While not a smoking gun, a single New Jersey Deli with four-figure revenue that succeeded in floating 8 million shares and eventually reached a market cap of over a hundred million dollars seems to be enough of a red flag for the likes of hedge fund manager Einhorn. As this article points out, a major reason this company has come under greater scrutiny stems from the managers sarcastic remarks. The latest in the story suggests the firm may face delisting.

Though anecdotal, Hometown International joins a growing list of high profile instances of how the SEC has struggled to protect shareholder capital. Though not directly comparable, the regulator's inability to act on a material amount of evidence in the form of letters and reports from within the industry regarding Madoff's operations suggests it was not easy to build/act on a strong case even in the face of blatant market abuse. In a recent interview, Harvey Pitt had this to say:

It is clear that there were letters, and it is also clear that the SEC did look at [Madoff]. What is not clear is why the SEC was unable to conclude that he was conducting the Ponzi Scheme we now know he was conducting.

Presumably, the regulator would want to enforce greater discipline in these situations to avoid a collapse in investor confidence. However, in both of the cases above, it was the industry that unveiled the malfeasance.


Is this as simple as the regulator being understaffed / underfunded or is the degree of certainty needed for a conviction unrealistically high?

  • This excellent question would be suited to the economics site. Or perhaps politics or even the quants site. – Fattie Apr 26 at 17:52