Madoff case could spur new regulation

Bernard Madoff walks down Lexington Ave to his apartment in New York City


Scott Jagow: Today's a big day for the Bernard Madoff fraud case. A federal judge in Manhattan will look at several key issues. And Madoff is supposed to submit a list of his assets to the Securities and Exchange Commission. That should give us an idea of how much money will be available for the victims of his Ponzi scheme.

Some of those investors are suing their hedge funds for channeling their money to Madoff. This could all end up with more regulation of hedge funds. To say that industry has been the wild west is an understatement. At least there was a sheriff in town back then. Here's Stacey Vanek-Smith.

Stacey Vanek-Smith: Hedge funds are known for making big money, taking big risks, and having almost no rules to follow.

Why the lack of regulation? Well, it costs millions to invest in a hedge fund, so those investors are seen as sophisticated and not in need of regulatory protection. But securities attorney Lance Kimmel says that's just not the case.

Lance Kimmel: We're talking about pension money, 401K managed money. If that fund is Calpers, then the public at large is an investor in that hedge fund.

Congress will hold a hearing next week to look into the Madoff scandal. Kimmel says the likely conclusion is that Madoff took advantage of a lack of regulation.

Kimmel: I think that that may have been a critical element that allowed someone like Madoff to get away with it for so long.

Earlier this year, the hedge fund industry held an estimated $2 trillion in assets. Because hedge funds typically borrow so much to finance investments, they've been hit especially hard by the economic crisis.

I'm Stacey Vanek-Smith for Marketplace.

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.
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Most libertarians, who are about as free market as anyone, consider fraud to be a crime. If drugs dealers give you the drugs you ask for it is a consensual transaction and should be allowed. If they give you a poison or a placebo, it is fraud and a crime. The belief is that government should present a framework in which consensual, cooperative, transactions are supported, and lieing about products or services is seen as outside of this framework. John

Stop vilifying Bernie Madoff. In capitalism it is OK to cheat people. If a charity took donations and gambled with them on wall street instead of keeping them safe in treasuries or using them for charitable work, that charity betrayed the donors and its managers should be prosecuted. Bernie cheated people, yes. But he did not force anyone to play with him. It is the investors whose greed led them to BM, and he tricked them. If a man goes to a prostitute or drug-dealer to get a fix, and then gets tricked, can you really blame the drug-dealer or prostitute? Greedy investors never cared how Bernie made his money, they just wanted their 'fix'. Like drug-dealers and prostitues, stock brokers and investment bankers know that only needy people come to them, and it is easy to fool these people. So they do as best as they can. So before passing judgment, ask yourselves, could Bernie Madoff cheat anyone that was not greedy? Nope. The real culprits are the clients of the prostitutes, the drug-addicts, the greedy charities and the rich people who wanted to gamble in wall street. Don't blame the prostitute for prostitution or the drug-dealer for drug-addiction. For as long as there are greedy charities and rich people, there will be and should be a Bernie Madoff to take advantage of their greed. Tigers kill the weak animals which improves the genes of the deer. People like Bernie 'kill' the 'weak' (morally) among us so that the stronger prosper. He is a blessing disguies. No amount of regulation will save the weak and the greedy, but natural selection, via Madoff or the tigers, will weed them out. ST

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