Silver Lining in Downturn?
By Chad on Feb 26, 2009 in Uncategorized
The silver lining amongst all this pain is the exposure of fraudulent money managers. People like Madoff, Stanford, and the two most recent potential prison inductees, Paul Greenwood and Stephen Walsh are being revealed, as the downturn does not allow them to hide their criminal behavior.
For two decades, Paul Greenwood and Stephen Walsh looked like Wall Street wizards.
But on Wednesday morning, federal agents arrested the two money managers on accusations filed by the United States attorney for the Southern District of New York in what has become all too familiar on Wall Street: Their investment fund was in fact a $667 million fraud - a small-scale version of the $50 billion fraud that Bernard L. Madoff is suspected of orchestrating.
But unlike Mr. Madoff, who is accused of masterminding a global Ponzi scheme, Mr. Greenwood and Mr. Walsh simply stole their investors’ money, the authorities said. Their two firms, the WG Trading Company and Westridge Capital, misappropriated funds from a host of deep-pocketed investors, including state and city pension funds, Carnegie Mellon University and the University of Pittsburgh.
-NYT
Hopefully, this will help clean-up Wall Street, by removing a good portion of the completely immoral money wizards. With these men gone and publicly punished, it may nudge the Wall Street attitude a bit more towards the ethical side. Just maybe, our financial distract will emerge from this debacle, as a leaner and more capable industry.
Unfortunately the only way for Wall Street to behave ethically is to impose standards and regulations with clear punishment enforced by either government or other oversite (i.e. auditing of compliance). While the Sarbanes-Oxley Act was very expensive for companies to implement for the first two years, it is now standard operating procedure and has provided the government a clear path to enforcement with ethics via controls. Will companies still commit fraud - of course! But just by the numbers it has decreased significantly since the Act was implemented.
Brandon | Feb 26, 2009 | Reply
Like Buffet said, “it’s only when the tide goes out that you learn who’s been swimming naked.”
Sonny | Feb 27, 2009 | Reply
I am a CPA and have performed SOX audits. SOX forces companies to be more conscientious about their internal controls, but that only helps to prevent the lower level employees from committing fraud. As far as upper management goes, SOX gives them less wiggle room to play dumb once they are caught, but does little to actually prevent the big timers from causing another Enron-like debacle, as everyone had hoped. As a former auditor, I think SOX is a joke.
Sonny | Feb 27, 2009 | Reply