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Madoff Haunts the S.E.C. – How Should Victims be Compensated?

March 16, 2011

The legal, ethical and moral implications concerning Mary L. Schapiro, S.E.C. chairman and David M. Becker, former S.E.C. counsel, opened wounds that the Securities and Exchange Commission has been diligently trying to mend. The ethical issues regarding their actions are astounding and yet, after reading last Tuesday’s NY Times article, my first thought was not about Ms. Schapiro’s actions, it concerned the Madoff victims’ compensation.  So, here’s a question:

If you had $2 million, that you thought you legitimately earned in the stock market, and five years later, the S.E.C. says, “You can only keep the original investment and you need to return the other $1.5 million, so we can compensate the other victims.”  What would you do?

The question is how should the S.E.C. manage the compensation for the Madoff victims?

Some proposed solutions are:

1)      Return to investors only their initial investment.

2)      Return to investors both their initial investment and some of its earnings.

3)      Return to investors the funds as specified on the last statement issued.

This brings us back to Ms. Schapiro and Mr. Becker.  In response to the decades-long Madoff oversight, the S.E.C. hired Ms. Schapiro to “strengthen” the S.E.C.’s enforcement unit and as part of her team, she hired Mr. Becker as general counsel.  But, as it turns out, Mr. Becker is actually a victim of the Madoff scandal, only he pulled his money out in 2005.  So, you can only guess which resolution he prefers.  Currently Becker is being sued by Irving H. Picard, the trustee overseeing the Madoff case, for all the gains his investment generated.   (It was actually his late mother’s investment, which she left to her three sons).  

So, what would you do if you could choose any of the three options?

Do you choose the utilitarian approach, where the consequences of your actions are more favorable than unfavorable to the greatest number of people involved?


 Do you choose ethical egoism, where the consequences of your actions favor you above everyone else?

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