Cox has no balls at all. The SEC is a freaking joke. You'd think after Enron they would have gotten some more teeth.
I would like to see Madoff hung from the front of the NYSE.
It's cheesy to say this, but the best explanation of how a guy that was once rightfully respected ended up in this state is with the expression Yoda says about the dark side, essentially once you give in, forever will it dominate your destiny. I'm sure that the first time he did claim unearned gains, he probably just thought he'd do it once to make up for bad year and keep his rep, and he'd make it up the next year.
But then it was too easy and maybe the next year wasn't so good, and he kept doing it, and doing it, and at some point, he probably felt that he just couldn't get out.
Don't mistake this for excusing him, I'm not, just following the process that leads to this type of downfall.
A couple thoughts on the impact though on the investors:
1) Anyone that had $500k or less, should be fully repaid (at least their principle, if not their 'growth') by the SIPC. Unfortunately, that will likely take more money than the SIPC currently has, so the govt is going to have to kick some in (It sucks, but I think they need to make the SIPC solvent)
2) For the big money people and the charities, I don't have that much sympathy. When I was a trust PM, we invested a lot with outside managers. There were two main things that we did each year during due diligence of those managers that would have caught Madoff:
a) Check out their auditors. Usually it was one of the big firms, or at least a well known regional name. Madoff was using a mom and pop in Florida where he was the only client. That is a HUGE red-flag
b) Check out their secondary insurance. As I said above, SIPC only covers $500k. Most major brokerages and money managers buy secondary insurance to a much larger amount. When I was at Morgan Stanley, it was up to $2Billion per customer. This insurance isn't used that often, so the premiums were pretty low and given the size and supposed profitability of Madoff's firm, there would be no reasonable reason why he would not have it. And he didn't.
Forgetting the fact that the returns he was showing seemed unrealistic to many people, those two red flags would have kept anyone with half a brain from investing. So why did so many high networth people and charities get taken? Simple: The 'good old boy network' so to speak. In many communities, people take the word of someone in that community over the word of anyone else, no questions asked. Sure, not 100% of the time, but that trust is what Madoff was counting on. They took Madoff's word that everything was legit and never bothered to do the due diligence. It's really amazing that after the dotcom massive frauds that anyone would do that, but alas it continues.
So while it sucks for the beneficiaries of those charities, and my heart genuinely goes out the them, the people that were running them were completely negligent.
