No matter how heavily they might be camouflaged, once you know how the trick is pulled, all premeditated closed-market swindles are child's play to detect and to prosecute. In the final analysis, the only fact which needs to be established is that they have no significant, or sustainable, source of revenue other than their victims. Indeed, I would say that (given the political will) it would be a relatively straight forward matter to draw up RICO-style legislation making it a criminal offence maliciously to instigate, derive benefit from and dissimulate any form of closed-market in which victims are manipulated by their own instinctual desires and then peddled infinite shares of their own finite money.
Self-evidently, one person who is perhaps best-qualified to detect a closed-market swindle, is Bernie Madoff. Whilst awaiting sentencing, Madoff met with the SEC's Inspector General, H. David Kotz as part of the investigation into how regulators failed to detect Madoff's Ponzi scheme. The plain truth is that regulators probably failed to detect Madoff's fraud, because they had absolutely no idea how to detect it. Apparently, H. David Kotz himself might now know how to recognise a closed-market swindle. The transcript of his amazingly frank interview with Bernie Madoff was released under the Freedom of Information Act.
Ironically, Madoff told Kotz that he would have preferred to have been caught in 2003 and that this could easily of happened, but:
'bumbling investigators failed to ask the right questions... I was astonished... they never even looked at my stock records. If investigators had checked with the Depository Trust Company (a central securities depository), it would have been easy for them to see. If you're looking at a Ponzi scheme, it's the first thing you do.'
In simple terms, all that the complacent (and possibly corrupt) SEC boys and girls had to do to detect and prosecute the Madoff fraud, was verify that he hadn't actually been buying and selling shares (and, thus, not making all the external profits he claimed), but they didn't.
In June, 2009, Bernie Madoff described the new SEC Chairman, Mary Schapiro, as a 'dear friend,' and he also said that the SEC Commissioner, Elisse Walter, was a 'terrific lady' whom he knew 'pretty well.' Since Madoff's arrest, the SEC has been widley-condemned for its lack of financial expertise and lack of due diligence, despite having received complaints about Madoff for almost a decade. H. David Kotz, accepts that since 1992, there were no less than six incompetent attempts at investigation of the Madoff fraud, made by the SEC.
It seems to me that a very strong case could be brought against certain SEC investigators for taking money from US tax-payers under false pretenses.