Monday, December 15, 2008

Bernard Madoff and the SEC

The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

This is the first paragraph of the Mission Statement from the SEC website.

Is there anyway that Christopher Cox can keep his job after this. Lets remember that this is after the Financial crisis has crushed the average investor. I do not believe that you can blame one man for all of these failures but as the man in charge you need to take the hit.

It turn out that the SEC never inspected Bernard Madoff's investment advisory business even after he subjected it to just such an inspection over two years ago. This ability to avoid detection for years certainly raises my interest in whether the SEC is effective at all. You would think (and hope) that a fraud of this magnitude would be uncovered through an inspection, that is why regular visits to investment advisory funds is important. Madoff's brokerage firm was inspected in 2005 and a few violations were detected. The so-called best- execution rules, which require that customer trades be made at the most advantageous prices, were violated three times. I assume this is basically "front running", filling orders for the firm before filling them for a client. This inquiry itself was only opened after tipsters and media reports raised questions as to how Madoff's returns were so consistent when other funds were not.

Now the heat is (or at least should be) on Madoff's auditors Friehling and Horowitz.
Hedge Fund Advisor Aksia should be looking good after all this. They have been advising clients to stay away from Madoff's fund since there were "Red Flags", including that its books were audited by a three-person accounting firm.

According to a Bloomberg article

Friehling & Horowitz included one partner in his late 70s who lives in Florida, a secretary, and one active accountant, Aksia said.

This all goes to show, if it looks to good to be true, it probably is. Also you are better off doing the research yourself as the SEC doesn't seem to be watching out for us.

Good Luck and Good Currency Trading



Blogger Mberenis said...

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Anonymous Anonymous said...

This tale focuses on a common investment pitfall. I call it stealing. It was a normal scam since it appealed to the victim’s common sense and trust. Read "A Thief's Tale" at

1:19 PM  

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