The sheer incompetence of the SEC, as described by Harry Markopolos’ testimony, points to a gigantic gulf between the agency’s purported role as a watchdog, and what it actually does. The upshot, notes law prof Larry Ribstein, is that the SEC was basically an accomplice:
Along those lines, Harry Markopolos’s testimony about his inability to get the SEC to respond to his extensive sleuthing on Madoff over the years is must reading.
Markopolos concludes that “”the SEC securities’ lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Madoff later confessed.” This supports my characterization of the SEC in the post linked above as an “accessory” to the fraud.
It is important to recognise that this wasn’t a matter of the SEC simply missing fraudster’s obscure machinations. Madoff’s scheme was designed to fool the unsophisticated regulators he knew would be watching him.
The purpose of the SEC is to keep investor confidence high, even when that’s not warranted. If the goal of the SEC were to make investors sceptical, rather than confident, then a fraudster like Madoff would have a much harder time making money. Wanna bet on whether the agency’s mandate will change?
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