Harvey Pitt, SEC chairman from 2001 to 2003 and CEO of Kalorama Partners LLC, addressed the implications of Bernard Madoff's alleged Ponzi scheme at the TMA/The Deal's Distressed Investing Conference in Las Vegas on Thursday.
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Pitt commented that it is easy to blame Madoff for what he did, but that the scheme demonstrates the weakness in the current regulatory system and that identifying how Madoff was able to operate for so long is necessary to prevent similar scams from happening in the future.
"The damage Madoff inflicted was enormous. Who can investors now trust? The $50 billion figure comes from Madoff himself," Pitt said. "Should we believe him? Why wasn't the SEC able to pick up on the warnings?"
"What's troublesome about Madoff is that the SEC had specific warnings over and over again and failed to identify the fraud. The SEC's examination program was flawed from the get-go and needs to be redone," Pitt explained.
Pitt said hedge funds will be regulated going forward, credit default swaps should be regulated and that a risk management program should be put into place in order to prevent another Madoff-esque fraud. "The more information that gets into investors hands, the more investors' confidence will return and markets operate normally," Pitt said. - Maria Woehr
