He was chairman of the Securities and Exchange Commission from 2001 to 2003. This is the edited transcript of an interview conducted on Feb. 17, 2009.
- He didn't know Madoff was running one of the biggest hedge funds?
- 2005 -- another red flag the SEC should have seen
- Regulate hedge funds?
- Does the SEC have what it takes?
So, given the scope, the scale, the length of it -- how did the SEC miss Madoff?
I think there were a couple of reasons that contributed to the failure. You have to start with the fact that SEC's examination program, put in place in the mid-90s, was fatally flawed.
There are now 11,000 registered investment advisers subject to the SEC's jurisdiction. There are about another 5,000 broker-dealers. If hedge funds become regulated, that will add another 7,000 or 8,000 entities. The entire staff of the SEC is 3,500 people, and not all of them do examinations.
So you start with the fact there will never be enough money; there will never be enough people. And more to the point, there will never be enough sophistication to conduct examinations the way they needed to be conducted.
Because there aren't enough people? The people are not educated enough? Not paid enough? I mean, we do have far more citizens in every city than we have police, yet the public order is kept.
...The difference here is that when I came to the SEC as chairman, I was told there was a five-year examination cycle. Based on my experience representing investment advisers, I didn't believe the SEC actually lived up to a five-year cycle. But even if they did, it's meaningless. The fact is, if I've just examined you, you know you won't see me for another five years. You can conduct a lot of fraudulent behavior in that time period.
After I left, the SEC abandoned its five-year cycle so that there are no regular examinations of people like Bernard Madoff; they are examined when the SEC has a clue. I believe that ... there should be a continual examination cycle. The SEC will never be able to do that. And even if it could do that, it will never be able to match the sophisticated -- so there's a complete mismatch between the SEC and the private sector in that regard.
What I've just described doesn't really explain why the SEC didn't find Mr. Madoff, because the SEC had contact with him in 1992, 1999, 2005 and 2006. It had a specific roadmap to the fraud it now appears he was committing, and it still didn't catch him. I attribute that to human failure. And I think that the whole system needs to be repaired so that people have confidence it is [not] going to happen again.
So what are the changes needed to make those examinations work?
The way I believe it can be done is to require all entities that take money from the public for investment purposes to be examined by an expert entity -- expertise that comports with whatever standards the SEC might want to set -- that is completely independent of the money managers being examined, and then writes a report both to the entity and to the SEC.
Now, if the SEC gets reports, it can see trends. It can focus on specific problems. And I believe with the kind of expertise that could be brought to bear, there will be a greater likelihood that some types of fraud simply won't escape detection for as long as it appears occurred in the Madoff scheme.
And this isn't a new idea. Corporations have annual financial audits, done by outside, independent experts, accounting firms who write reports both to the companies and to the government. And Congress made that decision in 1933. That's the same concept, except this would be a compliance and a regulatory audit for those who take the public's money.
Separate and apart from the accounting firm that audits the firm's books?
Oh, yes. There could be no other contact between the entity examined. Otherwise, people would get interested in currying favor with those firms.
So it's another requirement to have a regular audit that looks specifically at the kind of trades you're making, the kind of market position -- it verifies whether you actually have the cash and have the securities that you say you have?
But why isn't that what an accounting firm does? In Madoff's case, he had an accounting firm of a couple of guys in a trailer somewhere --
The requirement that all broker-dealers and investment advisers be audited was relaxed -- particularly under Sarbanes-Oxley it was relaxed -- because of the cost implications of having these audits. So [for] those firms that have been registered with the Public Company Accounting Oversight Board [PCAOB] and get inspected every year for the quality of their work, [it was] not in place. And that is why that didn't happen.
But I think you need something more than a financial audit. A financial audit only tells you what the net worth and what the relative positions of the entities are. What we need --
It didn't even do that.
There's no money in the bank, or at least it wasn't in his bank.
There were reports of assets that did not exist. And at least from a regulatory perspective, one would hope that is the kind of thing that would be captured. It should have been.
Let's go back. In '92, what happens?
Well, in '92, the SEC conducts an investigation of an accounting firm that was running some investment money, and they were using Madoff. So they had Madoff in their sights.
They looked at him, and there were indications, I believe, that Madoff might have been engaging in inappropriate conduct.
What kind of inappropriate conduct?
That he may have been engaging in front-running and so on. And that, of course, raises a problem. If you tell me somebody is committing a possible fraud and I look to see whether that possible fraud is being committed and it's not, but I stop after that, I may not catch the fact that people understood someone was engaging in misconduct, but they got the description wrong.
So, once you get an inkling that somebody may be doing something wrong, you at least have to satisfy yourself that they have adequate compliance, adequate regulatory conformity and the like. So the SEC went after the accounting firm. It brought an action. It looked at Madoff, but it reached no adverse conclusions as to Madoff.
The accounting firm is Avellino & Bienes, and they're breaking the law because they're selling promissory notes that were not registered securities, and they were not registered as an investment company.
Right. And one question that, again, in hindsight, could have been asked is why would an accounting firm that you conclude is engaged in scurrilous activities use Bernard Madoff as its broker-dealer? What's going on there? Why is there a connection between him and this accounting firm? Particularly once you find a problem.
But they knew more than that they were using Madoff as a broker-dealer. They knew that Madoff was servicing, as an investment adviser, 3,200 different clients.
Madoff was not registered as an investment adviser.
Even after [Frank] Avellino and [Michael] Bienes are effectively shut down and the money is returned, Madoff goes forward and is not registered. Why?
I can't explain why. On the face of it, if an investment adviser services 15 or more clients, it is supposed to register.
He had 3,200.
Thirty-two hundred seems to me --
More than 15.
-- to be more than 15, yes.
And explain -- the law is tricky here. Avellino and Bienes go forward. ... They pay their fine, and then they form partnerships, and they go forward and continue to move money to Madoff.
What sense does that make?
It does not make a great deal of sense to me, and I find it very peculiar and strange. Again, as I indicated, we don't know why the people who worked on the matter didn't pursue more.
You could create legal arguments that if somebody has fewer than 15 of these partnerships, the fact that there may be more than 15 entities comprising these partnerships may not violate the law because it's the partnership that would be the client.
My concern with that -- and I've lived with this both as a regulator and as a lawyer advising people in the field -- is that at some point, if you've got 3,200 accounts that you are managing money for, it doesn't matter how cleverly you have been able to create fewer than 15 partnerships; you really are in a situation where the effect of what you are doing is the same as if each one were viewed as an independent client.
At least the SEC should have at that time done a thorough review of why so many accounts existed, why they weren't requiring Mr. Madoff to be registered, and why the continued relationship with the strip-mall accountants wasn't problematic. Those things should have been ascertained.
I'm trying to understand the law. You can have 15 partnerships, each one standing for a client, and stay under the radar. Now, each one of those partnerships has to have fewer, as I understand it, than 100 or 99 or less individuals in order for you to continue to fly under the radar and not be in violation of the law?
That's correct. That is correct.
So you could have 15 each with 100. You could have 1,500 people.
Approximately. You could have a little less than 1,500. But again, even if you can do it, there's a question of whether you should do it. And even if you do do it that way … the goal needs to be transparency. People who invest their money, they're entitled to get an honest answer as to what you're doing with their money, particularly if you're not registered.
There should be disclosure of the fact that there is no registration. There is no regulatory oversight. And people should invest their money understanding that that is what's going on. And as we've seen, even if the people are sophisticated, that doesn't mean they can't be duped.
The law is confusing to me on this point. It says that you need to register as a broker-dealer if you are engaged in the business of effecting transactions in securities.
So, 99 [individuals], 15 [partnerships] -- all of that sort of flies out the window then, doesn't it?
Well, the law was set up in 1934 for broker-dealers and in 1940 for investment advisers, and it treats them as if they are different entities. In today's world, one has to question why that continues to be the approach taken in the law.
But if I have a partnership now, and I'm trying to continue to fly under the radar, but I'm selling essentially shares in that partnership and using that money to get to Madoff to invest, don't I by law have to register as a broker-dealer?
No. You aren't effecting the transactions in the securities.
I'm engaged in a business effecting transactions and securities.
Yes, but it has been construed as indicating that you need to be responsible for effecting purchases and sales of securities as a regular part of your business. It doesn't include -- for example, every corporation that is publicly owned raises money from the public. They sell securities, but they are not broker-dealers.
But if your sole purpose of a partnership is to engage in investing that money?
The proceeds are used, yes. And then the question is, who is actually effecting the transactions with the proceeds? That person is a broker-dealer. But the person who's simply deciding what should be purchased, what investments should be made, when they should be sold and the like, that person is not simply a broker-dealer unless it is also effecting the transactions.
But many of the members of these partnerships believed that the general partners of the partnership were in fact effecting the trades, were managing the money. Many of these feeders represented themselves as people who were in fact making decisions about how the money should be invested.
Whatever they may have said, most of the feeders will argue that all they did was give advice to clients on which portfolios, which investment advisers they should entrust their money to. They would not say that they were themselves deciding what securities should be purchased for that portfolio. They were only passing on the person who was making those decisions.
But your questions point up what I think is a serious problem. The world to which the securities laws apply -- laws now 70 and 75 years old -- is is light years away from the world we have today.
Today, the notion should be that people who take money from the investing public to direct those monies into investments with the hope of producing a favorable return should all be subject to appropriate regulation, and not worry about whether the label is they're a broker-dealer or they're an investment adviser.
How do you explain that Bernie Madoff, with billions under management, wasn't a registered investment adviser until 2006?
My view is that he argued he was not an investment adviser; that he was not advising 15-plus separate accounts, but that he was advising either partnerships or accounts of that nature.
In 2005, the SEC concluded two things as I gather it: first, that he was wrong, that he should have been a registered investment adviser; and second, that he had been non-forthcoming with the SEC. It's that latter conclusion that is very troublesome. Should have been a red flag?
And it wasn't?
Yes. And again, as I say, until we know why the people who actually were doing the review reached those conclusions, it's going to be hard. But in my view, if somebody is dishonest with you and does not speak truthfully to you, you can't accept anything that person says.
You came to the SEC as the chairman in 2001.
And just a little bit before you took over, there were a couple of articles, one in a very prominent publication -- Barron's?
I read Barron's -- occasionally. Yes. It is a major publication.
More importantly, for your point, the SEC publishes for its staff every day a compilation of all newspaper articles that appear with regard to issues of great interest to the SEC and subject to its jurisdiction. So, whether or not somebody reads Barron's, the articles in Barron's presumably would have been picked up in one or more of the compilations that were prepared for the SEC staff.
[Madoff] was written about in Barron's as one of the biggest hedge fund managers around in the world. Technically, he didn't call himself a hedge fund, but for all intents and purposes, he was a hedge fund -- perhaps one of the top two, three, four hedge funds with assets under management?
Barron's writes an article that says the guy can't be doing what he says he's doing. You're head of the SEC. Was that article ever brought to your attention?
No, unfortunately. The article was written before I got to the SEC, and after I got there, nobody ever brought it to my attention.
Is that a failure?
It is in one sense. I know that people like to figure out who's to blame, and to some extent, you always have to know why a problem occurred if you're going to solve it. The fact as I see it is that, hopefully and presumably, that article was included in the compilation that was sent to the staff and to the commissioners, whoever they were.
And what you would hope is that somebody reading that compilation, assuming that article was in there, would have flagged it and said, "If a publication like Barron's is saying he can't be doing what he claims to be doing, we had better look into this and make sure it's not true."
But the guy was committing fraud in plain sight, wasn't he? I mean, there were many articles and there were many letters. It wasn't just Barron's or the MARHedge report (PDF) that [Michael] Ocrant wrote, but there were a steady stream of complaints coming into the SEC over time.
I don't know about that. What I do know is that starting in I believe 1999, this fellow, Harry Markopolos, complained to the SEC staff, and for reasons that I don't know, he apparently wasn't able to persuade that staff that the problems that he had identified in fact existed as we now know. Particularly [in] his 2005 letter (PDF) he laid this out in excruciatingly accurate detail.
He called it a fraud.
Yes. So there's no doubt, I believe, in 1999 and then again in 2005 --
And including the 2001 articles.
Well, yes, the 2001 articles. So, putting that together, one would expect and hope that this would have prompted a review of Bernard Madoff.
But were you aware that Bernard Madoff was running one of the biggest hedge funds?
Were you aware that he was also running an investment advisory service --
I actually don't recall ever knowing that until all of this broke.
Did you know him?
Had you dealt with him at any time?
No. I had heard of him.
That's what people, though, don't understand, that you could have heard of him but not be aware of the sort of -- you say starting in '99; you came in 2001. And it wasn't just Markopolos.
That's what people want to understand, how you at the SEC -- and not just you, but your predecessor and your successor --
Yeah, it's the SEC. How was it that the SEC didn't find what was going on there, or at least come closer than it appears to have done by doing a thorough investigation?
Would you say it was a failure of the SEC?
At a minimum, I believe there was human failure. There were enough indications of potential problems that something should have triggered a full-blown investigation. That did not apparently happen, and that is troublesome.
There were other letters that have surfaced that were sent to the SEC in October 2005. Someone writes to the SEC: "I'm deeply concerned that Madoff is running a very sophisticated, fraudulent pyramid scheme. Although I cannot point to anything concrete, the returns of 12 to 18 percent annually for the last 20 years or so tells me something is wrong here." There was another -- this one was regarding the relationship between Bernard Madoff's operation and Fairfield Greenwich [Group]. "No down months and low volatility all the time just doesn't add up." So there was a steady flow of letters.
Yes. I think it is clear that there were letters, and it is also clear that the SEC did look at him. What is not clear is why the SEC was unable to conclude that he was conducting the Ponzi scheme we now know he was conducting.
Did your staff ever bring a complaint against Bernard Madoff to your attention?
No. No. And it's rare that the commissioners or the chairmen would see a specific complaint.
But for an enforcement action, you need the approval of the commissioners.
So don't you need to be in the loop?
When the staff has concluded its investigation and decided to bring an action, they must get the approval of a majority of the commissioners, or they cannot go to court.
But there was never any kind of enforcement action taken against Madoff while you were in the --
Oh, no. Not while I was there.
But it's possible there were complaints, but they just didn't make it to your desk?
It's possible. I haven't heard of any. I mean, I've heard of the one in '99; I've heard of the ones in 2005. But again, I don't see this as, "How do I explain my behavior?" I see this as, "This was a failure on the part of the SEC." And people have a right to be upset with a Ponzi scheme that apparently went on for 15 years or more, that purported to be purchasing assets that were never actually purchased and the like, and at a staggering sum of money, in the billions and billions of dollars. This is a failure.
When you came in, you called for a kinder and gentler SEC. What did you mean by that?
Actually, that's incorrect. What I said -- and the speech is on the Internet -- was the accounting profession wants a kinder and gentler SEC. I then said that the SEC in turn wants a more compliant accounting profession, and what was necessary was for the SEC and for the profession to protect the public interest by working collaboratively and cooperatively, but that people should not expect that the SEC was not going to be protecting the public interest. Those remarks -- because I used the buzzword "kinder and gentler" -- were misconstrued in a New York Times article, and the article got legs. But that is not what I said.
What I was concerned about -- and this is what was in my speech -- I was concerned that in order to get maximum compliance with the law, a regulator has to be accessible so that people can ask questions before they do something that will turn out to be illegal, improper or just simply unethical.
And what I was discussing was that for the first several months of my tenure, no major accounting firm and no major corporation was willing to come in and discuss significant issues with our regulatory staff. By definition, when the SEC brings an enforcement action, it means that the regulatory system has failed; it means somebody has already violated the law, and the goal of regulation is to get people not to violate the law. So what I was talking about was creating an environment in which people wouldn't be afraid to ask the hard questions, but that they would also accept hard answers when the SEC felt those were the answers it should give.
Let me ask you about your Wall Street Journal piece, "Over-Lawyered at the SEC." In that article, you say a number of things about hedge funds. You say that hedge funds basically cater to the wealthy and that they should be allowed to regulate themselves.
No, I said that the SEC's effort to regulate hedge funds was a reflection of the fact the agency relies too heavily on legal analysis and not enough on economic analysis or business analysis. The problem that we have with hedge funds is they can have a devastating effect on the marketplace by virtue of positions they take. And no one has any idea what they're doing, what positions they're taking or what effect it would have on the system.
When I was chairman of the SEC, I commenced a special investigation of the hedge fund industry to gather information so that the SEC could learn what it should be aware of in terms their operations. The SEC's approach was simply to say, "Let's just register all the hedge funds." And had the SEC actually succeeded -- as you know, the courts struck their efforts down -- but had the SEC succeeded, the problems would have been even larger than we've already seen. Eight thousand hedge funds would have been subject to regulation by the SEC, which was an agency that had neither the quantity of people nor the sophistication on the part of those people who might be doing the regulation to understand how hedge funds operate.
But is the answer to that not to have them register?
No. The answer to that is to come up with a regulatory system that says that any enterprise that takes money from the public and can have an effect on our capital or financial markets has to be completely transparent. They have to provide a continuing flow of significant information to the government, and there has to be a clear assignment of government responsibility for who will take control of a problem if it arises with such an entity.
So, just to clarify, what you said, exactly, in your article is, "The economic reality of hedge funds is that they cater to sophisticated investors, and the SEC never adequately addressed why it should stretch its limited resources to try and cover investors who can fend for themselves."
That is correct. But that doesn't deal with the issues of systemic risk. And my concern was that what the SEC tried to do in its hedge fund regulation was explain why it had the legal authority. What it didn't do, and why it was struck down by the court was, it didn't explain what the rationale was for the SEC's determination to bring hedge funds subject to its regulation. And that will still be a test that is going to have to be met unless Congress authorizes legislation that gives the SEC the power to regulate hedge funds.
I favor tougher transparency and disclosure by hedge funds, with the government having the ability to take action to prevent the kinds of catastrophes we've seen if people engage in --
So you favor more monitoring of hedge funds? More transparency, more monitoring.
More transparency, more monitoring and more reserve authority to take action in the event either the system is at risk, or there is an indication of problems.
I also indicated a moment ago that I would also require anyone who takes money from the public to have a compliance and an examination on a yearly or other-year basis, so that even wealthy investors are aware of where the money is going, whether they have the assets they claim to be having. That is a form of transparency that I think is sadly lacking.
And another thing that concerns people -- and this is not just on financial regulation but across the board -- and that is the revolving door.
You defended Ivan Boesky, correct?
A lot of people would say it's not very appropriate [that] a guy who spent time defending people like Ivan Boesky, [the stock market speculator convicted of insider trading in 1986,] would be the top cop at the SEC. What do you think?
Well, I think they would be misguided and mistaken.
Because I started my career with 10 years at the SEC, including three as general counsel. And then I represented people who wanted to comply with the law and people who didn't comply with the law, who might have been investigated and the like. One of those people was Ivan Boesky.
My judgment, which he confirmed by making the decision, since it was his decision, was that he should not contest the government's charges. He should settle with the government and enable the government to get to the root problems of the crimes that he committed and be able to go after others who were involved as well. He served time in jail; he paid, at the time, the largest personal fine any individual paid. I performed, in a sense, a real service. And it was because I knew how the securities laws operate, how the SEC would think about this thing, that I was able to explain to Mr. Boesky that it was in his interest to make a clean breast of everything and correct his misconduct that had previously gone on.
I talked to a congressman this morning who said it should have never passed the smell test; that you don't take people that defend crooks and put them in jobs as top cops.
Well, you know, everyone is entitled to their view. And in any event, it's now by the by, because I was a regulator, I was a private lawyer, and then I became chairman of the SEC.
And now you're helping companies deal with regulation. You're on the outside again.
I am on the outside, but now my company is devoted solely to helping firms that want to get better. We don't do enforcement work. We don't try to be an adversary of the SEC.
But would it be a good idea to just keep people separate; that you're either in prosecution or enforcement, or you're in the defense business, but you don't cycle back and forth between the two?
That would be a terrible idea.
But I'm not sure I feel comfortable with the head of the SEC being a guy who defended a crook.
A guy who represented a crook. He didn't defend him. He settled with the SEC.
Well, you got him a good deal.
You think paying the biggest fine, serving a couple of years in jail, was a great deal?
Well, his crime was pretty heinous.
Uh-huh. All I can say is that in our society, if all we had were professional bureaucrats, and all we had were professional defense lawyers, then the public would be worse off than it is when people who gain experience -- for example, people who have defended individuals -- then go to the government and help the government understand what are the types of problems that arise.
I had practiced law after I left the SEC as its general counsel; I practiced law for 25 years. I represented all sorts of people, and I had a broad array of experience, and I knew where the bodies were buried. So I was in a position to be informed. And if you go back to the New Deal, the first chairman of the SEC was Joseph P. Kennedy, who had been a notorious scoundrel of sorts in securities markets. And President Roosevelt thought, "Gee, isn't it great to have somebody who knows how Wall Street operates be there?" …
But I guess people are uncomfortable that Bernie Madoff's attorney [Ira Sorkin] is a former head of the SEC in New York. People feel that there's a reason here that a guy like Madoff is able to skate for so many years, and so they look at the revolving door as a culprit in this.
I don't know how long Mr. Sorkin, who is Mr. Madoff's lawyer, has represented Mr. Madoff.
He helped him out in '92. The guys that were busted by the SEC in '92 went to Madoff, who they were sending money to, and asked him, "Who do we get to represent us in this case?" And he recommended his friend, the former SEC chief Ira Sorkin.
But the question is whether the knowledge and the expertise that one develops is used in a proper way to help people comply with the law or is used to help people get away with violating the law.
While anything is possible, there's no reason to believe that Mr. Sorkin did anything but make sure that Mr. Madoff was aware of the law. If there's any difference there, I'm sure that will eventually become known.
What I was saying was the SEC needs a better examination system.
And that I understood. But are you also saying that the guys that are there, the men and women who are doing those jobs, are not well paid enough? Not smart enough? Not educated enough? No?
No, I'm saying something different. No one who works in the government ever thinks that they're paid enough, particularly compared to the private sector.
But some of these people were making $40,000, $50,000, $60,000. Some of them still are.
Yes. But the point isn't how much they're paid, because I believe that government service is a privilege, and it's an honor, and it's something everyone should try to do at least at one point in their lifetime. So it's not the money.
What concerns me are the resources available to the SEC. Those resources require a lot more than just smart lawyers. They require people who have an understanding of how businesses operate. They require people who are economists and who have a good understanding of how these problems both affect the public and how they should be dealt with.
So you cannot have a one-dimensional response, even in enforcement matters. If people who looked at the problems had more familiarity with how trading took place, and particularly [Madoff's] purported trading patterns, one would like to believe that we wouldn't be here discussing this matter; Mr. Madoff would have been discovered years ago. But it's very, very difficult for people who are fresh out of school, people who are trained as lawyers but don't necessarily have skill sets or have available to them other resources.
Would those people know what a split-strike conversion strategy was?
I hope that after they heard it, they would have looked into it and tried to understand it. But I think it would be even better if there were people on the SEC staff or available to the SEC who could assist the SEC staff in understanding these issues.
Do you feel comfortable in understanding what a split-strike conversion strategy is?
No. I think I understand what he was doing, but no, I don't feel comfortable at all. And as a lawyer, I represented a lot of hedge funds, and many of the trading philosophies and approaches were very alien to me as a lawyer. This is not the way lawyers are usually trained. And so I think you need more than just legal firepower; you need economic and business firepower as well.
So a lot of these lawyers that were in both enforcement or in the examination division of the SEC were in over their heads.
That's your conclusion. That's not mine.
Well, you're saying they didn't have the economic and business sense that they needed to do their job.
I'm saying that the SEC over the years has done a remarkable job given the fact that it is almost completely reliant, solely, on lawyers.
And that they need to have people with another couple of skill sets.
And that it would be advantageous for the public as well as for the commission to have more resources. The SEC over the years expanded its enforcement staff to include accountants. The SEC believed that when you're looking at a financial accounting fraud, you really need an accountant who understands generally accepted accounting principles to help you determine whether or not there's a particular problem. The same thing is true now that our markets have become so much more sophisticated.
We're dealing with instruments that didn't exist 10 years ago, and the ability of the staff to understand all of the ramifications of that would be enhanced if the staff had additional resources available to it.
But how would that have applied in the Madoff case? I mean, it wouldn't matter if I understood split-strike conversion. All I had to do was look at the bank account … where he kept his money, to verify that the money he said he had was there.
That, I think, is a fair statement, but it doesn't really get to the point I'm making. But I agree with you.
I mean, it didn't take a sophisticated accountant to find that out.
When somebody lays out a roadmap for you, it shouldn't require a sophisticated accountant to figure it out. I cannot in any way dispute that fact.
So your solution might clean up a lot of the industry, but it would not necessarily catch Madoff?
Not necessarily, in this respect. I was agreeing with your point that had somebody done an inventory of the assets on hand, that would have been a simple way to figure out where the problem was. And you and I sitting here today think that's obvious. It is, and I wish that somebody had done that.
But what I am saying is that when somebody came in and told them about a split-strike option philosophy, it would have been incredibly valuable to have a staff economist explain to the SEC why it was literally impossible for Madoff to achieve the results he claimed to have achieved.
Rather than just be sort of wowed by their language?
So it was basically you needed somebody there who could say, "That's BS."
Somebody who at least would look at it and say, "That's BS." Yes, I think that would have been helpful.
Were you aware that the SEC would take interns and first-year recruits and take them on tours of Madoff's operation as an exemplary operation?
No, I never heard that.
That surprise you?
You know, in light of all [that has] happened, it surprises me. It's always difficult when anyone is held up as a model if subsequently they're found to have violated the law. But taking people around and introducing them to the way the business is done is a positive. The fact that they were taken to Madoff's operations, given all that we now know, is terribly unfortunate.
Yes. It's not a happy fact, as I would like to say.