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The ‘Madoff’ fraud case illustrates once again the need for tighter financial regulation of markets and institutions. New York’s Bernard Madoff allegedly managed to cheat investors out of as much as $50 billion through his firm ‘Bernard L. Madoff Investment Securities LLC’. His firm was investigated three times in 1992, 2005 and 2007 and still the authorities found nothing wrong with the operation. UNI Global Union believes this to be a clear example of the current system failing to protect investors. UNI Global Union General Secretary Philip Jennings commented “if there were any doubts about the need for comprehensive statutory regulation, then they have gone now.” The G20 undertook to re-regulate financial markets. “There are no longer any excuses. The G20 Governments have to act” said Jennings.



“Victims of the scam included gray-haired grandmothers in Florida, investment companies in London, and charities and universities across the United States. The Wilpon family, the main owners of the New York Mets, and Yeshiva University both confirmed that they had invested with Mr. Madoff, and a Jewish charity in Massachusetts said it would lay off its five employees and close after losing nearly all of its $7 million endowment.” (New York Times 13.13.08 Look at Wall St. Wizard Finds Magic Had Skeptics)



The list of banks exposed to the fraudulent investments by Bernard L. Madoff Investment Securities LLC, at this stage include HSBC, Royal Bank of Scotland, the largest banks of both Spain and France, Santander and BNP Paribas and Swiss private bank Reichmuth & Co.



Mr Jennings said that “it looks like the entire financial community has been duped. Their judgment fed by greed has brought ruin to many”



The Madoff case illustrates the need for a thorough reassessment of regulatory loop holes in the financial system. Firms such as Mr Madoff’s, have been able to operate without supervision.

“Mr. Madoff was not running an actual hedge fund, but instead managing accounts for investors inside his own securities firm. The difference, though seemingly minor, is crucial. Hedge funds typically hold their portfolios at banks and brokerage firms like JPMorgan Chase and Goldman Sachs. Outside auditors can check with those banks and brokerage firms to make sure the funds exist.

But because he had his own securities firm, Mr. Madoff kept custody over his clients’ accounts and processed all their stock trades himself. His only check appears to have been Friehling & Horowitz, a tiny auditing firm based in New City, N.Y. Wealthy individuals and other money managers entrusted billions of dollars to funds that in turn invested in his firm, based on his reputation and reported returns.” (New York Times 13.13.08 Look at Wall St. Wizard Finds Magic Had Skeptics)

Questions should also be asked of those who raised money for Mr Madoff, which include hedge funds, investment advisors and banks. Investors have put their trust in licensed financial operators who have failed to conduct basic due diligence checks on investment strategies.

“A lot of people treat due diligence as a check box kind of endeavor and this is the poster child for why you need to do real due diligence” (Reuters 12.12.08 Madoff case to rock already shaky hedge funds)

Some financial advisors applied the correct measure of due diligence and claim that the signs were there to ring alarm bells about Mr Madoff’s investments.



“His office was filled with computer banks, there was little paper and he reflected the industry's reputation for secrecy by telling would-be investors very little about how he worked, people who know him remembered.

"Madoff's outfit was such a black box," said Salomon Konig, who helps endowments and wealthy families select hedge funds as chief investment officer at Artemis Capital Partners. (Reuters 12.12.08 Madoff case to rock already shaky hedge funds)

This case now places additional pressure on financial regulators to increase protection for investors. Unions would like hedge funds and other alternative assets such as private equity to be statutorily regulated. European Commissioner Charles McCreevy has announced the opening of public consultation on hedge funds regulation.