Alternative title: The End of Self-Regulation
A Boston Globe article today reveals that Madoff’s firms may never have traded — despite NASD/FINRA audits every 2 years since 1960.
“As investigators try to untangle the scheme that Bernard L. Madoff hid from investors and regulators for a decade or more, one basic fact is emerging: He may not have been making any trades at all.
A federal agency that regulates brokerage firms says there is no record of Madoff’s investment funds placing trades through his brokerage operation. That leaves only two options – either he was placing trades only through other firms, which would be highly unusual, or he was not placing any trades.
“There was no evidence of the Madoff broker-dealer executing trades for the [Madoff] investment adviser,” said Herb Perone, spokesman for the regulatory group, the Financial Industry Regulatory Authority. A broker-dealer is any firm that buys and sells securities.
FINRA and its predecessor, the National Association of Securities Dealers, has been examining the records of Madoff’s broker-dealer operation, Bernard L. Madoff Investment Securities, every two years since the firm started in 1960. The last exam was in 2007, Perone said…
If Madoff was making no real trades, the complicated statements he sent out to customers were apparently fiction – and in fact may have been part of his coverup. Statements were often so complicated that investors had to call representatives of the firm for explanations.”
So much for self-regulation. That a fraud this size took place right under the noses of NASD/FINRA is astounding.
The counter argument is that the money management side of Madoff’s operation was not covered by the NASD. The two firms were separate entities, different floors, etc. Even still, one has to marvel that anyone could answer “Not my job.”
Madoff might not have made any trades
Boston Globe, January 15, 2009