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The purpose of this paper is to determine if the failure of the Securities and Exchange Commission (SEC) to persecute Madoff is, in fact, an ethical failure. The authors turn to the extension of Aristotelian theory of moral values, virtue epistemology, to identify specific failures. The authors generalize this study’s conclusions to an overall responsibility of regulatory agencies to exercise epistemic virtues in their decision-making process. The authors explore how behavioral biases confound the execution of epistemic duty, and how awareness of behavioral biases can alleviate epistemic failures. The authors conclude this study with recommendations to prevent future frauds of Madoff proportions.


The authors rely on recent advances in virtue epistemology and behavioral finance. The authors combine these two theoretical approaches to better understand the duty of competence inherent in being a finance professional, and even more so in being a regulator entrusted with overseeing financial industry, and psychological biases that may prevent finance professionals and regulators from performing this duty.


The paper concludes that the SEC employees failed to exercise epistemic virtues in their handling of the complaints implicating Madoff’s firm of fraud. This failure reveals a consistent pattern of behavioral biases in decision-making. The authors posit that knowledge of ethical theory, specifically virtue epistemology, as well as awareness of behavioral biases, which inhibit epistemically virtuous cognitive process, can improve the functioning of both finance industry and its overseers. The authors suggest that future finance professionals and regulators need to acquire this knowledge while pursuing their undergraduate education: it is the duty of business schools to facilitate this progress.


This paper combines the theory of virtue epistemology with the current knowledge of behavioral biases, which distort rational decision-making, to explain the failures of regulators to analyze fraud reports. The authors extend this finding to recommend the inclusion of the theory of virtue epistemology in business schools’ ethics curriculum.


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  • Institution
    • Dahlonega

  • Publisher
    • Emerald Publishing Limited

  • Date submitted

    20 July 2022

  • Keywords
  • Additional information
    • Author Biography:

      Dr. Murdock serves as an assistant professor of finance in the Mike Cottrell College of Business at the University of North Georgia. Prior to teaching, She served as head for the Division of Foreign Currencies and Trade Finance and Prominvestbank of Ukraine. Dr. Murdock was awarded The Dillard Munford Professorship in 2014.

      Book or Journal Information:

      Journal of Financial Crime, 29(1), 215-232