Reporters and photographers jostled and pushed against each other in front of Bernard Madoff’s Manhattan apartment last week, vying for a photo or a word with the disgraced investment coordinator.  Madoff smiled slightly as he moved past, declining to comment after returning from the Federal courthouse where he had completed paperwork related to his bail.  To purchase the $10 million bond, Madoff signed over his Upper East Side apartment and his homes in Palm Beach and the Hamptons. 

The judge at the Manhattan courthouse set new conditions for Madoff’s bail, including a curfew and a monitoring bracelet, but the danger of Madoff skipping town seems minimal after owning up to his crime and his continued cooperation.  The stock market took a plunge after sheer size and scale of Madoff’s scam began to sink in with investors.  Trusts and charities were some of the most affected by the massive Ponzi scheme, and many lost all of their investment. 

The most recent addition to the ever growing list of victims was a Michigan-based foundation created to provide money grants for healthy food in urban areas; the foundation is now going out of business.  Though fraud can sometimes seem like a victimless crime, news that dozens of charities are being forced to close must resonate even with Madoff; because of his actions, millions of people living in poverty will now be forced to scrape even harder to make ends meet. 

The most frightening aspect of Madoff’s entire scheme is how it went unnoticed for such a long time by entities such as the U.S. Securities and Exchange Commission (SEC), Ascot Partners (the firm that acted as an intermediary between Madoff and investors), J. Ezra Merkel (Madoff’s managing partner and chairman of GMAC financing), and BDO Seidman (Madoff’s auditor).  In a statement issued to the press while he appointed three more members to his cabinet, President-elect Barack Obama said:

Government overseers dropped the ball.  The scandal has reminded us yet again of how badly reform is needed.

Madoff’s investors, some of whom had lost billions, filed suit against Ascot Partners, J. Ezra Merkel, and BDO Seidman the same day the scandal broke.  The suit claims the defendants failed to conduct due diligence before reassuring investors that their investments were safe with Madoff.  Published reports at Acorn Partners and the Aksia Fund cited refusal to invest with Madoff due to red flags, and were presented as evidence in the case. 

The reason Madoff himself is not being held accountable by his victims is because, in essence, he doesn’t have enough capital to justify a suit against him.  Madoff nor his firm is able to reimburse more than a small fraction of the losses they caused, and investors who suffered significant losses are scrambling to probe all possibilities for even a modest return on their investment.  Tuesday a Federal judge ordered Madoff’s firm into liquidation proceedings, but none of Madoff’s investors are hopeful that it will yield much towards restoring their wealth. 

Unfortunately, allegations against the various people and corporations tied in with the $50 billion scandal are indistinct at best.  From all the evidence that has surfaced thus far, Madoff’s scheme was perpetrated by him alone; there has yet to be sufficient proof that anyone aside from Madoff himself knew what was happening.  There were signs of illicit activities at Madoff Investment Securities, but either Madoff’s credibility or unknown external factors allowed him to perpetuate the scheme without a lot of outside investigation. 

Several factors contributed to Wall Street’s decline last week after the surge following the Federal Reserve rate cut, but no doubt at least one central concern is tied to Madoff.  There is a huge chunk of capital missing from the market, and with multiple businesses being shut down having lost it all, the sheer scope and stupidity of the entire scandal is overwhelming. 

SEC Chairman Christopher Cox has found himself on the defensive following an entire week of criticism, however Cox asserts:

We have thus far no evidence of any wrongdoing by any SEC personnel.

Whether or not Cox has found evidence of wrongdoing seems to matter little, because it’s clear someone at the commission dropped the ball, as President-elect Obama stated.  Though in the end it might be impossible to lay blame on those who simply failed to recognize Madoff’s illicit activities, apathy is none the less a significant evil that has plagued America for decades.  When it took four days for FEMA to move a supply of clean water to refugees of Hurricane Katrina; it was impossible to lie blame on one specific individual, or even FEMA itself, but the system failed because no one cared enough to fix it prior to the disaster. 

The “if it’s not broken, don’t fix it” mentality won’t work when it comes to the faltering economy.  If the government doesn’t make pre-emptive efforts to address future problems, it’s unlikely a weakened America will have the means to solve problems when they surface.

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