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Wall Street analysts and pundits are now saying, in review, there were a lot of red flags that should have brought down this scheme. The SEC was even warned, as early as 1999, that Madoff was running a Ponzi scheme. The SEC began two investigations, one in each 2005 and 2007, though neither amounted to much. Madoff’s prominence loomed larger then any accusation or inquiry (he even helped advised the government on how to stop fraud).
The answer is not to give the SEC more teeth, more red tape, and more rules to complicate operating in a “free” market. Rather, the market should simply be less dependent on intense regulation, and less trusting of the power of the federal government to effectively police its increasing number of rules.
The law exists to protect property rights, and thus in this case the government has a judicial role to play. The government should also establish rules of the game for the market to operate within. However, the investors also have a legitimate individual responsibility to understand how their money is being invested. Many simply put their trust in Madoff, and simply accepted the too-good-to-be-true rate of return. There is a degree of personal responsibility when it comes to finances, despite the deception of Madoff.
Anthony Randazzo is a policy analyst and the Koch associate at Reason Foundation. An archive of his work is here