<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Dec 14, 2008
THE QUESTIONS
</TR><!-- headline one : start --><TR>Did regulators ignore red flags?
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On Friday, worried investors gathered in the lobby of the building where Bernard L. Madoff Investment Securities has its offices in New York. -- PHOTO: AP
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Washington - Even as federal regulators froze Wall Street financier Bernard L. Madoff's assets and appointed a receiver to manage his firm's financial affairs, it became clear that warning signs about the fund were in abundance for years.
But many investors, in a bull-market rush to get in on the action, ignored the red flags or did not bother to look for them.
The alleged US$50 billion (S$74.4 billion) fraud, possibly the largest ever pinned on an individual, has also raised questions about whether federal regulators were lax in failing to scrutinise Madoff's operations and respond to alarms raised about them.
Madoff, a former chairman of the Nasdaq Stock Market, was influential and his eponymous securities firm cut a high profile in Wall Street circles. Securities and Exchange Commission (SEC) inspectors would have performed regular inspections of his securities brokerage operations as part of the agency's oversight programme.
SEC officials stress it was Madoff's separate and secretive investment-adviser business that was used to perpetrate the scheme, and that examinations of the securities operations would not necessarily have detected irregularities.
'If the SEC didn't come in and inspect (the Madoff hedge fund), then they have a hell of a lot to answer for,' said Professor James Cox, a securities law expert.
The role of the Financial Industry Regulatory Authority, the securities industry's self-policing organisation, has also been criticised over the Madoff affair. Mr Bill Singer, a securities lawyer in New York, wrote in his blog: 'When its staff did its yearly examinations, either things were disregarded, missed or overlooked.'
A wrinkle in the case is the complaint dating back nine years to the SEC by a securities industry executive named Mr Harry Markopolos. He contacted the agency's Boston office telling SEC staff they should investigate Madoff because it was impossible for the kind of profit he was making to have been gained legally. It was not immediately known if the SEC had looked into the complaint.
'There's no smoking gun, but if you added it all up you wonder why people either did not get it or chose to ignore the red flags,' said Mr Jim Vos, who runs Aksia, a firm that advises investors.
He said he spent several months last year probing Madoff's firm on behalf of clients, only to recommend against investing in it. After finding out that the accounting firm handling Madoff's operations operated in a 4m by 5.5m office, his firm felt that it was too small an operation to keep an eye on such a large firm operating a complicated trading strategy, reported the Wall Street Journal yesterday. AP, Bloomberg
THE QUESTIONS
</TR><!-- headline one : start --><TR>Did regulators ignore red flags?
</TR><!-- headline one : end --><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
On Friday, worried investors gathered in the lobby of the building where Bernard L. Madoff Investment Securities has its offices in New York. -- PHOTO: AP
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->Washington - Even as federal regulators froze Wall Street financier Bernard L. Madoff's assets and appointed a receiver to manage his firm's financial affairs, it became clear that warning signs about the fund were in abundance for years.
But many investors, in a bull-market rush to get in on the action, ignored the red flags or did not bother to look for them.
The alleged US$50 billion (S$74.4 billion) fraud, possibly the largest ever pinned on an individual, has also raised questions about whether federal regulators were lax in failing to scrutinise Madoff's operations and respond to alarms raised about them.
Madoff, a former chairman of the Nasdaq Stock Market, was influential and his eponymous securities firm cut a high profile in Wall Street circles. Securities and Exchange Commission (SEC) inspectors would have performed regular inspections of his securities brokerage operations as part of the agency's oversight programme.
SEC officials stress it was Madoff's separate and secretive investment-adviser business that was used to perpetrate the scheme, and that examinations of the securities operations would not necessarily have detected irregularities.
'If the SEC didn't come in and inspect (the Madoff hedge fund), then they have a hell of a lot to answer for,' said Professor James Cox, a securities law expert.
The role of the Financial Industry Regulatory Authority, the securities industry's self-policing organisation, has also been criticised over the Madoff affair. Mr Bill Singer, a securities lawyer in New York, wrote in his blog: 'When its staff did its yearly examinations, either things were disregarded, missed or overlooked.'
A wrinkle in the case is the complaint dating back nine years to the SEC by a securities industry executive named Mr Harry Markopolos. He contacted the agency's Boston office telling SEC staff they should investigate Madoff because it was impossible for the kind of profit he was making to have been gained legally. It was not immediately known if the SEC had looked into the complaint.
'There's no smoking gun, but if you added it all up you wonder why people either did not get it or chose to ignore the red flags,' said Mr Jim Vos, who runs Aksia, a firm that advises investors.
He said he spent several months last year probing Madoff's firm on behalf of clients, only to recommend against investing in it. After finding out that the accounting firm handling Madoff's operations operated in a 4m by 5.5m office, his firm felt that it was too small an operation to keep an eye on such a large firm operating a complicated trading strategy, reported the Wall Street Journal yesterday. AP, Bloomberg
