Investors Should Rely on Themselves

The Madoff investment scandal was exposed in December 2008 when Bernard L. Madoff, founder of the Wall Street firm Bernard L. Madoff Investment Securities LLC, who is also the former chairman of NASDAQ (National Association of Securities Dealers Automated Quotations), pled guilty to 11 federal crimes and admitted to deceive his client by operating the Ponzi scheme. He was sentenced to 150 years in prison with the restitution of 170 billion. (Wikipedia) In my opinion, US regulators are partly responsible for this case, but investors should not expect that they can depend on regulators; they should do their own due diligence. Some evidences and opinions from Wikipedia and China Daily will be cited in the essay to support my opinion.

"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation." (Wikipedia)For example, the person operates a Ponzi scheme would first attract investors by giving out fake information of the "business" and offering higher return than other firms. Then they use money from next lot of investors to pay subsequent investors and keep going like this. It turns out a very sly but risky way of gaining money. Because in a stable economic condition, it works just fine; but once the economic situation changes, it might face lots of problems. The depressed economic condition causes fewer investors which could easily destroy this elaborate scheme since lack of investor stops the cash flow, hence the operator cannot give out the return. Once it stops providing returns, they would be sued by investors and be checked by government authorities. The operation of Madoff investment scandal was just like this.

The operation of Madoff investment scandal was exposed because of the mortgage meltdown through the GFC (Global Finance Crisis). This could mean, regulators and authorities wouldn't discover this fraud if the crunch didn't happen to send Madoff into plight. The role of regulators in this case, is supposed to be supervising the firm in order to realize the justice and balance of the market. So many people blamed that the lost of investors are attributed to the US finance regulators. As evidence suggests that ironically, the SEC (Securities and Exchange Commission) has failed in investigating the firm for multiple times because of the intimidation from the Wall Street fund managers. (China Daily) Actually this problem was raised early in 1999, but because of lack of sharing of information and control from the firm, the regulators did not investigate Madoff thoroughly. (Wikipedia) Apart from

...