of a Wall Street investment fund that he allegedly confessed to his sons was "one big lie" and "a giant Ponzi scheme." But "giant" fails to capture the scale of his fraud, which may have lost $50 billion, more than the entire gross domestic product of most of the countries on Earth.

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New York (HedgeCo.Net) – As the investigation continues into what has turned out to be the largest fraud in history, more and more investors are coming forward who saw the red flags early, refusing to do business with Bernard Madoff.

According to a report published by the Independent, investigators are now hearing stories from many banks and investors who believed early on that Mr. Madoff had been faking his stellar track record. These investors complained to the Securities and Exchange Commission, only to have the agency merely give him a slap on the wrist.

According to a complaint sent to the SEC in 2005 by Boston accountant Harry Markopolos, a few hedge fund managers who did business with Madoff Investment Securities were weary that Madoff was “eating the losses” and doctoring returns.

Markopolos also allegedly warned the SEC that Madoff was in fact, running a giant Ponzi scheme. This of course, turned out to be the case when he was arrested last week after confessing to his sons that Madoff Investment Securities was essentially “one big lie,” and had bilked about $50 billion out of trusting investors.

Other red flags included the fact that his returns were steady and always on the up and up, posting returns of over 10 percent a year, while most legit funds experience some sort of down time. In addition, his company used a small, relatively unknown auditing firm whose list of clients was not very impressive.

The SEC forced Madoff to register as an investment advisor in 2006, which he did while avoiding further scrutiny. Investment advisors are not subject to routine SEC investigations; rather they are performed based on their potential risk.

Many believe he was able to evade investigations due to in part to his high-profile role on Wall Street. As one of the founders of the Nasdaq stock exchange, he regularly advised the SEC on electronic trading issues.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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