The world's biggest fraud, estimated to be worth about $50bn,
could have been avoided if the US had introduced regulations to
force firms to use technology to increase the transparency of
financial transactions.
Bernard Madoff, founder of Bernard Madoff Investment Securities,
was charged with securities fraud last week after he allegedly told
senior employees that his investment operations were
fraudulent.
Madoff reportedly described his company as a Ponzi scheme - a
pyramid investment scheme that creates a fake market where early
investors make money at the expense of new entrants.
Financial services
companies hit by the fraud, are at risk of losing millions of
pounds, They include Royal Bank of Scotland, HSBC and
Santander.
According to the Financial Times, Jim Vos, who heads advisory
firm Aksia, said Madoff mailed paper copies of his trading records
to clients rather than providing them with electronic access to his
trading platform.
"Paper copies provide a hedge fund manager with the
end-of-the-day ability to manufacture trade tickets that confirm
the investment results," Vos told clients in a letter seen by the
Financial Times.
This would enable a fund manager to falsify the results of
various trades and keep the scheme going without investors
realising.
This highlights the complexities of the investment sector which
technology could simplify.
Technology can increase transparency and prevent investment
fraud, according to Brian Taylor, financial services consultant at
BTA Consulting. He said the underlying customer that is affected by
an investment should be notified immediately. Electronic
communication is the best way of doing this.
But he said the difficulty is identifying who the clients
affected are. "In this day and age of fraud and bankruptcies the
regulators should seriously consider having a common client
identification system which could notify an investor, by e-mail or
SMS, of any activity on their account."