WORLD> America
Madoff scandal may lead to policy review
(Agencies)
Updated: 2008-12-16 08:14

Such a large Ponzi scheme - in which early investors are paid with money raised from subsequent investors - should prompt lawmakers to review how the US polices brokerages, wealth managers and unregistered advisors, such as hedge funds, said James Cox, a securities law professor at Duke University in Durham, North Carolina.

"There are just so many people out there who are and aren't registered that it really just overwhelms the system," Cox said. "There is no easy way to expand the regulatory net unless we're willing to put the might of the federal budget behind it to carry out more inspections."

Barry Barbash, a former head of the Securities and Exchange Commission's investment management division, said the agency has tried to focus its inspections on money managers who pose the biggest risks. The regulator uses criteria such as which securities a firm is buying and who its clients are, said Barbash, a partner at Willkie Farr & Gallagher LLP in Washington.

Any suspicions about Bernard Madoff may have been damped because of his association with industry groups, watchdogs and politicians.

He sat on a committee of academics, regulators and executives formed in 2000 by former SEC Chairman Arthur Levitt to advise the agency on new stock-market rules in response to the growth of electronic trading. Madoff has led the trading committee at the Securities Industry Association, Wall Street's biggest trade group, and served as chairman of the NASDAQ Stock Market.

Since 2000, he has given at least $100,000 to the Democratic Senatorial Campaign Committee and more than $23,000 to the party's candidates, including Senator Charles Schumer of New York and Senator Frank Lautenberg of New Jersey, who leads a charitable foundation that invested with Madoff.

"You can see where people would pull the shades down over their eyes in terms of recognizing what could be one of the great frauds of our time," Levitt said. "I've known him for nearly 35 years, and I'm absolutely astonished."