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Madoff, Other Felons: Markets Are Unfair to Retail Investors

By    |   Friday, 07 June 2013 08:00 AM

The deck is stacked against retail investors and there is little hope that regulators can do much about it. That's the takeaway from a series of MarketWatch interviews with people convicted of insider trading and fraud, including Bernie Madoff.

For starters, small investors don't have access the privileged information that is commonly exchanged among Wall Street professionals.

While the Securities and Exchange Commission (SEC) has brought more insider-trading actions in the past three years than in any three-year period in the agency's history, it's still a common crime, suggesting that it may be an epidemic, according to MarketWatch.

Editor's Note:
Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

Former investment broker Jeffrey Southard, who is known as "New Jersey's Bernie Madoff" and is serving 15 years for defrauding investors out of $1.8 million through a Ponzi scheme, tells MarketWatch that insider trading is impossible to stop because of the "gray area."

Regulators focus on individuals, but they miss whole networks of investors who claim to buy on rumors and sell on news, he says.

In fact, "the individual investor is the last person that has any information," the real Bernie Madoff tells MarketWatch.

In addition, another felon warns, the information that retail investors do get is not always reliable. For instance, people place faith in so-called "audited financial statements," but accounting fraud occurs unabated. Regulators can do little about it because they have limited resources and the cases are complex and expensive.

The Wall Street criminals warn that unfairness is further amplified by high-frequency trading (HFT), which now accounts for 60 percent of trading, according to Business Insider.

The North American Securities Administrators Association has warned Congress to direct its attention to HFT, saying it can create an environment where retail investors are buying and selling at less favorable prices.

Instead of trying to make heads or tails of what is going on, some investors decide it's best to rely on professionals, and that still is not always a fail-proof strategy.

Madoff says scamming investors has been going on since the beginning of time and is not likely to end. He should know since he earned his 150-year prison sentence for operating the largest Ponzi scheme in history.

No one on Wall Street can be successful without cheating, says a former Wall Street broker who spent over a decade at big New York investment banks before pleading guilty to wire fraud.

Placing the odds of effective policing into perspective, another Wall Street felon tells MarketWatch, the SEC has roughly 4,000 employees to regulate the financial industry while there are 35,000 cops in New York fighting blue-collar crime.

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

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The deck is stacked against retail investors and there is little hope that regulators can do much about it. That's the takeaway from a series of MarketWatch interviews with people convicted of insider trading and fraud, including Bernie Madoff.
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2013-00-07
Friday, 07 June 2013 08:00 AM
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