[_yosefk]

I don't know the answer to the following questions, but I'll take wild guesses:

1. Were Madoff's regulators fired? (My guess: they weren't, it wasn't even weighed as a realistic option by whoever should fire them.)

2. Was there an investigation into whether they were bribed, as there should be when someone is so spectacularly incompetent at their job that it's hard to reconcile with having the mental skills necessary to get the job in the first place? (My bet: there was no investigation whatsoever.)

[eli_gottlieb]

On number (2), you forgot the other major (and very probable) option: the regulators were told, by the legislature, to shut up and stop doing their jobs like competent professionals, because Congress's friends don't need no regulation (♫ they don't need no bank control ♫). They were probably also defunded by Congress, leaving them with too small a staff to do their job well.

"Starve the beast", remember?

[_yosefk]

I can't believe all the comments saying pretty much what you said.

How much bloody staff do you need to take a peek at the securities kept at a fund's bank account? We aren't talking "complex" stuff like rating agencies putting AAA ratings on junk (and BTW S&P was slapped on its wrist with a >$1B fine over that after an investigation). We're talking about a guy with almost no staff who paid "returns on investments" from his pool of investments.

The sum of the securities he'd keep would thus fall far behind the number following from his reports. Not noticing can only result from not checking. Not checking that much after multiple warnings results from defunding?! Perhaps, if there was just the janitor left and all the regulators were fired. Was that the case?

(You know what could be a probable cause other than incompetence or taking bribes? A desire to be employed by a Wall Street firm after resigning as a regulator, and a belief that it wouldn't work out if Madoff were checked and found clean, or even if checked and found guilty. But is it more than a convoluted bribe?)

[eli_gottlieb]

It's easy to know, after the fact, that Madoff was a Ponzi scheme, and say he should have been investigated. But that neglects two important numbers: how many prospective Ponzi schemes were there to investigate, and of those, how many actual Ponzi schemes, out of which Madoff's was only one?

[tsotha]

Regulators can only make decisions based on the information they have, which ultimately comes from the people they're trying to regulate. Eventually the wheels come off, but you can give plausible numbers to the government for a long time before that happens.

Your assumption they were either bribed or incompetent is unwarranted.

[_yosefk]

To spot a Ponzi scheme you only need to look at the balance sheet, not? Do regulators not have a right to do so, especially having gotten multiple warnings (from people who, unlike public employees, have an actual stake at the game because they competed with Madoff and figured his official returns on investment were impossible?)

If the SEC cannot look at the actual balance sheet as maintained by banks etc. until "the wheels come off" and until then they can only rely on what the org says its balance sheet is, things are really bad but somehow I doubt that's the case.

[tsotha]

>To spot a Ponzi scheme you only need to look at the balance sheet, not?

No, actually. This is wrong. You can't spot a clever Ponzi scheme if the person who provides the balance sheet is willing to put down false information.

As an auditor all you can do is correlate the bits of information you have. If the criminal is intelligent you won't spot anything until it's too late.

The "warnings" they got were that Madoff's fund was making money too consistently. That's useless.

[_yosefk]

Well, you can go to the bank where he actually keeps the securities if you don't trust the declarations. His bankers for instance were tipped off by his balance sheet and shorted him. Why couldn't the SEC look at the real balance sheet as maintained by the bank(s)?

As to the warnings being useless - you mean that the likelihood of such warnings does not correlate with the real state of things enough to justify action? As in, every legitimate money manager is suspected by many competitors of being a fraud and the SEC is overwhelmed with meaningless warnings to that effect? I doubt it somehow.

[rcarrigan87]

firing a public employee is like pulling teeth from healthy gums