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Hedge funds are not regulated the way you think. Mostly the SEC requires the generation of a lot of paperwork and various filings. The SEC does conduct inspecti

Hedge funds are not regulated the way you think. Mostly the SEC requires the generation of a lot of paperwork and various filings. The SEC does conduct inspections of funds but mostly this is not that big a deal. Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. I will leave the reader to judge the competence of the SEC but if you are thinking that this was hard to see I would recommend Harry Markopolos's book 'No One Would Listen'. Ultimately as a potential investor this would have been easy to spot as at least suspect. The first couple of due diligence questions to ask are about custody arrangements and their auditor. Understanding that if you are not an accredited investor you are not allowed to invest in hedge funds also makes it obvious that a fund willing to take your money may be acting fraudulently. Finally it did result in people losing their retirement funds, for some people absolutely everything.

gdfasfklshg4 8y ago
> Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. > Ultimately as a potential investor this would have been easy to spot as at least suspect. You think that even after the SEC failed to spot the fraud investors with far less power should be able to? I don't quite follow your argument here. A little more clarification would be nice. > Finally it did result in people losing their retirement funds, for some people absolutely everything. Taking money that people have received 20 years ago off people will also result in some people losing everything. (I know that they say that the people they are extracting the money from are keeping the original investments but what if some of the money has been spent?)
- sseveran 8y ago
  Sure. So simply asking who their auditor is and what the custody arrangements are will tell you a lot. Hedge Funds and other asset managers use a relatively small number of accountants to do their auditing. Madoff used a small family accountancy. https://en.wikipedia.org/wiki/David_G._Friehling https://en.wikipedia.org/wiki/David_G._Friehling This is not to excuse the SEC or let them off the hook. The SEC proved to be ultimately grossly incompetent at best, if not negligent or actually complicit. Investors should no more rely on the SEC to protect them than the hens should rely on the fox to protect the henhouse. This has been demonstrated repeatedly. https://www.barrons.com/articles/when-chinese-stock-fraud-was-rampant-1521659454 https://www.barrons.com/articles/when-chinese-stock-fraud-wa... https://www.wsj.com/articles/SB123577641445497313 https://www.wsj.com/articles/SB123577641445497313 Finally there is a statute of limitations when clawing back money that people received. I believe in Madoff's case it was two years. Additionally there were a number of lawsuits against a subset of investors that allegedly new about the scheme and profited from it. https://www.reuters.com/article/us-madoff-trustee-opinion/judge-trims-madoff-trustees-profit-clawback-suits-idUSBRE8401JF20120501 https://www.reuters.com/article/us-madoff-trustee-opinion/ju...
  - gdfasfklshg4 8y ago
    I guess what I am really asking is did the SEC not spot this because it was not their job or because it was their job and they didn't do their job properly?
    - sseveran 8y ago
      It is probably considered their job but I don't have any confidence in the SEC to proactively investigate anything of real substance. However they did not even have to spot it since Mr. Markopolos turned up with a ton of evidence that it was a Ponzi scheme. They did not even do basic things like verify that he was actually trading.
      - gdfasfklshg4 8y ago
        But in this case shouldn't the regulator assume some liability?
        sseveran 8y ago
        The courts in the US have long upheld that law enforcement (and probably by extension, regulators) are under no obligation to protect you.
- URSpider94 8y ago
  I listened to a good podcast series on Madoff a couple of years ago. There was good evidence that many of the investors knew that he was running a scam, and were looking the other way as long as they kept getting returns.
  - gdfasfklshg4 8y ago
    If anyone can be shown in court to have know it was a scam then they should certainly have any money clawed back off them.

gdfasfklshg4 8y ago

> Remarkably the SEC did inspect Madoff Investments and did not conclude it was a fraud even though it obviously was. > Ultimately as a potential investor this would have been easy to spot as at least suspect. You think that even after the SEC failed to spot the fraud investors with far less power should be able to? I don't quite follow your argument here. A little more clarification would be nice. > Finally it did result in people losing their retirement funds, for some people absolutely everything. Taking money that people have received 20 years ago off people will also result in some people losing everything. (I know that they say that the people they are extracting the money from are keeping the original investments but what if some of the money has been spent?)

sseveran 8y ago
Sure. So simply asking who their auditor is and what the custody arrangements are will tell you a lot. Hedge Funds and other asset managers use a relatively small number of accountants to do their auditing. Madoff used a small family accountancy. https://en.wikipedia.org/wiki/David_G._Friehling https://en.wikipedia.org/wiki/David_G._Friehling This is not to excuse the SEC or let them off the hook. The SEC proved to be ultimately grossly incompetent at best, if not negligent or actually complicit. Investors should no more rely on the SEC to protect them than the hens should rely on the fox to protect the henhouse. This has been demonstrated repeatedly. https://www.barrons.com/articles/when-chinese-stock-fraud-was-rampant-1521659454 https://www.barrons.com/articles/when-chinese-stock-fraud-wa... https://www.wsj.com/articles/SB123577641445497313 https://www.wsj.com/articles/SB123577641445497313 Finally there is a statute of limitations when clawing back money that people received. I believe in Madoff's case it was two years. Additionally there were a number of lawsuits against a subset of investors that allegedly new about the scheme and profited from it. https://www.reuters.com/article/us-madoff-trustee-opinion/judge-trims-madoff-trustees-profit-clawback-suits-idUSBRE8401JF20120501 https://www.reuters.com/article/us-madoff-trustee-opinion/ju...
- gdfasfklshg4 8y ago
  I guess what I am really asking is did the SEC not spot this because it was not their job or because it was their job and they didn't do their job properly?
  - sseveran 8y ago
    It is probably considered their job but I don't have any confidence in the SEC to proactively investigate anything of real substance. However they did not even have to spot it since Mr. Markopolos turned up with a ton of evidence that it was a Ponzi scheme. They did not even do basic things like verify that he was actually trading.
    - gdfasfklshg4 8y ago
      But in this case shouldn't the regulator assume some liability?
      - sseveran 8y ago
        The courts in the US have long upheld that law enforcement (and probably by extension, regulators) are under no obligation to protect you.
URSpider94 8y ago
I listened to a good podcast series on Madoff a couple of years ago. There was good evidence that many of the investors knew that he was running a scam, and were looking the other way as long as they kept getting returns.
- gdfasfklshg4 8y ago
  If anyone can be shown in court to have know it was a scam then they should certainly have any money clawed back off them.