The Failure of SEC to Notice Bernie Madoff Essay

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Although Bernie Madoff eventually received justice for his crimes, the case study reveals the structural problems inherent in the Securities and Exchange Commission (SEC). An independent financial fraud investigator, Harry Markopolis, had delivered a critical smoking gun to the SEC, which summarily ignored the information. The situation suggests corruption at the highest levels of government and finance, if not full collusion and conspiracy.

One of the problems with the SEC is that it seems to be deliberately populated by personnel who cannot actually prevent financial fraud. As the case study points out, the SEC personnel primarily consists of young attorneys and “lifelong government employees,” many of whom end up working by the very same investment firms that were under SEC investigation (p. 2). Another problem with the SEC seems to be its lax attitude towards financial fraud, evident by the way it dismissed the Markopolis information out of hand. The SEC simply was not willing to acknowledge that something as simple as a Ponzi scheme was taking place in sophisticated investment banking networks.

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Ultimately, the SEC failed to do its job of protecting investors, and the Madoff case did not lead to any real structural changes to the organization.

The Bernie Madoff story also shows how corruption is a matter of organizational culture. For example, the SEC, other regulatory bodies, and investment firms all discourage whistleblowing. The Madoff case should have ushered in a new era of transparency and strong oversight, but the organizational culture problems that lead to corruption remain problematic in the SEC. Eventually, the SEC responded to the Madoff affair and Madoff was brought to justice, but only after it was too late. Instead of reacting, the SEC needs to be more proactive in its approach. The SEC needs to hire astute personnel and use robust software analytics to identify suspicious behavior and high-risk firms before investors lose their money.








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