Ponzi Scheme vs. Regulation Cost

Chidem Kurdas

Brokerages can play a key role in stopping fraud. Thus in 2008 Pershing stopped wiring money for its customer, Robert Allen Stanford’s Houston-based company.

Legg Mason Seeks SEC OK for Hybrid

Mutual fund heavyweight Legg Mason has applied to the US Securities and Exchange Commission for

Ex-SEC Counsel $140,000 Madoff Benefit

Chidem Kurdas

It would make great satire. David Becker shaped regulatory policy for years as the Securities and Exchange Commission’s general counsel. His “wisdom and careful judgment” was celebrated by SEC Chair Mary Schapiro. Now his conflict of interest as an investor with Bernard Madoff is to be reviewed by Congress and the Justice Department. 

Madoff Black Box vs. Gut Feel

Chidem Kurdas

Bernard Madoff told Securities and Exchange Commission examiners an evolving tale as to how he made money. He started with a black box, which may sound like another reason to suspect computerized models. One examiner wrote: “no discretion on the part of Madoff—everything is determined by the black box.”

Then Madoff changed his tune. Yes the computer model signaled when to enter and exit the market, but he “was adamant he also uses his ‘gut feel’ to make these decisions.”

The lesson from this little story: it is better to be presented with a black box than to be told the guy’s gut is making the money. 

Madoff Registration: Regulator Reform

Chidem Kurdas

The Securities and Exchange Commission is working to improve its oversight process—-to prevent Madoff problems, as Michael Macchiaroli of the SEC’s Office of Risk Management described certain reform efforts at a conference of the New York State Society of CPAs.

The Dodd-Frank Act has created a rulemaking boom, including new rules for the implementation of mandatory SEC registration of hedge fund managers with more than $150 million in assets. It might help to look at what registration did in the past.  So let’s consider the last investment adviser registration filing with the SEC by Bernard Madoff. 

Madoff Puzzle: How His Reputation Survived

Chidem Kurdas

Hedge funds lose their clients and tend to shut down when they are investigated by government agencies or face civil lawsuits. Raj Rajaratnam’s Galleon Group and Arthur Samberg’s Pequot Capital, accused of abusing inside information, come to mind. Both long-time managers closed shop.

Madoff Joke: Whistleblower Travails

Chidem Kurdas

Financial fraud typically comes to light because someone complains. But as Harry Markopolos found out when he went to the US Securities and Exchange Commission with evidence against Bernard Madoff, complaining may not put an end to a scheme.  And then people say you’re a joke! (See below.)

Indeed, the whistleblower’s lot is typically not a happy one, in the experience of Sherron Watkins, the accountant who detected that little accounting issue at Enron. 

Paulson Keeps Cachet

Investors that redeemed from Paulson & Co. remain interested in putting money into other funds managed by the firm. This may be because many customers took their capital out with a hefty gain, despite losses in the first eight months of this year.

Traders Face Transparency

Chidem Kurdas

Goldman Sachs, among others, has suggested that the Securities and Exchange Commission require stock exchanges to disclose more information. This is one of the regulatory changes proposed in response to the May 6^th “Flash Crash”. What does it mean for funds and other active traders?

Pay-to-Play Shadows Political Donations

The New York state pension kickback case may be winding down, but its effect is expected to last. Pay-to-play investigations are low hanging fruit for prosecutors, says Christopher Coniff of law firm Ropes & Gray LLP.