A FINANCIAL SERIAL KILLER month, Archegos was a big family office and hedge fund that caused investment banks to post losses upwards of $10 billion.) Those new rules – like those implemented after the Madoff meltdown – won’t help the banks (and their shareholders) that lost billions of dollars. Finance doesn’t have a monopoly on fraud, It’s not unusual for regulators – after the fact – to tighten the rules in response to someone
who found, and exploited, a loophole or gap in the rules. The SEC emerged from the Madoff scandal looking as competent as the Three Stooges with a hangover. After the dust settled, an SEC inspector general report of the commission’s failure to uncover Madoff said... Between June 1992 and December 2008 when Madoff confessed, the SEC received six substantive complaints that raised significant red flags concerning Madoff’s hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoff’s investment operations that appeared in reputable publications in 2001 and questioned Madoff’s unusually consistent returns. It’s not unusual for regulators – after the fact – to tighten the rules in response to someone who found, and exploited, a And a decade and a half later, the SEC is still only just noticing that the barn door is open well after the horse has bolted. “I’m guessing that after Archegos, we’ll see regulation on equity swaps,” Erin told me. (As I wrote last loophole or gap in the rules. The SEC emerged from the Madoff scandal looking as competent as the Three Stooges with a hangover.
either. Blood-testing startup Theranos, founded in 2003 by Elizabeth Holmes, was kind of a “medical Madoff.” Theranos reached a private market valuation as high as $9 billion, but the entire underlying idea – technology that required only a small pinprick of blood to run a range of medical tests – was completely bogus. The similarities with Madoff are startling. “Holmes used jargon and fuzzy language. She offered no transparency at all,” and hid behind the claim of “proprietary” ideas, Erin told me. Like Madoff, Holmes had powerful backers – Oracle founder Larry Ellison and legendary venture capitalist Tim Draper were among the investors in the company. Holmes took investors on the condition – also similar to Madoff – that they not ask too many questions. Investing is similar to science, in that a result is only worth something if it’s able to be replicated. If a scientific experiment can be repeated – multiple times by multiple people – it’s a lot more likely to be correct. And it can be used as the basis of something much bigger. But if no one can derive the same results, using the same inputs and process? That’s called a fluke. And Madoff’s investment results were simply mathematically impossible. “There were those who suspected Madoff’s magic was just an
74
May 2021
Made with FlippingBook - professional solution for displaying marketing and sales documents online