Investors beware — the Great Fraud Reckoning is upon us
, who ran a $65 billion Ponzi scheme, was discovered a full year after a bear market started in 2007. He was able to patch and plug holes for a while, but when enough of his clients — who were all hemorrhaging money in the market — called Madoff to get $7 billion in cash back, he didn't have it. After cobbling enough cash together for months , Madoff hit a wall in December 2008 and was arrested a few weeks later.
"What's cool about Arthur Andersen's bankruptcy is that there was a panic among its clients," one of the study's authors, the University of Chicago professor Luigi Zingales, told me."They needed to do all sorts of cleanup." "The notion that when things tighten in the economy more fraud gets revealed presumes that the enforcement agency has the slack to prosecute the fraud," the University of Pennsylvania accounting professor Dan Taylor told me."And that's an assumption that's dubious at best."in the past year, but that's off record lows during the Trump administration.
Wharton's McKenna similarly thinks legal considerations have been clouded by the fact that authorities have been hesitant to call a fraud a fraud, which could carry penalties such as heavy fines or jail time for individuals. Instead, the enforcement agencies have been explaining this scammy behavior away as"failure to disclose," which only results in a fine for the corporation.
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