Could Crowdsourcing Help the SEC Detect Fraud?

An anonymous reader writes "The SEC failed to catch Bernie Madoff largely because they are understaffed (a fact the SEC itself has admitted), under-funded, and simply lack the resources to adequately investigate his activities. Undoubtedly, there were other smaller incidents of fraud that have gone unpunished because of this deficiency. To solve this egregious issue, NERA Economic Consulting proposed crowdsourcing, the concept behind Wikipedia's existence. Proving financial fraud is essentially an exercise in finding numbers that do not match. Through crowdsourcing, regulators would make financial data publicly available to the masses, who would do the 'grunt work' of sifting through them to find discrepancies. But would it work?"

Comments

Too much work load?

[ffreeloader]

Maybe they wouldn't be behind in their work if they actually did the work. You know, work rather than watch porn during working hours.

Apparent Contradiction in the Article

[CalcuttaWala]

How can the SEC hide behind the fig leaf of being understaffed when "As early as 2001, the media had quoted financial professionals who raised questions about Madoff's fund. In 2005, independent fraud investigator Harry Markopolos sent the SEC a memo raising 29 red flags -- he had complained about Madoff to regulatory officials for six years." It is very apparent that enough red flags were raised but they were ignored ... this smacks of connivance.
So what if the "crowd" finds some anomalies in accounts .. question is will anybody take any action on the same ? Their track record speaks otherwise ..

Re:Wrong problem

[FriendlyLurker]

The SEC doesn't stop fraud because it doesn't want to stop it, not because it lacks the resources.

Exactly. For those who are not convinced, a bit of reading: Five New York Stock Exchange specialists were actually charged with fraud, but it's not the justice you think it should be. Richard Ney and economist who later turned actor, wrote a best selling book in 1970 ("The Wall St Jungle", interview NY Magazine 1970) with a few follow up books that all called out the NYSE Specialist families for fraud, explaining exactly how they defraud the public. At the time The Wall Street Journal boycotted anyone selling the NY times longest running best seller, and Ney was not permitted as a guest on The Tonight Show - very unusual at the time for someone with such a long run best seller/controversial book - his message had touched a raw nerve. In response, the establishment had Ney widely counter-attacked, labelled a conspiracy theorist nut at every opportunity - comments like "what would an actor know of the stock market" were common and can be heard even today.

To prove Ney's wild eyed grand conspiracy theory right - The DOJ finally got around to charging the NYSE specialists for the exact fraud that Ney described - 33 year's after he wrote about the crime! In 2003 the Specialist firms quickly got their get out of jail free cards for a tiny fraction of what they had actually defrauded over the years. Those get out of jail free cards just keep coming off the monopoly pile. The story does not end there however... news came out shortly after that the NYSE was at long last going to move to an all-electronic exchange - and that the Specialists firms charged with defrauding the public were the very same that had been blocking the move due to their 30% NYSE stake. Everyone in the know + those that read Ney's books knew all too well of the massive fraud going on in full public view for at least 33 years (more like 210+ years), but it was not until these Specialist criminals blocked other powerful interests that the illegal behaviour was actually pursued by the SEC/DOJ.

If ever there was an example of the lack of credibility for the SEC and DOJ, this is it. 33+ years of massive fraud in full public view, but they did not get around to prosecuting until it was ordered to - until it was necessary to coerce the Specialist family firms into letting the NYSE go electronic. Nothing to do with justice, or protecting the innocent being defrauded to the tune of billions of dollars over the decades. As an added insult, the DOJ let the criminals off the hook with a paltry fine. But then there is no surprise there, as Richard Ney said it best:

"Regrettably, the arrangements that exist to preserve the traditions and legalize the frauds of the security industry are inseparable from the general organization of a society controlled by the financial establishment, a society whose laws and principal customs have been contrived to serve the special interests of the financial community,"

Voting Red or Blue will not change this arrangement of US society and it's laws - merely reinforce it.