And yet, nothing in the series leads the viewer to the conclusion that the SEC needed a bigger budget to catch Madoff. In fact, outsiders were sounding the alarm without access to government funding or regulatory muscle. In 2001, Barron’s journalist Erin Arvedlund reported that many Wall Street investors were suspicious that Madoff was engaged in foul play.
And the SEC received its first complaint that Madoff was running “an unregistered investment company” “offering ‘100%’ safe investments” in 1992. In 1999, a derivatives expert named Harry Markopolos, who worked at a competing firm, started to alert the SEC that Madoff’s investment returns were virtually impossible. In 2005, Markopolos sent the agency an infamous 25-page memo explaining why “The World’s Largest Hedge Fund is a Fraud.” The SEC opened an investigation in 2006, and then closed it the following year because the “uncovered violations” were “remedied” and “those violations were not so serious as to warrant an enforcement action.”
So how is this tale of epic failure on the part of a government agency the fault of deregulation?
Instead of making lazy allusions to the evils of free market capitalism, to better understand the lessons of the Madoff saga, director Joe Berlinger should have consulted the work of the free market economist George Stigler, who won the Nobel Prize in part for his work on “regulatory capture.”
Author(s): ZACH WEISSMUELLER AND DANIELLE THOMPSON
Publication Date: 21 Feb 2023
Publication Site: Reason