Wednesday, February 04, 2009

Should Regulators' Audits Be Geared to Finding Ponzi Schemes Like that of Madoff?

No, no link. You're probably tired of reading all those Madoff stories already. And the other guys, Nadel, Cosmo, et al.

I believe it is fair to say that the SEC and the states' routine compliance audits focus on routine and rather mundane procedural compliance matters. Do you have the proper files, are they current, do you avoid various specific fiduciary or suitability no-no's? Have you done whatever the last guy to hit the newspapers and embarrass the agency was guilty of doing? I other words, are you honest but guilty of sloppy record-keeping? Are you guilty of whatever the latest hot-button issues are?

I would submit that it would be a good and reasonable goal to get beyond that kind of predictable bureaucratic thinking. A suggested goal, which would require legislation and funding: In the types of investment vehicles where Ponzi-scheme bahavior has occurred, regulate them. Require the types of accounting and other controls under discussion. Third-party, arm's-length portfolio valuation and client reporting. If portfolio holdings are illiquid or unmarketable, require regular, more frequent disclosure, and conservatively value them. If that impacts fees, too bad! Audit them. Regularly. And make those auditors utterly independant of political interference.

Here's an idea the hedge funds will just love! Tax them to pay for the cost of regulating and auditing them to keep them clean.

So, what do you think? Should SEC and other regulatory audits of entities such as hedge funds be designed to do this, to get beyond the usual regulatory issues, to do more, to reasonably minimize the opportunities of men like Madoff and these other bad actors we've been reading about to hurt good people and wonderful charities?

Labels: , , , , , , ,


Post a Comment

Links to this post:

Create a Link

<< Home