The Financial Tsunami ( FT ) - The Way Forward ( 15 ) - The Madness of the Madoff Mess

http://news.bbc.co.uk/2/hi/business/7939145.stm

The above link to a BBC report on Madoff's road to perdition reveals huge loop holes in the US financial regulatory system. It was a tragic story from rags to riches and then falling from grace due to a pathetic fraud. As usual greed is the culprit but the story has also revealed the lack of effectiveness of the US financial regulatory system. It is not as if Madoff's operation is so perfectly planned that it has completely evaded detection. Instead, the US financial regulatory body - the Securities & Exchange Commission ( SEC ) has investigated Madoff's operations 8 times in total during his 16 years in operation and failed to detect any wrong doing. This is the hardest part to swallow.

There are three logical inferences to be drawn from these circumstances. Firstly, Madoff's deception is highly skillful. This does not seem to be the case. Preliminary assessment of the facts simply show that the so-called investment portfolios did not exist. He simply used new investors' funds to pay back to old investors so it is just like the crude carry over method very often used in cash embezzlement by some third grade petty cashier. Any standard audit procedures of requesting for third party independent documentary confirmation would have unearthed the sinister scheme. This points conspicuously to possible collusion between Madoff and some professional regulators along the way in respect of the annual statutory audits of Madoff's investment accounts.

The second logical inference that could possibly be drawn is an outright neglect of the SEC's regulatory functions. It would amount to a total dereliction of duty and a fragrant violation of the principles of due care and diligence on the part of the US regulatory authorities. My theoretical conjecture in this respect would be tragic if proven true. I must not speculate further until the case has been heard in court. However, with Madoff's guilty plea to all 11 charges that carry a total maximum sentence of 150 years' imprisonment the details may never be officially known except through a congressional hearing. I strongly support this move to see what lessons could be learned for the benefit of the financial regulators and in the public interest.

The third possible logical inference is the worst case scenario. And that is the existing regulatory procedures are totally inadequate to detect even the most simple kind of fraudulent scheme. This is not likely to be the case which reflects on the higher possibility of possible corruption and collusion. In any event, a public inquiry seems to be the best move to restore public confidence in the regulatory system through further enlightenment from the circumstances of this tragic case. Madoff has be nicked named " the Jewish T- Bill ". T- Bill stands for US Treasury bills meaning his investment policy has been so secured and reliable. If T-Bill could be faked what could happen to the whole US financial system ? This is again one of my rhetorical questions that does not require a response.

JKHC.