Hedge fund fraud: the iceberg or just the tip?

the point was he was audited but by a tiny firm of one man and a secretary (or that sort of thing) and not by the sort of firm you might expect to be auditing him.......

I understood that, in fact, everyone knew that something was up. The SEC were warned and given enough information to go on, which they must have chosen to ignore. (Again, sadly, rather like baby P, if less tragic).

As for the investors, I understand that they knew the scheme was bent but thought that Madoff was insider-trading and they were happy to participate in that scam. Obviously, they made a costly error...

if you work for a big firm then in recent years SEC rules have imposed extensive limitations on how you and your family invest. Yet what did that do to prevent a case like this, or similar frauds? And why did the fact he was choosing not to use one of the bigger firms (like one with more than 3 staff!!) as an auditor not in itself suggest all might not be what it could be?

I also go with the "nice chap" theory put forward by an interviewer on the Today programme this morning. This was someone his clients saw as such, so surely he must be OK? The role of regulators should be to bring reason and fact to what tend otherwise to be personal and illogical decisions - whether we like it or not we tend to trust people who appear to be like us and share our values even though they may as in this case simply be using that to exploit our gullibility.

So where did the money go? Surely the bulk of the embezzled funds must be somewhere or invested in something tangible. One man can't possibly have spent the shortfall on fripperies (wouldn't it be fun trying though!).

Some people are saying that what is needed is more regulation.

Wrong.

What is needed is less but better regulation.

The fact is that a whole range of businesses are regulated by people who really don't know much about what it is they are meant to be doing. Its a tick-box mentality. More often than not the people who carry out inspections are poorly trained in technical knowledge and having for the most part never actually worked in the industry don't appreciate the way the real world works.

Its a bit like the "Baby P" case where everyone said that they had done their job properly by "following procedures" but the baby still died.

Substitute Madoff for Baby P and you will find the same problem.

screening and monitoring that is out there shouldn't someone have spotted that a scheme that consistently bucks the trend and would have suggested that there was something not right was probably a cover for a bigger problem.

Isn't it time to revert to the old tests?

If it walks like a duck
Looks like a duck
and quacks like a duck

It is probably a duck!