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Re: “GADFLY: "As You Reap..." -- The Meaning of the Madoff Case

I'd love to speak with you in person. I've been running my own RIA (same as Madoff ran) for years now. I was audited by the SEC 2 years ago. They were brilliant. 2 smart, young, no BS guys from Chicago spent a week going over my books and broker dealer transactions. They had laptops with algorithms and ways of testing that would have caught Madoff in 5 minutes. Listen, I am a really small operation. An imeasurable fraction of Madoff. There is no excuse. They should be prioritizing (as the IRS does) and should have a dedicated person for any RIA over $1 billion in assets. While they should certainly get to me eventually, they should have done Bernie first. And aparently THEY DID. Which leaves me only one conclusion - they didn't do what they were supposed to do when they investigated him. He had a history of problems with FINRA (which you can see here Not only did he have a history of problems and penalties, but he was acting as broker dealer, RIA, and custodian. From what I can piece together he was comingling accounts on a wholesale level. Seems like he only had 20-25 "master accounts" that he sloshed everyone's money around in. The SEC certainly is AT FAULT for not finding this. As for blaming the no regulation proponents, I don't think anyone is for no SEC or no rules. We are for intelligent government that is consistent and doesn't play favorites. Where is the SIPC? These were legitimate broker-dealer accounts. No different than Schwab or Merrill or any of the hundreds of smaller broker dealers. This is why the SIPC exists. They should be announcing something to the public about covering accounts to the limits which include restoration of securites and then cash up to $500k. We may all think that since these were "rich folks" who losts the money, investor confidence won't be shaken. Certainly seems fine, right? WRONG! I deal with ordinary investors all day long and they are convinced the government isn't there for them. There are intelligent solutions now that we have really fast computers. Get Google on it. Run all trades through a central registry that is linked to the actual exchange so that EVERY INVESTOR can go on and see the actual trades being made regardless of what the advisor prints on a "statement". I'm sure there are other solutions. We can do better in the USA than to just blame lack of resources. Put a tax on all trades of $1 or something. Plenty of resources. We need solutions that move us into the future. Not more regulation in the way it has been rolled out in the past.

Posted by Mark on 12/29/2008 at 12:28 AM


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