Question

What are the drivers/causes of the SEC's failure to detect and address Madoff's fraud

Answer 1

Following may be considered as the drivers/causes of SEC's failure to detect and address Madoff's fraud :-

1. Lack of resources with SEC = in recent years, number of registered investment advisor firms grew multifolds but staff of securities and exchange commission failed to keep pace with such growing number of firms as a result it is not able to oversee the working of all the advisors and some advisors may take advantage of such a situation which also happened in the case of Madoff.

2. Lack of coordination = There has been a lack of coordination between various regulatory and investigative agencies . Thus, quite often there has been jurisdiction related disputes among them and perpetrator tends to take advantage of it when ever they get such chance.

3. Fragmented regulatory system = Regulatory system is fragmented and does not work in a United manner which leads to overlooking of situations or circumstances which might have been identified or considered as critical by one regulatory body and the same happended in Madoff's case as well

4. Lack of proactiveness by SEC = There seems to be a hint of lack of proactiveness and unwillingness to take prompt actions in the working of Securities & Exchange commission. For instance a whistleblower even alerted SEC about the suspicious activities being performed Madoff's firm as early as in 1999 and then even six years after that but still SEC didn't wake up from it's sleep and as a result we see such kind of fraud by Madroff