RSS
Home
The Globalization of Mistrust
Print
Email
RSS
Subscribe
.jpg)
Two weeks ago, Former British Army Officer William Foxton took his own life with a pistol on a park bench in Southampton, England. Foxton reportedly lost over $1 million, his life savings, on account of the Bernie Madoff Ponzi scheme. Any Britons reserving outrage over the Madoff scandal now have a reason to grind their teeth whenever the silver fox is mentioned. The Foxton tragedy should serve as a reminder that Madoff’s operation was global and consequently investors worldwide have lost confidence in the U.S. financial regulatory structure.
The Fairfield Greenwich Group of Greenwich, CT operated the Fairfield Sentry Fund, one of several “feeder” funds that would accumulate wealth abroad and distribute it to Madoff. A recent report showed that non-U.S. investors provided the Fairfield Greenwich Group with 95% of its managed assets. While the bulk of this funding flowed from Europe, investors in the Middle East and Asia were also targeted. For example, the Abu Dhabi Investment Authority lost $400 million and Korea Life Insurance lost $50 million as a result of investments in the Fairfield Sentry Fund.
Unsurprisingly, Madoff’s minions targeted the largest investment pools in Europe. Banco Santander, based in Spain, reportedly lost $3.1 billion through its Madoff investments made by one of its hedge funds in Geneva. Bank Medici, based in Austria, was Europe’s second largest loser at $2.1 billion.
Foreign investors deserve to be fuming. At the same time, they must be scratching their heads given that U.S. filing and disclosure obligations are generally agreed to be the most burdensome in the world. While certain investment advisers are exempt from registration, Madoff was registered with the SEC. As Nicola Horlick, manager of Bramdean Investments, one of the best known hedge funds in Britain, told the BBC: “I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they have fallen down on the job.”
Most have acknowledged that the financial crisis is global and certain events may have been unpreventable through regulation. Bear Stearns is to America what Northern Rock is to Britain. Nevertheless, there is no Madoff equivalent elsewhere in the world. Ms. Horlick has suggested Madoff’s $50 billion fraud may be the biggest financial scandal in the history of the markets.
The recent revelation that financial investigator Harry Markopolos provided the SEC’s Boston office with details of the Madoff fraud almost 10 years ago surely makes the scandal all the more disconcerting to foreigners. Pile on the viral video of Madoff admitting in 2007 that he was "very close with the regulators" to further deteriorate the SEC’s reputation abroad. And just for good measure, why not throw in the predictable reaction of those who will view Madoff as the typical product of American institutions that facilitate greed and excess.
It is possible that the fallout from the Madoff scandal will eventually abate when the dust settles and the markets begin to recover. It is perhaps more likely that the ordeal has irreparably damaged international confidence in the SEC for years to come. Foreign investment in funds that help capitalize American business is a vital component of our economy. When global capital begins to flow again, the SEC’s systematic failure in the Madoff case will still be fresh in the minds of the world. The comparative advantage previously held by U.S. registered funds and advisers may be diminished if not eliminated. Even for those investors who were not direct victims of the Madoff scheme, the thought of ending up like William Foxton should offer plenty incentive to invest their money elsewhere.
Related Articles:
Add a Comment
.jpg)
.jpg)
