How do we protect ourselves from the Madoffs of the world?

I’ve had some time to think about the sentence Bernie Madoff got for scamming the world, as they say. I was reading the June 30th posting of the Business Exchange, (http://bx.businessweek.com), when a linked article, “Time Is Money,” caught my eye. In this article, Liel Leibovitz, the author tries to wrap his arms around the magnitude of the Madoff scam and equate the dollars scammed to the years in prison. It’s actually quite entertaining.

To start, he estimated one year of Madoff’s 150-year sentence to equate to approximately $1.2 million per day. So in those terms it would take Madoff one hour to earn the average salary of an American teacher, or as long as 263 days to make the most expensive Hollywood movie in history which was “Pirates of the Caribbean,” starring Johnny Depp. That’s an enormous amount of money – and a mere 263 days to produce it with scammed dollars! Suddenly, 150 years doesn’t seem long enough.

As a financial advisor, it boggles my mind to think how Mr. Madoff could have gotten himself into this position without being a crook. For nearly 20 years the scam went on. He bilked his friends and family, those he loved most. Or can you call this love? How could he live with himself day-after-day, year after year? I was listening to one of the victims on the news after she had heard of his sentence. She said that Mr. Madoff could only be described as a psychopath. I have to agree with her. For myself, as an advisor, I wake up each morning wanting to better the position of my clients. The very thought of doing something that would harm them, makes me physically anxious just thinking about it. I do my best to protect my clients from financial harm; that’s my job. I believe most financial professionals have that very thought — they only want to do well by their clients.

So how do we protect ourselves from the Madoffs of the world? It’s hard to say. He’s a psychopath. He’s not cut out of the same cloth that you and I are. His intention was to deceive us and he did—all of us including the SEC. As a conman, he was incredulously successful. As for protecting ourselves from the likes of him in the future, we’re going to have to remain sharp. We have our own responsibility to make sure what we are getting involved in is legitimate. We’ll have to ask more questions more often and get second opinions from third-party advisors.

From the regulatory side we already know that new legislation is going to be coming down to protect us from future Madoff’s. However, the question I want to ask is this: where was the SEC? Doesn’t current regulation outlaw the behaviors of Mr. Madoff? How come they didn’t answer the call? I don’t believe we need more legislation, what we need is enforcement. The SEC let us down and in so many ways is very much to blame for the demise of many of Madoff’s victims. If they would have stopped Madoff the first time his ponzi scheme was brought to their attention, there’s a good chance many could have been saved from decimation or better yet, never been able to work with the man since he would already have been identified as a crook.

So while Mr. Madoff rots in jail where he belongs, the rest of us are left to pick up the pieces of the financial pictures he blew apart. Yes, Bernie Madoff had his victims, and they have been decimated. He has destroyed their futures. They most likely will never recover from the carnage. He has also singled — handedly destroyed the confidence in the financial markets in general. I don’t think there is a single person, whether they are an investor, an adviser, or other financial professional, that hasn’t been touched by this historical crime. It will be interesting to see how all this plays out in the end. Stay tuned, I know I am.

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