My pal Bob want to know if maybe the SEC should take some of its beagles off the Mark Cuban matter, which they will lose by the way, and maybe pay attention to, oh, I don’t know, Bernard Madoff?
Christopher Cox, surely one of the worst regulators in memory, has this to say about that in a press release dated December 16, 2008 . . .
Since Commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff’s vast scheme remained undetected by regulators and law enforcement for so long. Our initial findings have been deeply troubling. The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.
Absolutely stunning. Note the date 1999. That’s important because it’s the closing days of the Clinton administration and we’ll soon enough see that connection made. But don’t focus too long, because, curiously enough, the time frame in question matches up with the reign of you-know-who.
Here’s what I don’t understand. Pension funds, family trusts, unions, etc. all use consultants to examine, recommend, and monitor investment advisers. Along the way, there’s a little thing called Due Diligence. Those consultants report to a board which is the Fiduciary, a term that has a legal definition.
A fiduciary duty is the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person to whom he owes the duty (the “principal”): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.
Lost in all the hysteria and finger pointing at the SEC are those two points.
To summarize.
Where the hell were the consultants? I just have to believe that “Who, pray tell, is your auditor?” is one of the questions on the standard questionnaire (actually, I know it is). The fact that nobody every heard of the guy should have been at least a tiny red flag. Given the sums of money people invested, any of the obvious next questions should have uncovered the fact that it was a one man band. I would think that anyone who’d ever done this before would have thought, at least in passing, that a one man band might not be up to auditing a firm the size of Madoff’s. I’m just guessing here but I’ll bet I’m right.
Why isn’t anyone perp-walking the fiduciaries? For any of what’s gone on? Getting hammered in the market is one thing. Choosing investments or investment advisers that didn’t produce the expected rate of return is another. But engaging with fraudsters, particularly when it appears that even a tiny bit of due diligence would have raised material and substantial concerns is completely different. It’s why there are fiduciaries in the first place: People who represent our interests at least as well if not better than we would represent our own. Madoff’s pals got hosed and that’s a bad thing. The pension funds and public entities that got fleeced have a right to expect more. Will someone please call these people to account!
Tags: BernardMadoff, SEC, Fiduciary, Christopher Cox, Mark Cuban
