The Blog Of The Securities Industry Professional Association

Is It Really A PONZI SCHEME If Nobody Cares?

The Fall of Madoff should come as no surprise.

For many years now we have always thought of Ponzi schemes as something that was run out of boiler rooms in Long Island and Boca Raton that would prey on the elderly and unknowledgeable.  Today the FBI has announced that one of the most respected names on Wall Street has been arrested and charged with fraud that could approach Enron sized proportions.  Click <<HERE>> for story

While the rest of Wall Street is shocked by this sudden collapse of yet another supposed “Rock” of Wall Street, I and many of the followers of the small firm movement and Broker’s rights advocates merely shrug and say “ I told you so”

As you read this troubling story on Madoff, note the common theme that is present in the stories behind Lehman Brothers, Bear Stearns, and Merrill Lynch. Can you figure out what is missing from these reports and indictments?  I’ll give you a hint: It’s the same thing that was missing when the Attorney Generals of NY, and Massachusetts went after the large firms on Wall Street for Mutual fund abuses.  It’s the same thing that was missing when these same states went after the elite firms on Wall Street for issuing bogus research reports to the public in order to inflate stock prices. 

What’s missing?
Find one reference to the NASD, NYSE or the Combined FINRA self regulatory body.  Heck, there is barely a reference to the SEC in these cases except to say that they would also be filing charges which is akin to the local police saying they broke up a large drug cartel and afterward the FBI says they were filing charged too.

The fraud in these cases is so easily detected yet the main to regulatory bodies have spent the greater part of 10 years making sure small firms were punished for trade reporting violation and more importantly WSP failures.  Here is the latest harsh discipline that FINRA dished out to “Protect investors” (please note sarcasm)

How embarrassing is this monthly report? The largest firms on the street are stealing from Americans but we are supposed to believe everything is fine because a “broker from California was fined $15,000 for failing to timely update his form U-4” .  Sad and embarrassing to say the least.

The purpose of this is not to say “I told you so” but to show how absurd the idea of FINRA and supposed Self Regulation is.  We believe its time to throw out the old lot and start over. Fraud after Fraud has been committed on the Street yet its always uncovered and punished by Law enforcement agencies.  I don’t want to hear any hog wash from the talking heads at FINRA that this wasn’t there jurisdiction.  Madoff had a hedge fund that executed its trades and held its account through its FINRA member firm.  Don’t you think a simple look at one of the larger accounts would have raised a couple questions like “Hey Mr. Madoff, we’ve noticed your hedge fund account comes in with 5 million dollars but immediately wires it right out…is this a possible AML problem”??

Like wise with Lehman, a simple examination should have prompted questions from examiners such as “ We’ve noticed your holding a couple trillion in mortgage derivatives for some of your hedge fund accounts…can you show us a concentration report and risk management report to ensure that your regular customer accounts will not be at risk”??

At a time when our Auto Industry is on hand and knees begging for a measly 15 billion dollars, the Financial Industry now has a single fraud that may cost as much as 50 billion dollars!  While the Auto makers are guilty of poor management and foresight, they are not guilty of fraud.  Isn’t it interesting that Congressional leaders are asking the heads of these Automakers to step down due to mismanagement?  While I am not calling for the heads of the regulatory bodies to step down, I think in light of the constant FRAUD on Wall Street, something has to change because quite frankly, I don’t think anyone is surprised anymore that the largest firms on the Street are basically unregulated. 

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