Bernie Madoff Remains An SEC Approved Money Manager. Huh?

Bernie Madoff gets a bad rap. Sure, he may be in prison for the rest of his life for stealing billions in a notorious Ponzi scheme. But that doesn’t mean regulators have shut down his money management firm, Bernard L. Madoff Investment Securities LLC.

According to a check this afternoon of the SEC’s online Investment Adviser Public Disclosure program, his investment advisory firm’s SEC registration remains approved-as it has been since September 12,2006.

There are limited disciplinary problems disclosed on the firm’s SEC’s IAPD report related to its affiliated, now inactive, broker-dealer but no money management misdeeds.

Time to invest with Madoff?

Update: “As a practical matter, you couldn’t invest with the firm if you tried because the firm is out of business and under the control of a trustee since 2008, and the firm’s founder is in prison for 150 years,” SEC spokesman John Nester pointed out in an email to Forbes.

So why not deregister the Madoff money management firm? The SEC wouldn’t say, but it could, perhaps make life more complicated for the Securities Investor Protection Corp. trustee who is liquidating the Madoff securities firm.

Addendum by author: Nice try, SEC flack but I don’t find it remotely comforting to be told that even though the SEC’s Investment Adviser Public Disclosure system is dead wrong about Madoff’s firm, investors cannot be harmed, as a practical matter, because Bernie’s in the hoosgow.

Let’s look at how the federal investment advisory regulatory system is supposed to work. Larger advisers that have $25 million or more of assets under management are permitted to register with the Commission, subject to SEC approval. Registered advisers whose assets fall below $25 million under management, such as (hopefully) Bernie Madoff, are required to withdraw from registration by filing a Form ADV-W. According to the SEC, “the principal purpose of the collection of information through the Form ADV-W filing is to enable the Commission to verify that the activities of an investment adviser seeking to withdraw from registration do not require the investment adviser to be registered and to determine whether terms and conditions should be imposed upon a registrant’s withdrawal. The Commission will maintain files of the information on Form ADV-W and will make the information publicly available.”

Evidently Bernie never filed the Form ADV-W, withdrawing his firm from registration. Understandably, he was probably overwhelmed with other matters. Since the SEC neither withdrew the firm’s registration nor amended it to reflect any of his investment advisory wrongdoing, the information made available to the public about the firm on the SEC’s IARD system is woefully inadequate. How the SEC managed to overlook updating its investment adviser disclosure system to make it accurate with respect to the largest, most notorious investment advisory scam in history, baffles me.

With regard to any SIPC trustee issues, SIPC only covers brokerages and, as reflected on the SEC’s IARD system, his brokerage registration is now inactive. Why isn’t his investment advisory registration also inactive, SEC?


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