Tuesday, October 26, 2010

Fund Manager Commits Suicide, SEC Investigates

A local story about fund manager Robert Markman, who ran a classic Ponzi scheme. It reminds one of Henry Blodget:
The college theater major oversaw $700 million in assets, fielded calls from the nation's top financial press, and held seminars for other advisers seeking to capture his magic.

But he succumbed to his own hype, often promising more than he could deliver. He told employees they would be millionaires after just a few years of working with him.

And he secretly guaranteed a clique of favored investors 10 percent annual returns in what he called the "house accounts."

These 'house accounts' were Ponzi money, inflows used to prop up other funds. Eventually, this cunning plan ran out of money. He was a zero-alpha fraud from day one, and when he finally was about to be exposed, he killed himself, writing a self-serving suicide note highlighting that he died feeling sorry for himself, as if his calculated fraud that created his entire career was some peccadillo that would be blown out of proportion.

I don't see why the SEC bothers with 'enforcement', rather, they should merely have a legal team that meets out punishment after the fact. For cases like Madoff or Markman (above) where all the money is gone and no restitution can be made, at the very least if the jerk does not kill himself he can die in jail.

But we should not waste money on the presumption that SEC enforcement actually sniffs out frauds before they blow up. In 2005, Harry Markopolous wrote a 21-page memo to SEC regulators about Bernie Madoff entitled: "The World's Largest Hedge Fund is a Fraud." Nothing happened. The regional SEC office was aware since 1997 that Allen Stanford was likely conducting a Ponzi scheme, but no SEC action took place until 12 years later when his Ponzi scheme was revealed via a lack of funds, costing $8 billion. Too little too late.

They might as well admit they are there to attach fines and jail time on the obviously guilty. It is so easy to fool the SEC, they only highlight their obliviousness by suggesting their activity is anything other than post hoc.

1 comment:

michael webster said...

Eric, please read this essay penned by Goffman over 50 years ago on the role of the regulator:


The regulator is there to make sure life goes on in "market" and that nobody squawks too much about it.