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Could Crowdsourcing Help the SEC Detect Fraud? 148

An anonymous reader writes "The SEC failed to catch Bernie Madoff largely because they are understaffed (a fact the SEC itself has admitted), under-funded, and simply lack the resources to adequately investigate his activities. Undoubtedly, there were other smaller incidents of fraud that have gone unpunished because of this deficiency. To solve this egregious issue, NERA Economic Consulting proposed crowdsourcing, the concept behind Wikipedia's existence. Proving financial fraud is essentially an exercise in finding numbers that do not match. Through crowdsourcing, regulators would make financial data publicly available to the masses, who would do the 'grunt work' of sifting through them to find discrepancies. But would it work?"
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Could Crowdsourcing Help the SEC Detect Fraud?

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  • Wrong problem (Score:3, Insightful)

    by Wonko the Sane ( 25252 ) on Wednesday August 11, 2010 @08:12AM (#33213816) Journal

    The SEC doesn't stop fraud because it doesn't want to stop it, not because it lacks the resources.

    • Re:Wrong problem (Score:5, Interesting)

      by FriendlyLurker ( 50431 ) on Wednesday August 11, 2010 @09:03AM (#33214286)

      The SEC doesn't stop fraud because it doesn't want to stop it, not because it lacks the resources.

      Exactly. For those who are not convinced, a bit of reading: Five New York Stock Exchange specialists were actually charged with fraud, but it's not the justice you think it should be. Richard Ney and economist who later turned actor, wrote a best selling book in 1970 ("The Wall St Jungle" [amazon.com], interview NY Magazine 1970 [google.com]) with a few follow up books that all called out the NYSE Specialist families for fraud, explaining exactly how they defraud the public. At the time The Wall Street Journal boycotted anyone selling the NY times longest running best seller, and Ney was not permitted as a guest on The Tonight Show - very unusual at the time for someone with such a long run best seller/controversial book - his message had touched a raw nerve. In response, the establishment had Ney widely counter-attacked, labelled a conspiracy theorist nut at every opportunity - comments like "what would an actor know of the stock market" were common and can be heard even today.

      To prove Ney's wild eyed grand conspiracy theory right - The DOJ finally got around to charging the NYSE specialists for the exact fraud that Ney described - 33 year's after he wrote about the crime! In 2003 the Specialist firms quickly got their get out of jail free cards for a tiny fraction of what they had actually defrauded over the years [sec.gov]. Those get out of jail free cards just keep coming [wsj.com] off the monopoly pile. The story does not end there however... news came out shortly after that the NYSE was at long last going to move to an all-electronic exchange [usatoday.com] - and that the Specialists firms charged with defrauding the public were the very same that had been blocking the move due to their 30% NYSE stake [cfo.com]. Everyone in the know + those that read Ney's books knew all too well of the massive fraud going on in full public view for at least 33 years (more like 210+ years), but it was not until these Specialist criminals blocked other powerful interests that the illegal behaviour was actually pursued by the SEC/DOJ.

      If ever there was an example of the lack of credibility for the SEC and DOJ, this is it. 33+ years of massive fraud in full public view, but they did not get around to prosecuting until it was ordered to - until it was necessary to coerce the Specialist family firms into letting the NYSE go electronic. Nothing to do with justice, or protecting the innocent being defrauded to the tune of billions of dollars over the decades. As an added insult, the DOJ let the criminals off the hook with a paltry fine. But then there is no surprise there, as Richard Ney said it best:

      "Regrettably, the arrangements that exist to preserve the traditions and legalize the frauds of the security industry are inseparable from the general organization of a society controlled by the financial establishment, a society whose laws and principal customs have been contrived to serve the special interests of the financial community,"

      Voting Red or Blue will not change this arrangement of US society and it's laws - merely reinforce it.

      • Re:Wrong problem (Score:4, Interesting)

        by maxume ( 22995 ) on Wednesday August 11, 2010 @09:26AM (#33214514)

        You're getting some good mileage out of that rant:

        http://news.slashdot.org/comments.pl?sid=1697252&cid=32679752 [slashdot.org]

        The behavior talked about in the SEC link is certainly improper, but it is a little overboard to speak about it as if it is controlling society, each of the alleged fraudulent trades likely had a genuine market order on one side of it.

        • The behavior talked about in the SEC link is certainly improper, but it is a little overboard to speak about it as if it is controlling society

          Not sure where you got your "controlling society" spin from - all you have here is one concrete example of how the SEC did not pursue a long term billion dollar fraud against the general public until it was in someones political interests to do so. When they did pursue it, claimed damages [justice.gov] (~20 million) and fines levied were an insult to all the citizens of the US whose retirement savings were robbed over the decades.

          each of the alleged fraudulent trades likely had a genuine market order on one side of it.

          I suggest you educate yourself on how the fraud is being carried out, before you start makin

  • by Gruturo ( 141223 ) on Wednesday August 11, 2010 @08:14AM (#33213822)

    Why have people do this instead of developing a sufficiently accurate / sophisticated algorithm to spot these things in the first place. Not some simple code which monitors few obvious indicators and that anyone can work around - something which really correlates and analyzes all the available data. Plus, tools to make the human verification of the flagged accounts a lot faster and easier, so they can check thousands in a week.

    Hell, anonymize data for 1000 past frauds and 49000 non-frauds, put the thing online and issue a public prize a la netflix challenge.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Er, yes, this is one way opening the data could work. Just because it's "crowdsourced" doesn't mean the crowd doesn't get to use computers.

    • by cacba ( 1831766 )
      FTA:

      NERA recommended making information available so that the masses can match the numbers reported to the SEC, the numbers reported to clients, and the numbers disclosed by custodians, or financial institutions that hold the securities for investment advisors.

      The goal is to check if all the numbers are consistent, if properly formatted this is easy for a computer. The problem is that the data isnt nicely formatted, so netflix = fail. Mandating a format is the way to go.

    • by tmosley ( 996283 )
      We WOULD do that, but we're too busy watching tranny porn.

      -Your Friends at the SEC
    • Yeah, that would be a good idea as the basis for an investigation by humans, but not as the sole evidence for convicting anyone. I want real people reading the evidence and following the clues as conviction by software program is a really scary thought.

      • The point is that the people don't know where to look, so they have to look through everything. Even if the program just flagged suspicious things, it would make the people much more effective. Nobody's suggesting that the computer be the judge and jury.

        • OK. I accept that. It's just that the way you worded your initial statement led me to believe that the only evidence against the accused would be software-generated. I find that very troubling, even with a human judge and jury.

  • Would it work? (Score:5, Informative)

    by raddan ( 519638 ) * on Wednesday August 11, 2010 @08:17AM (#33213860)
    Maybe. Better than the current system, at least, considering that this guy [wikipedia.org] was sounding alarms about Bernie Madoff more than 10 years ago.
    • F(tfs)FY (Score:5, Insightful)

      by RingDev ( 879105 ) on Wednesday August 11, 2010 @09:53AM (#33214836) Homepage Journal

      The SEC failed to catch Bernie Madoff largely because they actively ignored and hide numerous well formed and filed complaints and warnings about his fraudulent activities.

      So no, it probrably wouldn't work.

      -Rick

      • Well, if the problem is, as suggested, that the SEC actively ignored and hid well-formed and filed complaints and warnings about his activities, one would think that this might work. With more data publicly published, it becomes much harder for the SEC to hide anything. They can, of course, still ignore complaints, though politically, the more of the supporting information that is exposed to the public, being analyzed in the public, and being commented on in the public, the less politically viable ignoring

      • So no, it probrably wouldn't work

        beg to differ

        If just a bunch of people inside the SEC can see the whole data, a problem can go undetected, but if the real-time trading info of all brokers and their ilk was exposed to everyone (without client names), any investor with an ounce of CYA will check.

        The downside - the brokers play follow the leader and create bubbles, but even this can be observed and hedged against.

        At any rate there is a lot of CYA possible for the diligent investor already

        Maybe what the world

  • by sgt101 ( 120604 ) on Wednesday August 11, 2010 @08:21AM (#33213886)

    Crowd sourcing is fine for finding out what people in general think, but that's the problem : it reflects what the mass of people think and know.

    When specific data becomes available to investors they generally act on it pretty fast, unless it goes against the wisdom of the crowd in which case it gets ignored until the evidence becomes overwhelming. So - we have a very motivated form of crowd sourcing at the moment that isn't doing the job.

    The way forward is to change the rules on disclosure, and to change the penalties for fraud. In particular to make the top 50 pay packets in all limited companies partnership packets. If executives had unlimited personal liabilities for one year, 90% in the second year and so on after accepting a top 50 position in a year then I would bet that fraud in organizations and between organizations would decline rapidly. Also, put a tax on goods from any company that is based in a territory that doesn't enforce this practice (or all the execs will go live in Hong Kong or somewhere!)

    • I disagree. The way forward is for mandatory jail sentences for SEC auditors who fail to prosecute fraud. Hold the SEC employees' accountable and have make the penalties severe enough that anyone in that position will think multiple times about ignoring fraud.

      • Re: (Score:3, Interesting)

        by SleazyRidr ( 1563649 )

        That's massively increase your false positive rate. The lawyers would love it.

        • And how is that worse, even if it does happen, than what is going on now? There can be safeguards put in place to keep false positives down, but when it's obvious an SEC auditor is ignoring fraud, such as ignoring credible reports showing fraud, then those people have to be prosecuted. It's the only way to put an end to that kind of fraud on the part of the SEC itself.

          Not holding the inspectors accountable means they can accept bribes to ignore fraud and not have to worry about ever being punished. That

    • by raddan ( 519638 ) *

      When specific data becomes available to investors they generally act on it pretty fast, unless it goes against the wisdom of the crowd in which case it gets ignored until the evidence becomes overwhelming. So - we have a very motivated form of crowd sourcing at the moment that isn't doing the job.

      Yes, but the exact problems we had in the latest financial collapse were all well-known to people in the know. The problem was that the people giving the money and the people choosing the investments were completely decoupled. Since the market continued to say "this looks good", even though there were clear signs of trouble in say, the housing market, or say, Madoff's funds, investors continued to use those same financial instruments. There was no incentive not to, because as long as everyone pretended t

  • by Anonymous Coward

    The SEC would still require more workforce because they need to evaluate the feedback from the crowd which can be tedious if you consider the quality.

    • The SEC would have to listen when people report problems [cnn.com].
      • And instead of 1 report to ignore, you have a thousand to ignore. The SEC needs to fund itself solely through the fines they collect, that will get them working. And fining punitive amounts instead of symbolic ones.

        • The SEC needs to fund itself solely through the fines they collect, that will get them working. And fining punitive amounts instead of symbolic ones.

          Yes, and that will have them going after students and grannies who have never traded a security in their life, making unsupported threats in the hope that they'll give up without a fight. It's not as if we haven't seen that business model before. You could have been describing the RIAA.

  • The government spends money like drunken sailors, yet somehow law enforcement is underfunded. How does that happen?
  • ... like a really bad way to fix this problem.

    Seriously, with the exception of number nerds, who's going to take a look at the numbers?

  • by sjs132 ( 631745 )

    At least they are not proposing that they need to get bigger. At least a step in the right direction for a government office. If it would work is another question and what about the privacy issues? Some people may not want it known that they lost millions in a scheme because it would show how stupid they were. Lots of people lost to B.M. some where higher ups... The problem was even when the SEC new there were irregularities, they still turned a blind eye to B.M. because he had friends and power. Cor

  • Lies (Score:5, Informative)

    by roman_mir ( 125474 ) on Wednesday August 11, 2010 @08:25AM (#33213924) Homepage Journal

    Lies lies lies lies lies lies lies. Don't believe a word of it, not a single one.

    SEC failed to catch Bernie Madoff because the system is corrupt, they have enough people, the problem is what KIND of people they have. You can increase their manpower by a factor of a million and if they still get the kind of people they have there now, they will not end up catching any Madoffs.

    Madoff case is so outrageous: Harry Markopolos is the whistle-blower who uncovered Bernie Madoff's Ponzi scheme 10 years before the rest of the world learned of the biggest financial crime in history. ...
    It was exactly as I had warned the government of the United States approximately $55 billion earlier. And as I stood in the lobby of that dojo, my sense of relief was replaced by a new concern. The piles of documents I had in my possession would destroy reputations, end careers, and perhaps even bring down the entire Securities and Exchange Commission (SEC), the government's Wall Street watchdog -- unless, of course, the government got to those documents before I could get them published. I grabbed my kids and raced home. - go to this link, there is a video there [msn.com]

    more videos [youtube.com]

    --

    Don't believe the hype. It is not about not having enough people, it is the system that exists that is completely captive, the SEC needs to be disbanded for corruption.

    --
    But I am libertarian, I don't actually care about some people losing their money because they are stupid, I am more concerned that government is part of the corruption scheme and it is helping the thieves.

    • SEC failed to catch Bernie Madoff because the system is corrupt, they have enough people, the problem is what KIND of people they have. You can increase their manpower by a factor of a million and if they still get the kind of people they have there now, they will not end up catching any Madoffs.

      Crowdsourcing means they get whatever kind of people are present in the public that are concerned about the issue. That would seem to mean two people:
      1. Competitors scrutinizing each other,
      2. Concerned citizens that

    • Being libertarian doesn't mean blaming the gov't for everything, it means blaming whoever is curtailing your freedoms, or impairing the market and rooting out those problems. Removing gov't oversight sweeps the problem under the rug, but doesn't fix it.

      Hell, the SEC isn't talking about more funding or more power, it's talking about getting input from directly the people. That's a step in the right direction from a libertarian viewpoint.
      • No. From a libertarian viewpoint, the government needs to be removed from making any decisions on economics completely.

        Please, let's not start this here, as a minarchist I can only accept government for 3 things (cooking, cleaning and vaginas). [youtube.com] Just kidding. The 3 things are: 1. Judicial system. 2. Crime punishment system. 3. Minimum necessary military force for necessary protection from foreign powers.

  • by ffreeloader ( 1105115 ) on Wednesday August 11, 2010 @08:25AM (#33213926) Journal

    Maybe they wouldn't be behind in their work if they actually did the work. You know, work rather than watch porn during working hours.

    • Why was this moderated funny? This was happening for real!
      • Yeah, it amazes me how some things are moderated around here. This is the second time a serious post of mine, that was completely factual, was modded as +4 funny and had people like yourself pointing this out.

        It seems to me that a lot of people have no clue as to what is happening in our government.

  • Could I crowd source my home work?
  • Too much work? (Score:1, Redundant)

    Maybe they would be behind if they actually worked. You know, come to work and actually do their jobs rather than watching porn,

    • Re: (Score:3, Insightful)

      by GameboyRMH ( 1153867 )

      They weren't lying when they said they were hard at work every day.

    • Hmmm.... I see all these replies I made, that disappeared after hitting the submit button, have finally shown up. I can see why they were modded as redundant, but I only made duplicate replies because the system never acknowledged my replies.

  • I suppose that every Dollar you invest in tax law enforcement should return thousand-fold its value.
  • Might work for a while, but probably not longer term. "Available" doesn't mean "looked at," so anyone who might get caught will probably be OK until they irk someone who knows about the program.
  • It sounds like this would be highly vulnerable to gaming. It's pretty easy to twist numbers to imply anything. The people who would be most interested in participating in such a scheme would probably be those who are also the most interested in 'cooking the books.' The impartial are probably not going to participate.

  • Too much work? (Score:1, Redundant)

    Maybe they would be keeping up with their workload if they were, you know, working rather than watching porn. I mean, if things are so lax that recording porn on an everyday basis for extended periods of time happens what are the non-porn-addicts doing with their time? Just surfing the web? Sleeping? Who knows when there is no supervision and it's blatantly obvious that no one cares what the employees are doing?

  • by CalcuttaWala ( 765227 ) on Wednesday August 11, 2010 @08:31AM (#33213982) Homepage
    How can the SEC hide behind the fig leaf of being understaffed when "As early as 2001, the media had quoted financial professionals who raised questions about Madoff's fund. In 2005, independent fraud investigator Harry Markopolos sent the SEC a memo raising 29 red flags -- he had complained about Madoff to regulatory officials for six years." It is very apparent that enough red flags were raised but they were ignored ... this smacks of connivance.
    So what if the "crowd" finds some anomalies in accounts .. question is will anybody take any action on the same ? Their track record speaks otherwise ..
    • Because that's pretty much what you do in as a government entity. If you do your job and succeed, ask for more funding to do even more, better work. If you fail, blame it on understaffing to try to get more funding. If you don't do great but don't do horrible, try to get more funding to help "push the fight in the right direction".
    • Back then, they didn't have a system for listening to public info like this. I know, I know, all the brilliant geeks on Slashdot think they could have run it perfectly like everything else but let's put that aside for a second and consider reality. In reality with a big bureaucracy it is difficult to get things done when you don't have a system for it. Just the way it goes. So one of the first parts of this change would doubtless be creating a method for people to submit reports, and a method internally for

    • I agree that the crowd idea won't work until there is the political will to actually enforce these rules. Even in the best of times you have too many regulators looking for a way into the industry they're regulating (like the oil rig inspectors at the MMS) but when you combine that with leadership that doesn't believe in government regulation then things are so much worse.

      When the Madoff matter started to look fishy message from the leadership in Washington was that lax enforcement was the way to achiev
  • there are nuff small - and not so small people who would like to deliver those crooks!
  • by dkleinsc ( 563838 ) on Wednesday August 11, 2010 @08:32AM (#33213994) Homepage

    Imagine this scenario:
    1. Short sell a stock.
    2. Submit apparently crowdsourced information that would prompt the SEC to investigate the company.
    3. Stock drops like a rock due to the SEC investigation.
    4. Cover your short before anyone can figure out that there's nothing to investigate.

    • You'd have to cover your short way before the SEC even opened an official investigation, and way way way before it announced it was opening one. Also, the crowdsourcing reports would probably be about as available as various bloggers and whistleblowers today. Lots of people do pump-and-dump or schemes to temporarily drop prices, and they are usually prosecuted.

      Mostly because they gamed the rich people, and rich people don't like that, so of course they are caught. The SEC doesn't want to anger its future

    • Well, the article is talking about fraud with investment managers...you couldn't exactly short people's fake investment portfolios. That being said, a program like this could be expanded further (although not realy well since public companies are already well audited and their values are not as simple as matching up trading data).

      It has been argued that shorts (and any option trade that has a similar effect of paying off on downward movement) are the only real incentive to bring negative information to t

  • How would it work? (Score:2, Insightful)

    by dangitman ( 862676 )

    As Wikipedia has shown, it's pretty easy for a small group of people to convincingly alter supposed factual information. In this particular case, the people most interested in manipulating the numbers are the same people who would most likely participate in the project (again, see Wikipedia). Those who are the most neutral or impartial are less likely to participate.

    • Re: (Score:3, Insightful)

      I fail to see how the parent could be labelled "Troll" when its entirely true - Wikipedia has been gamed by multiple special interest groups. The crowdsourcing model is an abject failure.

      Harry Markopolos did not suggest this sort of approach, but the polar opposite: expertise in the SEC with examinations to get in, a good rate of pay, the funding of whistleblowers through the confiscation of ill-gotten gains from fraudsters.
  • I don't know much about finance (IANACA) but wouldn't "an exercise in finding numbers that do not match" be something a computer could do rather easily and quickly to even large amounts of data?
  • by Zocalo ( 252965 ) on Wednesday August 11, 2010 @08:38AM (#33214050) Homepage
    At least that would be my guess. This seems like it would be very similar in practice to the open source maxim that many eyes make all bugs shallow. It works very when someone has a problem and people who understand code then have an idea where to start, but comparatively few people are prepared (or able) to take source code and methodically check it line by line for flaws. That number is further reduced when you deduct those who would then use that knowledge to further their own ends without disclosing it. I doubt that there enough people who are both suitably skilled and prepared to spend their time trawling through a company's finances in the hope of finding evidence of fraud to make this idea work.

    On the other hand, it is a dog eat dog world out there in the world of finance and investments; I can envisage some banks and trading companies might actually employ people to do this kind of thing full time. Why bother trying to out perform a competitor if you can find enough evidence of possible fraud (well founded or otherwise!) and subject them to a detailed investigation by the SEC or some other regulatory body? Come to think of it, it could be the next growth centre for those countries who specialize in staffing call centres and other such cheap labour body shops.
    • "Why bother trying to out perform a competitor if you can find enough evidence of possible fraud (well founded or otherwise!) and subject them to a detailed investigation by the SEC or some other regulatory body?"

      Totally amateur observation is that stocks in a particular industry tend to move together, and if one drops or gets investigated you tend to have a sympathy movement as people wonder if the problem is endemic to the whole industry. So that would be generally not something most businesses would want

    • On the other hand, it is a dog eat dog world out there in the world of finance and investments; I can envisage some banks and trading companies might actually employ people to do this kind of thing full time. Why bother trying to out perform a competitor if you can find enough evidence of possible fraud (well founded or otherwise!) and subject them to a detailed investigation by the SEC or some other regulatory body? Come to think of it, it could be the next growth centre for those countries who specialize
  • Consider this possibility if you will:
    1. Short sell a stock.
    2. Pay off some crowdsourcers in China or some other foreign nation where law enforcement is a bit lax to submit info that makes it look like an otherwise sound company is engaged in some flim-flam, which will cause the SEC to start investigating.
    3. Watch the stock drop as people find out about the SEC investigation.
    4. Cover your short, and possibly even buy up some extra.
    5. Watch the stock go up as people find out that the SEC has dropped its inve

    • This is, of course, easy to prevent. All you need is not to accept anonymous analyses of the information published as a basis of a complaint: any such complaint must be from a verifiable source that can be held accountable for false reporting.

  • ...to create a "secure" IT gateway between confidential submissions to the market authorities and the general public, which can then be downloaded to a DVD by some employee wanting to "look at it at home", which is then accidentally left lying around in a car somewhere shortly before billions of personal financial transactions end up in a file torrented on the PirateBay with edited highlights providing Julian Assange with another headline.

  • by tucuxi ( 1146347 ) on Wednesday August 11, 2010 @08:42AM (#33214086)

    This much is obvious - the more transparent an institution, the easier it is for outsiders to find fraud or other problems. Where privacy is not an issue, I wholeheartedly support making as much data as possible available (in analysis-friendly formats) to as many people as possible. Data.gov is a great initiative. On the other hand, while it is good to open things up to fresh air and external review, blindly trusting on "the crowd" to do your work for your poor, understaffed self does not sound like due diligence. The key word in the title is "help". Staff professionals are expected to pick the most promising traces and do full investigations that lead to prosecution. With more transparency, public opinion will hopefully badger them on if they falter.

    The article itself talks about moderation systems that allow the crowd to separate wheat (real cases of fraud) from chaff. In many crowdsourcing initiatives, a bad moderation system has resulted in a swamp of duplicate suggestions and some great internet humor [slashdot.org], but little of actual value. A worse risk is that of concerted action [slashdot.org] by special interest group minorities, which could bury findings considered "negative" by group members and bolster those that furthered the group's agenda, giving this agenda a false legitimacy by appearing to come from "the crowd".

  • Recall http://mps-expenses.guardian.co.uk/ [guardian.co.uk] "U.K. newspaper The Guardian, which published online 700,000 expense claims by members of the U.K. Parliament" and http://news.slashdot.org/story/09/06/19/0152259/Newspaper-Crowdsources-700000-Page-Investigation-of-MP-Expenses [slashdot.org]
    End users could be given forms with details removed and look for the classic 'straight lines'
    eg."If you look at his performance, it was a straight line up"
    http://www.investmentadvisor.com/Issues/2009/January%202009/Pages/More-Regulation-Pos [investmentadvisor.com]
  • Let me coin a phrase.
  • You gotta be kidding me. Understaffed? Only because no one is actually working. If there are employees who are allowed to surf porn the majority of work day then discipline is so lax that very little is getting done. Sure, not everyone is surfing porn, but it's for sure there are checks on how much work someone is getting done. There is zero accountability.

  • Of course the SEC would "admit" to being understaffed and underfunded, regardless of the actual cause. That's how you get Congress to throw more money at you.
  • ... the one that would be called "competition financial analyst"... given that it took quite a small effort to de-anonynimize a trivial "search log", I wonder how hard would it be to do the same with financial records of companies (which, I reckon, would show a higher regularity/better identifiable patterns). Once this is done, what an invaluable source of info to see on what the competition is spending money (not that this would help much... I mean, knowing better how your competition is spending money do
  • by Jah-Wren Ryel ( 80510 ) on Wednesday August 11, 2010 @08:48AM (#33214150)

    Not only did the SEC fail to notice Madoff, they failed to react to people who reported Madoff. [thedailyshow.com] So, it seems to me the real problem here isn't one that can be solved by crowdsourcing, unless vigilantism counts.

  • Sounds incredibly boring and not very useful. The SEC had multiple people come forward and report Bernie Madoff for fraud long before they decided to punish him. What going to fix that?
  • Looking at recent history, the SEC does not appear to want to detect fraud, at least where it counts.

    Some NYSE specialists were charged with fraud: Richard Ney and economist who later turned actor, wrote a best selling book in 1970 ( "The Wall St Jungle" [amazon.com], interview NY Magazine 1970 [google.com]) with a few follow up books that all called out the NYSE Specialist families for fraud, explaining exactly how they defraud the public. At the time The Wall Street Journal boycotted anyone selling the NY times longest running

  • It's gonna take a bounty to get me to stare at a bunch of weird numbers. I'd like a bounty. Six figures, please.
  • because they are understaffed (a fact the SEC itself has admitted), under-funded, and simply lack the resources to adequately investigate his activities

    Harry Markopolos [wikipedia.org] did all their work for them but they simply refused to investigate because they had a cozy relationship with Madoff.

  • Croudsourcing might be a nice idea in general when dealing with vast problems and patterns, but what is the reward?

    When I write an article for *pedia, I "scratch an itch" or increase the worlds' knowlege (well, at least the enthropy...). When I do somethink like Seti@Home, its for science.

    But why should I waste my time by sifting through financial numbers? To help reducing the risk for the rich to get richer?

  • I used to work large balance fraud for a living in my previous career. I think fraud is typically pretty easy for a human to bust. There are certain kinds of things that can and should be easy to catch. There's. No harm and I think the proof has now come to show how much damage fraud can do.

    Information like that would be a treasure trove for educating the public

  • This sounds boring, useless, and a huge buzzword heavy distraction. The SEC had multiple people coming forward for many years before they prosecuted Bernie Madoff, I'm sure some of these people had proof. How is this any different from what they're claiming to do. Instead it sounds like a lazy buricrates way of getting his boss off his back. SEC Fraud Guy: "Hey Boss, lets *crowdsource* it!" Boss: (I don't know what that is) "Sure! And here's a nice raise!"
  • SEC was explicitly alarmed by H. Markopolos on November 7th, 2005, that the world’s largest hedge fund is a fraud. The original 19 pages paper can for example be seen here:

    http://www.scribd.com/doc/9189285/Markopolos-Madoff-Complaint [scribd.com]

    This paper tells straight that Bernie Madoff was committing fraud. Crowd sourcing would never have helped here as SEC was just refused to accept the evident proof of Madoff's wrongdoing.

    I heard the first time about this paper in a talk given by Prof. Paul Embrecht. His ve

  • Whenever someone would gain from people believing what they're saying, I think its more along the lines of an excuse than an admission. Or misdirection. The SEC saying "we need more people, and thus more money" is the same thing as Kim Jong Il "admitting" he doesn't have nuclear weapons to keep inspectors and/or invaders out. If the employees they have now would do their jobs rather than look at pr0n on government time and just build contacts until they can get jobs with major financial institutions help

  • More like they just weren't doing their job. Surfing for porn all day is not in the SEC charter.
    http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544

  • Madoff got away with it for so long, despite warnings to the SEC, because he was quite literally beyond reproach. His respected standing and reputation as a financial mastermind from his heyday as a NASDAQ bigwig inclined those with oversight to write off the occasional warning bell as the complainer (or the regulator himself) being unable to fathom the financial kung-fu of the master. Of course, in his later years he only looked so good because he was cheating. I sometimes wonder if he started down that ro

  • Bad idea (Score:3, Interesting)

    by clang_jangle ( 975789 ) on Wednesday August 11, 2010 @08:57AM (#33214234) Journal
    If the SEC is underfunded and understaffed then how the heck do they expect to deal with the avalanche of false positives by idiots who think they're qualified to participate? The SEC should get its funding directly from the businesses they're supposed to regulate. A flat percentage of gross corporate income, no doubt a fraction of a percent would be plenty enough.

    Libertards complaining that corporations deserve a free ride on the backs of real citizens in 3..2..1..
  • Mass hysteria? (Score:2, Insightful)

    by wbhauck ( 629723 )
    "Of course, individuals from crowds can make false and erroneous claims. However, the beauty of crowdsourcing is that if a claim is indeed true, a large number of people would repeat and validate it, which would give the claim prominence and credibility." So they want to rely on thousands of people with no financial training to balance the books? If people rely on H&R Block to do their taxes do you really think they can spot "irregularities" in this massive amount of data? If they're collecting the d
  • "The SEC failed to catch Bernie Madoff largely because they are understaffed (a fact the SEC itself has admitted), under-funded, and simply lack the resources to adequately investigate his activities."

    What a crock of pure BULLSHIT that statement is!

    The SEC, and all of the other law enforcement agencies of the Federal government failed to catch Madoff and the other 10,000 crooks and fraudsters in the financial industry because they willfully and deliberately refuse to do their jobs. This guy, Harry Markopol

  • From the article:

    Of course, individuals from crowds can make false and erroneous claims. However, the beauty of crowdsourcing is that if a claim is indeed true, a large number of people would repeat and validate it, which would give the claim prominence and credibility. Social news sites like Digg, with their “up-vote” and “down-vote” system, use a similar concept.

    Not to stroke Slashdot's ego, but I think a meta-moderation system is a better model. A financial institution may

  • Wikipedia works because people enjoy showing off what they know. I'm not sure that motivation would apply to sifting through accounting figures.

  • I suggest you start with every major corporation in the United States. Then you can move on to every politician they "lobby" (aka bribe).
  • by wowbagger ( 69688 ) on Wednesday August 11, 2010 @09:26AM (#33214512) Homepage Journal

    Consider a company that has filed for chapter 11 reorganization. Said company is consistently MONTHS late with their theoretically mandated-by-the-SEC filings. A large number of people publicly call attention to this fact, over and over again, stating that according to the SEC rules said company should not be allowed to trade stock - not on the pink sheets, not on the major exchanges, NOT AT ALL. Yet, the company continues to trade.

    I would assert this demonstrates that crowdsourcing has already been tried, and the SEC's (lack of) actions in this matter demonstrate it won't work.

    • by tucuxi ( 1146347 )

      So this makes transparency a bad thing?

      I would argue the opposite. The more facts you can collect that prove that things need fixing, the more likely you will be to convince others to your point of view. Access to the data cannot only "help" SEC to fix problems, it can also force them to do so, given a high enough level of public outcry.

  • Given the SEC ignored detailed reports from various members of the public that Madoff was running a scam, I'm sure sending them more such reports (of lower quality from people with less experience in the relevant fields) will help greatly.

  • Crowdsourcing works nicely for things like open-source software and encyclopedias because the whole project is of limited scope, it's predicated on Samaritan-like communal giving, and generally no one can profit one way or the other from particular responses or pieces of writing. This probably breaks down and becomes unstable if participants can profit one way or the other from particular outcomes. i.e., Campbell's Law:

    "The more any quantitative social indicator is used for social decision-making, the more

    • by tucuxi ( 1146347 )
      As far as I understand it, http://en.wikipedia.org/wiki/Campbell%27s_Law [wikipedia.org] cannot be applied here:

      "The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor."

      No quantitative social indicator here. If you are trying to imply that if there are incentives for profit people may behave dishonorably, by golly, you are right. I can thing of the three profit-related types of problems:

      • evildoers bury evidence of evildoing (hiding)
      • evildoers try to bolster false evidence of evildoing (planting)
      • evildoers try to swamp the site with irrelevant stuff (denial-of-service)

      All three o

  • Of course it can, especially combined with the new bounties on successful whistle-blowing : http://community.nasdaq.com/news/2010-08/whistleblower-law-could-payout-millions-for-tips-on-fraud.aspx?storyid=31840 [nasdaq.com]
    That is at least $100,000 for you if the damages reach the lilliputian amount of 1 million dollars. I have seen dumber hobbies for interns at big companies...
  • I want something to help me detect fraud. The SEC might or might not do something, but it remains my responsibility to manage my money. If crowd-sourcing works, I'd use it for sure as would millions of other investors.
  • Through crowdsourcing, regulators would make financial data publicly available to the masses, who would do the 'grunt work' of sifting through them to find discrepancies. But would it work?

    Two words: Facebook badges.
  • The SEC were told about Madoff, more than once. They chose to ignore the warnings.

    This has nothing to do with being understaffed, though "admitting" you were understaffed makes a very nice excuse.

    Shame on Slashdot for repeating a well known well exposed falsehood, and propagating the corporate bullcrap.

  • Many who work for the SEC later end up in jobs in big financial firms. So those at the SEC who hope to work on Wall Street have plenty of incentive to ignore evidence of fraud. They don't want to create a stir and damage their chances for future employment with one of the firms they regulate.

    That's why Markopolous said the SEC should only hire people over 50 in positions that involve detecting and investigating fraud -- people who have already been on Wall Street and are towards the end of their careers,

  • "Crowdsourcing" - right. You give out a file of all ticker transactions for the last year. Now what? Anything useful in this area is going to be done by a small number of people crunching on the data. Individual items aren't significant; analysis is necessary.

    The real issue here for the financial community is transparency of hedge funds. Hedge funds need to be registered with the SEC and regulated as mutual funds. It would also help if pension funds were not treated as "sophisticated investors" allo

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