Daily Note: Severe Fraud Punishment - Government Improvement Series

Friday, June 12, 2009

Severe Fraud Punishment - Government Improvement Series

Out of all the coverage of the Bernard Madoff fraud, the one headline that really puzzled me was the point in time when they were negotiating a house that the lawyers claim belonged to Madoff’s wife. It would seem to me that every asset the family owns came from the ponzi scheme, especially since the coupled was married for more than 50 years. However, the court ruled that Ruth (the wife) can keep the house when his husband destroyed so many people’s homes.

How is that fair?

Perhaps this is unfair as well, but the government should come up with a new set of rules to punish criminals who substantially affect someone else’s lives. In ancient China, any crimes against the emperor meant a severe punishment if you get caught. Not only will you be executed, but everyone related to you within nine relationships are all executed as well. So your family, friends, distant relatives, friends of friends are all dead. While it was inhumane, it definitely made people think twice before they act wrongfully.

Obviously, this is too extreme for something like a fraud, but we should adapt the idea and make minor tweaks. Ruth and his children may not know about the whole scheme (even though I doubt it), but they certainly enjoyed the years that the whole operation was going on. For years, they went to fancy parties, bought luxuries, went on extravagant vacations on someone else’s dime! Because of what happened, millions of people are left with nothing. How can the people closest to the fraud escape without much financial harm?

Unfair or not, the immediate family of the person who is directly involved in the fraud should be stripped of all financial assets. It might violate human rights, but that’s how it should work.

Allowing the family members to keep some assets may be a good negotiation tactic for Madoff to reveal where some of the money is, but it promotes bad behavior long term. Doing this give potential scam artists an idea of what the punishment will be if they get caught. If there’s really nothing to lose and everything to gain, people will keep trying shady tactics. If however, we set a precedence and be ruthless for once, we will might help billions of people in the future.

Don’t let them off so easily. Give them a severe punishment for the sake of the potential victims.

This is part of the Government Improvement Series on Fridays, where I discuss ways that the government can help improve our society.

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