The SEC to the Rescue

Posted by: Matthew Goldstein on April 22

Maybe the Securities and Exchange Commission’s new motto should be better late than never.

The SEC, on Wednesday, reached a settlement with hedge fund advisory firm Hennessee Group over its role in the $300 million Bayou Group scandal. The SEC, in a civil administrative complaint, charged Hennessee with failing to perform adequate due diligence on Bayou before recommending the hedge fund to its investors. In settling, Hennessee, neither admitted nor denied any wronging, and coughed-up $814,000 in forfeited fees and penalties.

In fining Hennesse, the SEC says it’s sending a message that investment advisors “must make good on their promises or face the consequences of vigorous SEC enforcement action.”

Now that’s a fine message for the SEC to be sending, but the trouble is the Bayou scam unraveled nearly four years ago. In fact, last month, Bayou’s founder Samuel Israel III pleaded guilty in federal court to charges he took flight last summer to avoid serving a lenghty prison sentence for his role in the hedge fund swindle.

One can only wonder if the SEC had acted faster in the Bayou case might it have had some impact on the giant feeders funds that funneled money to Bernard Madoff. The Madoff feeder funds say they did nothing wrong and didn’t know about the enormous Ponzi scheme Madoff was running.

But if hedge fund advisors knew the SEC was scrutinizing their actions, it might have caused some of those firms to dig deeper into Madoff’s business practices.

Reader Comments

Diane

April 23, 2009 05:23 PM

The SEC....what a joke!

Onceler

April 23, 2009 06:21 PM

But why should it even take the threat of SEC scrutiny for these feeder funds to make good on the promises of due diligence they were making as part of their pitch to individual investors? Likewise, the fact that the SEC failed to uncover Madoff doesn't get the feeders off the hook for not doing so on their own, e.g., Harry Markopoulos/

Ronnie Sue Ambrosino

April 26, 2009 07:54 PM

I am a former Madoff investor. We have a proactive group of over 400 other investors that have come together in an effort to find recovery. Together, we offer support and knowledge. This is a secure group that empowers victims to change the system that allowed this fraud to happen and allows them to unite in restitution. This effort will help us go from victims to victors.
If you are a victim, or know someone who is, please go to:
bernardmadoffvictims.org.

We feel there is strength in numbers and as such, have made contact with many legislators in an effort to get fair and just recovery.
For more information about the group, visit the following websites:
http://www.npr.org/templates/story/story.php?storyId=100601125
http://www.foxbusiness.com/story/personal-finance/financial-planning/mad...
http://www.foxbusiness.com/video-search/m/21941880/tax-break-for-madoff-...
http://www.wowowow.com/politics/madoff-victims-come-together-find-justice-or-least-little-relief-232446>
We know that together we will prevail.
Ronnie Sue Ambrosino
Bernardmadoffvictims org

Ann

May 3, 2009 07:05 PM

It's time to put teeth into prosecuting securities violations, including lack of fiduciary responsibility, and also require criminal charges and hard time for playing games with other people's money and causing great financial and personal harm to clients. This fraud and incompetence is no different than armed robbery but done behind a desk and with the pretense of ignorance and innocence. There is no innocence in laundering and passing along other people's money for a commission or other compensation.

Thank you for your interest. This blog is no longer active.

 

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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