Over the weekend, I did a blog entry condemning the Securities and Exchange Commission for ignoring the warnings it was receiving about swindler Bernard Madoff.
Now Bloomberg reports that the SEC never even bothered to inspect his investment advisory business. This was despite the fact that Madoff registered the unit in 2006. A new business that needed to be checked out first. The regulator failed badly and that is seriously scary.
Henry Blodget at Clusterstock provides us with a document from advisory firm Aksia pointing out there were so many red flags with Madoff's business. Read it carefully, and weep. "The Madoff feeder funds marketed a purported 'Split-strike Conversion' strategy that is remarkably simple; however its returns could not be nearly replicated by our quant analyst. The feeder funds had recognized administrators and auditors but substantially all of the assets were custodied with Madoff Securities. This necessitated Aksia checking the auditor of Madoff Securities, Friehling & Horowitz (not a fictitious audit firm). After some investigating we concluded that Friehling & Horowitz had three employees, of which one was 78 years old and living in Florida, one was a secretary and one was an active 47 year old accountant (and the office in Rockland Country, NY was only 13ft x 18ft large). This operation appeared small given the scale and scope of Madoff's activities."
Why didn't the SEC pick this up. But an equally important question is why so many hedge funds and supposedly brilliant investors didn't pick it up.
no comment untill now