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February 08, 2009

Could Blogging Have Averted the Madoff Ponzi Scheme?

An author on the NYSE's blog (who knew?) suggests that Harry Markopolos, the guy who figured out Madoff's investment scheme and tried to warn investors and the SEC would have had a lot more success if he had started a blog.

Markopolos started warning the SEC about Madoff in May 1999. Ultimately, he compiled and sent a memo listing 29 red flags raised by the Ponzi scheme.

Certainly, any failure to convince others was not due to lack of effort. Perhaps Mr. Markopolos lacked only an effective medium to communicate his warning. Here's a thought experiment: What would have happened if Mr. Markopolos had blogged his analysis? That is, what if he had posted the entire piece on a blog, under his name or a pseudonym?

We'll never know the answer, but here's what I think might have followed:

• The post would have quickly spread far and wide among traders and investors. It's a small Street, as the saying goes, and an analysis raising questions about the investment results of a prominent name such as Madoff would have sent e-mails flying.

• Those who had money invested with Mr. Madoff -- or who were thinking of investing -- would have done the same math that Mr. Markopolos had done, undoubtedly reaching the same conclusion. The resulting rush to pull money out and the avoidance of adding new money would have meant a faster end to the alleged Ponzi scheme.

Would it have made a difference? Maybe. Blogging wasn't around in 1999, when Markopolos started investigating. But by 2005 converting his memo to blog posts might have made a bigger splash than sending it to the SEC. Markopolos relied on the SEC to make that information available to investors. Whoops.


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posted by Gabriel Malor at 04:27 PM

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