Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

What if Markopolos had blogged?

Ray Pellecchia writes
on his blog that Markopolos could have stopped Madoff simply by
writing a blog after his complaints to the SEC fell on deaf
years. There is a serious problem with this suggestion – the SEC
itself.

Regulators around the world may be too dense to understand the
niceties of Madoff’s purported split strike conversion strategy,
but they are smart enough to act and act quickly agaist
somebody trying to spread what appear to be malicious rumours. (Please
remember that there is no such thing as an anonymous blogger when the
state is after you.)

The very fact that the SEC investigated the complaint and found no
merit in the complaint would have made it evident that that blog post
was just a baseless rumour. Add in the fact that Markopolos was a rival
hedge fund manager and the grounds for acting against the rumour
mongerer are plain as daylight. From whatever I have seen of
regulators anywhere in the world, it would have been suicidal for
Markopolos to write that blog.

This is an example of how a regulator makes things worse merely by
its existence. Absent an SEC or an FSA or a SEBI, a Markopolos could
stop a Madoff by blogging. Because such a regulator exists, Markopolos
is powerless!

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