Word: sec
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...Bernie Madoff come to have two classes of investors - the first-class crowd enjoying SIPC support, and the rest of us in coach? The Securities and Exchange Commission (SEC) encouraged the growth of unlicensed, unregistered feeder funds when it liberalized investing rules in the 1996 National Securities Markets Improvement Act, now part of the Investment Company Act of 1940. As a result, anyone managing pooled investments held by fewer than 100 people, or managing monies for an unlimited number of "qualified purchasers" (investors with more than $5 million or institutions with more than $25 million), need not worry about SEC...
...Some experts, prior to the Madoff mega-swindle, were all for lesser regulation. But now they are rethinking this idea. "Registration of these funds might have helped prevent this," says Barry Barbash, a Washington-based securities lawyer with Wilkie Farr & Gallagher. Barbash was the SEC director of investment management from 1993 to 1998, the time the liberalization took place...
...until 2006, Madoff was not even registered as an investment adviser. When he did register as an adviser, the SEC checked him out and gave the thumbs up. No Ponzi here...
...blows the whistle when there are more than 100 investors or when each investor truly has the deep pockets to invest? "Either the manager of the fund has to regulate this, or someone in the fund has to raise a red flag," says John Heine, deputy director of the SEC's Office of Public Affairs...
...effect, the unregulated funds have to regulate themselves, and if there is fraud, the only recourse is to sue the unlicensed fund manager. Those investing under the SEC's amended rules have no recourse for recovery from the system that fathered them...