How Did the Bernie Madoff Scandal Affect How the Rich Invest?

Bernard L. Madoff perpetrated a massive fraud on thousands of investors. He accomplished this via the largest Ponzi scheme in world history. The fraud itself amounted to $68 billion and included individual, family, charities, and institutional investors. Wealthy and famous people were among Madoff’s investors. As a result of the Madoff Ponzi scheme scandal, rich or wealthy investors have changed the say they make investments.

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Demand for More Transparency

Prior to the Madoff Ponzi scandal, many wealthy investors demanded little in the way of information about a particular investment let alone about an investment professional like Madoff or associated fund. Madoff has managed to create a solid reputation as a shrewd investor, investment advisor, and financier.

The investigation into Bernie Madoff and his business practices revealed that time and again investors took Madoff at his word and didn’t request much in the way of information about his fund. Investors literally were spoon-fed fraudulently reports and statements month after month, year after year, until the reality that they were victims of a massive Ponzi scheme became public.

In the aftermath of the Madoff scandal, investment-related transparency has become the order of the day. Wealthy investors, as well as others, expect complete transparency in all aspects of an investment firm’s operations and about a specific investment. As an outgrowth of the demand for comprehensive transparency, rich investors expect immediate responses to requests for information.

Increased Hands-On Due Diligence by Wealthy Investors

Prior to the Bernie Madoff Ponzi scheme scandal, many wealthy investors relied heavily on investment advisors and others in the industry to undertake due diligence on their behalf. As part of the overall post-Madoff demand by wealthier investors for more transparency, these individuals are taking a more direct, hands-on role in undertaking due diligence. These wealthy investors are no longer relying solely on their financial and investment advisors when it comes to exploring investment options and undertaking due diligence.

Thanks to technological advances, wealthier investors and others have easy access to key vital information that contributes to a comprehensive due diligence process. While well-healed investors are still using the services of investment professionals when it comes to pre-investment due diligence, these people are backing up those efforts with their direct, personal investigation and research.

Push for Better Governmental Regulation

In the aftermath of the Madoff scandal, coupled with a reaction to the Great Recession of 2008, a wide swath of wealthier investors has called for better governmental regulation of the financial sector. The call by wealthy women and men for better and even more governmental regulation of the financial sector is something of a break from where this societal cohort normally stands. Historically, they’ve advocated for less regulation and more limited governmental oversight.

One of the reasons why the Madoff Ponzi scheme was able to persist for an extended period of time was because of lax regulation by agencies like the Securities and Exchange Commission, according to the Securities and Exchange Commission, itself. At least in the more immediate aftermath of the Madoff scandal, wealthy investors believed they would be better protected by acquiescing to more significant government regulation and oversight over the investment industry.

In the post-Madoff scandal era, wealthy investors have new expectations and practices, including those outlined here. Many of these alterations among rich investors now seem fairly firmly in place.