California's Own Bernie Madoff

Some called Beverly Hills financial adviser Stanley Chais an investment wizard, but in reality he was nothing more than a glorified middleman, channeling hundreds of millions of dollars in investors' funds to Bernie Madoff in New York.

Chais claimed to generate 20 to 25 percent returns for his clients through superior skill and experience, use of cutting-edge technology and connections to sophisticated East Coast brokers. The truth is much more mundane -- Chais simply turned over his clients' investments to Madoff, who relied on one group of investors to pay other investors, thereby propping up his massive Ponzi scheme.

For his so-called expertise, Chais charged his clients a whopping 25 percent of their annual profits -- pocketing some $270 million over the decades -- and he was careful to conceal his connection with Madoff. So when Madoff's empire collapsed late last year, Chais's clients were shocked to find that their life savings had vanished virtually overnight.

When this information came to light, investigators from the California attorney general's office jumped in immediately. Seven months later, we are now able to file legal action in Los Angeles Superior Court against Chais for securities fraud, unfair business practices and making misleading statements. The suit seeks an injunction, restitution for victims, disgorgement of profits and at least $25 million in civil penalties.

Sadly, the rise of super-sized swindlers like Madoff and Chais was inevitable given the mindless deregulation-mania of the last decade -- abetted and made possible by a complicit Congress, SEC, and inattentive White House.

There were clear warning signs. Chais had only three months of negative returns between 1996 and 2007. Madoff's balance sheet did not reflect the normal fluctuations of the market, nor did he report a loss on a single trade made on behalf of the Chais funds between 1999 and 2008.

But regulators and federal officials were lulled to sleep by a pervasive ideology that private vice on Wall Street would always be transmogrified into public virtue. America is paying the price for this noxious doctrine in unprecedented job losses and an avalanche of foreclosures.

Let's not wait for the next Chais or Madoff to be exposed.

Washington must put in place real oversight of the financial industry. (And by the way, the people who got us into this mess are not likely to be the ones who will get us out.)

One obvious reform would be to strip away Washington's preemption of state regulatory authority. This would allow the attorneys general of the 50 states to act as true guardians of the public trust and bring to justice the rip-off artists and malefactors who even today enjoy virtual immunity.

Jerry Brown is California's Attorney General. Visit his website here . Become a supporter of Jerry on Facebook and follow him on Twitter .