Sun editorial:

A huge Ponzi scheme

Regulators failed to see the obvious warning signs of fraud running rampant on Wall Street

Thursday, Dec. 18, 2008 | 2:04 a.m.

Investment guru Bernard Madoff had, for years, an unblemished record on Wall Street. A former chairman of the board of the Nasdaq Stock Market, Madoff’s investment house continually reaped profits for his investors, even in market downturns.

So investors were stunned last week when Madoff was arrested for fraud. According to a criminal complaint, Madoff told investigators he ran a Ponzi scheme and lost about $50 billion.

If that is true, the scope of his crime is stunning. For years, he allegedly duped investors and regulators with the most basic of frauds.

Investigators are still trying to figure out the depth of the scheme, but already some investors and banks around the world have acknowledged they stand to lose billions. This case could make waves throughout the economy. Several charities that were heavily invested with Madoff have either closed or laid off workers.

Some investors say this case demonstrates the failure of the government to properly police Wall Street, and they say that for good reason. The Securities and Exchange Commission had received complaints about Madoff over the past decade, including a 1999 letter accusing him of running a Ponzi scheme, but did little to check them out. In 2007 the SEC investigated Madoff, but closed the case without pursuing any charges.

It is unfathomable how the SEC missed red flags, including that Madoff’s auditor was a three-person accounting firm operating out of a 13-by-18-foot office in New York. Experts say there is no way such a firm could ever do the job, and the fact that Madoff avoided the big, well-known firms should have been a tip-off.

SEC Chairman Christopher Cox took the extraordinary step Wednesday of blaming the commission’s staff for not going after Madoff’s firm, despite the staff being told of complaints against Madoff. Cox ordered the agency’s inspector general to conduct an internal investigation.

At the same time Congress should press for a full investigation of what regulators did, or didn’t do. Needless to say, investors deserve better protection than they received.

Discussion: 2 comments so far…

By mjaya12

12/18/08 at 6:12 a.m.

Suggest removal

If anybody made large sums of money consistently with dealings at Wall Street, I believe something was fishy. Some of these crooks will never accept and Madoff had no choice other than accepting when he was exposed.

I am angry as every other individual American who unknowingly put his/her life savings into the hand of these crooks and Wall Street thieves. This guy comes from a name to Made Off. They know how to talk nice while hiding the ugly part and once somebody criticizes them then to bring the race card to stop scrutiny.

American people should demand investigating everybody who started making millions in the past and made fortunes with Wall Street dealings. This includes Bloomberg, Buffet, and many other famous people. Those who guilty should treat worse than a murderer since their actions robbed livelihood of many "individual American families" and led some to commit suicide. Strip them all the way and send them to beg on street like homeless. Anything less is a shame and we need to send a massage to "crooks to be" in Wall Street.
By dsteele13

12/18/08 at 6:17 a.m.

Suggest removal

These things will continue as long as we allow lobbyists to garner our electorates favor. Blame you, blame me.