THE MADOFF CASE

The Madoff Case-Why the regulation failed?

The Madoff Case- Why the regulation failed?

Madoff made a name for himself in wealthy circles in New York and Palm Beach, Fla., and among those connected to the Jewish community. His reputation as a trusted adviser also attracted some of the world's biggest banking institutions, such as HSBC Holdings and Royal Bank of Scotland Group, and hedge funds or those that run funds of funds including Fairfield Greenwich Group. Predictably, the Madoff story has prompted speculation about potential new regulations that might be imposed to head off future problems. Politicians and pundits have called for the adoption of new rules for securities markets in general and hedge funds in particular, even though Mr. Madoff didn't run a hedge fund and there is no shortage of existing securities rules that were violated by his reported conduct. (Keeping two sets of books suggests his own recognition of that.) (Sarah N. Lynch And Siobhan Hughes 2009)

Although regulatory initiatives routinely are taken off the shelf and offered up as the solution to a newsworthy problem, the conduct Mr. Madoff is accused of was illegal long before Charles Ponzi made pyramid schemes synonymous with his name. With so many aspects of our financial system under scrutiny today, and so many people in the government who regulate and write the rules for that system set to change, it hardly makes sense to go looking for ways to prevent new Madoff-like schemes.

So far as news reports can be trusted, Mr. Madoff appears to be a special case, someone whose whole career made fraud on this scale possible. His contacts and connections, his religion and affiliations, his public and private positions, all worked to make his funds look legitimate and exclusive. And he knew how to play his prospects, when to turn potential clients down, when to give something extra.

Investors trusted his experience and knowledge of the market and his hedge fund consistently outperformed other companies in the financial services industry. It was considered an accomplishment to be allowed to invest in his financial company, because it was extremely selective. Bernard Madoff's company was global and the companies and individuals who invested with him were guaranteed a consistent return each year.

No one questioned his legitimacy and authenticity, because the Security Exchange Commission had allowed this company to flourish for over forty years. This company had managed billions of dollars each year with very few improprieties and mistakes. The investors received their monthly statements and their money when they requested or needed a pay out.

Madoff was a prominent businessman and philanthropist, and all of his investors considered Bernard Madoff an honorable person. His operation was conducted out of floors17 to 19 in New York and an additional London office with 28 employees. Madoff has helped develop many groundbreaking technologies in the market, and was one of the first to institute paying a broker to execute a customer's order.

On December 11, 2008, Federal Bureau of Investigation agents arrested Madoff and charged him with one ...