SEC Madoff Failures: Outlier or Systemic Problem?

The Securities and Exchange Commission has now admitted what has been obvious to anyone who has been paying attention over the past several months: Inspectors utterly failed to detect Bernard Madoff’s massive Ponzi scheme despite numerous warnings over a sixteen year period that something was amiss. The Wall Street Journal reported on the contents of the “executive summary” which was posted on the SEC site on September 2. Do these revelations point to a one time lapse in oversight or a systemic problem?

Madoff’s Weapons of Influence

I am not alone in wondering how it could be possible for so many highly educated and wealthy individuals to fall for a scam on the staggering scale of Bernard Madoff’s ponzi scheme. How could it be that a prominent and generally well respected individual like Bernard Madoff could fool so many people for as long as he did? More importantly, how can investors avoid falling for the next scam artist? While there were certainly warning signs as well as individuals such as Harry Markopolis who warned that Madoff’s enterprise was a ponzi scheme, for some reason individuals invested with his firm did not take action. This post explains how Madoff used psychology in his favor.


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