WSJ: Bigger S.E.C. Isn’t The Answer

Even SEC Chairman Christopher Cox is admitting that the SEC dropped the ball on the Madoff Ponzi scheme. But before we conclude that the answer to the Madoff scandal is bulkng up the regulators, the Wall Street Journal points out in an editorial that the SEC’s budget has significantly grown over the last nine years. The Journal argues that the Commission’s failure to catch Madoff should not come as a surprise.

Mr. Cox and Congress will undoubtedly look for other conflicts of interest, but the larger truth is that the SEC’s failure is business as usual. The real news would be a case when the SEC did prevent a fraud.

The Journal points out that Madoff’s shenanigans, however, did not escape everyone’s notice:

The fact is that the only people who seem to have taken concrete action to protect investors from Mr. Madoff are private research shops like Aksia LLC. Its analysts did the real work of figuring out that Mr. Madoff’s claimed investment strategy couldn’t be happening at the volumes he claimed to be trading. Likewise, it was the short sellers who first blew the whistle on Enron, while the SEC was clueless and the firm’s auditors were asleep.

For an alternative viewpoint, you can check out the Washington Post’s editorial here. They reach a different conclusion:

Nevertheless, if this scandal demonstrates anything, it is how easily even the most sophisticated investors can be gulled — and that the general public needs alert and aggressive government regulation.

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