Question

1. After the Madoff case, the SEC instituted a number of reforms to its operations. Please visit the SEC's website (www.sec.gov (Links to an external site.)Links to an external site.) and search for Post-Madoff reforms. Next, please identify the two reforms that you believe will have the best chance of detecting illegal activity such as the activities of Madoff. Make sure to provide justification for your choices.

Answer 1

:The Madoff investment scandal was a major case of stock and securities fraud discovered in late 2008. Today, the agency is continuing to reform and improve the way it operates. Among other things, the SEC has been:

1. Revitalizing the Enforcement Division

2. Revamping the handling of complaints and tips

3. Encouraging greater cooperation by 'insiders'

4. Enhancing safeguards for investors' assets

5. Improving risk assessment capabilities

6. Conducting risk-based examinations of financial firms

7. Improving fraud detection procedures for examiners

8. Recruiting staff with specialized experience

9. Expanding and targeting training

10. Improving internal controls

11. Advocating for a whistleblower program

12. Seeking more resources

13. Integrating broker-dealer and investment adviser examinations

14.Enhancing the licensing, education and oversight regime for 'back-office' person

In my point of view following are the two reforms that may act as a backbone crusher of frauds:

1. Encouraging greater cooperation by 'insiders': It is the insider who conducts all the fraud. The insider has all the knowledge of the business and is aware of the Strength and weakness of the company. Further, senior management has control over the other staff of the organization thus they can influence the other person and can get the requisite work done.

2. Improving Internal COntrol and whistleblower policy: In case of the company has a strong internal control policy documented that the information is passed on to the person on a need to know basis and the work done by one person gets automatically checked by the other person which reduces the chance of fraud. Further, whistleblower policy also helps in the way that management may get aware of unethical activity at the lower level.