...The Fraud of the Century: The Case of Bernard Madoff The fraud perpetrated by Bernard Madoff which was discovered in December, 2008 is based upon a Ponzi scheme. Madoff took money from new investors to pay earnings for existing customers. The greater the payout to retiring and withdrawing customer, the more revenue or clients he would need to start and “investment relationship” with Madoff. The Ponzi scheme was named after Charles Ponzi who in the early 20th Century, saw a way to profit from international reply coupons. International reply coupons were a guarantee of return postage in response to an international letter. Charles Ponzi determined that he could make money, legally, by swapping out these coupons for more expensive postage stamps in countries where the stamps were of higher value. While making a significant profit with this system, Ponzi got the idea of enticing investors to provide him more capital to trade coupons for higher priced postage stamps. His promise to investors was a 50% profit in a few days. Touted as a financial wizard and the ‘Warren Buffet’ of his day, Ponzi lived outside Boston, he had a fairly opulent life bringing in as much as $250,000/day. Part of Ponzi’s success came from is personal charisma and ability to con even savvy investors. The promised payout was supported by the new investors anxious to take advantage of these robust returns because he appeared to create an image of power, trust, and responsibility. In July of 1920...
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...The Fraud of the Century: The Case of Bernard Madoff The fraud perpetrated by Bernard Madoff which was discovered in December, 2008 is based upon a Ponzi scheme. Madoff took money from new investors to pay earnings for existing customers. The greater the payout to retiring and withdrawing customer, the more revenue or clients he would need to start and “investment relationship” with Madoff. The Ponzi scheme was named after Charles Ponzi who in the early 20th Century, saw a way to profit from international reply coupons. International reply coupons were a guarantee of return postage in response to an international letter. Charles Ponzi determined that he could make money, legally, by swapping out these coupons for more expensive postage stamps in countries where the stamps were of higher value. While making a significant profit with this system, Ponzi got the idea of enticing investors to provide him more capital to trade coupons for higher priced postage stamps. His promise to investors was a 50% profit in a few days. Touted as a financial wizard and the ‘Warren Buffet’ of his day, Ponzi lived outside Boston, he had a fairly opulent life bringing in as much as $250,000/day. Part of Ponzi’s success came from is personal charisma and ability to con even savvy investors. The promised payout was supported by the new investors anxious to take advantage of these robust returns because he appeared to create an image of power, trust, and responsibility. In July of 1920...
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...Ponzi Scheme Keller Graduate School Forensics Accounting The Bernie Madoff scam truly made history. Bernie Madoff probably would not have been able to prolong this scam without the continued help of the Accounting Firm of Friehling & Horowitz CPAs PC, who at last reported purported to audit financial statements and disclosures of Madoff firm for the last 17 years. Ponzi schemed to help Madoff by trying to go undetected because of Friehling deceiving investors and regulators by declaring that Madoff enterprise had clean audit records. Ponzi’s scheme enabled Madoff by falsely stating in annual audit reports that F & H audited Madoff financial statements pursuant to GAAP, including the requirements to maintain auditor independence and perform audit procedures regarding custody of securities. F & H purported that the financial statements conformed to GAAP and the Friehling reviewed internal controls at Madoff firm. According to SEC complaint, Friehling knew that the firm regularly distributed the annual audit reports to Madoff customers, and that reports were filed with the SEC and other regulators. The complaint alleges these statements were “materially false”. The SEC alleges that Friehling merely pretended to conduct minimal audit procedures of certain accounts to make it appear that he was conducting an audit, and then failed to document his purported findings and conclusions as required under the GAAP. If properly stated those financial statements...
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...First Name Surname Instructor Course Date Recent Corporate Scandal Meltdowns - Bernard Madoff Bernard Madoff also known as Bernie is a previous Chairman of the NASDAQ stock exchange. Madoff founded an investment advisory firm called Ascot that later brought about the famous Ponzi scheme (Rhee 363). The project led to defrauding of many investors. The investors lost over $50 billion in the project over a period of around two decades. It all started in early December 2008 when there was the financial crisis in the United States (Vagts 684). Madoff was not in a position to honor the investors' requests for cash. He had to come out in the open and confess what he was doing. He had to admit to the Ponzi scheme and Wall Street together with other parts of the world was shocked (Hansen & Movahedi 368). There was massive investment fraud and many people fell victims even high profile investors. The financial community had a lot of respect for Madoff. The trust they had made some investors give their life savings to the scheme. Those who came to invest included charitable organization that got its funding from Steven Spielberg, Kevin Bacon, who is an actor, New York Mets owners, and others (Vagts 684). Madoff got investments from large banks and pension funds, for example, Royal Bank of Scotland, Banco Santander from Spain and many others. Many investors lost all they had in the scheme. After his tricks were exposed he pled guilty of securities fraud among others. He was then...
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...Author’s Viewpoint In the case study about the Bernie Madoff scandal, the author makes the point that the motivation to succeed in business can present a conflict with the fiduciary duty that a business person has to the client. There is question whether Madoff was motivated solely by greed, in which case he was engaged in a simple Ponzi scheme, or whether he used the Ponzi scheme to hide his failure to generate returns for his clients. Madoff’s lack of transparency violated the trust of his clients, even if he did not initially intend to defraud his clients. There is some ethical ambiguity in this case. Discussion The lesson of this case is that transparency is the best policy, since secrets only allow the unethical behavior to continue. If Madoff had told his clients that his investments had failed, and they had lost their money, rather than engage in the Ponzi scheme, there would have been far fewer victims. The number of victims increased as Madoff was able to use the Ponzi scheme to hide his failure, which gave existing and future investors the impression that he was generating enormous returns for his clients. Questions One Greed and trust were intertwined in a way that makes the Madoff scheme somewhat ethically ambiguous as far as Madoff’s intent is concerned. He probably did not intend to create Ponzi scheme from the outset. By positioning himself among the Wall Street elite and being the former chairman of the NASDAQ, Madoff gained the trust of his clients. Initially...
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...Madoff the Mastermind Kory VanSpeybroeck AC 572 April 14, 2012 Bradley Trimble Madoff the Mastermind Bernard Madoff was a widely known investment broker who, for a long time, was able to swindle investors out of their money. He did this by implementing one of the largest Ponzi schemes in history. Discovering the exact details about who was involved, how heavily they were involved, and the extent of the losses incurred may yet take many years. The goal of this research is to attempt to explain how the fraud was executed by explaining various details involved in this Ponzi scheme. These details include how the fraud was executed, parties that were involved positively and negatively, motives of each party, controls that may have prevented or deterred the fraud, any SEC involvement, how the fraud was discovered, and the resolution of the case. It is best for cases like this to start at the top of the pyramid and work down through the pyramid. To begin, one must understand a Ponzi scheme and how it works in order to determine how Madoff conducted his particular scheme. A Ponzi scheme is designed to steal money from investors by promising consistent or large returns that are secured by previous investor’s funds. About.com lists five key elements of this type of scheme consisting of the benefit, the setup, initial credibility, initial returns, and communicated success (Mofatt, 2012). The benefit is the promise of a return at above normal averages or more consistently...
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...12 MADOFF SECURITIES Synopsis A childhood friend summed up the driving force in Bernie Madoff’s life: “Bernie wanted to be rich.” As a youngster growing up in New York City, Bernie realized that Wall Street was the greatest wealth creation machine the world had ever known. So, after graduating from college in 1960, he set his sights on joining the exclusive fraternity that ran Wall Street by organizing his own one-man brokerage firm, Madoff Securities. Madoff was one of the first individuals to recognize that computer technology provided the means to “democratize” Wall Street by establishing a system that made securities trading much more efficient and much cheaper. In the early 1970s, Madoff and several other individuals organized the NASDAQ exchange, which was destined to become the world’s largest electronic stock market. Years later, the NYSE would be forced to follow suit and switch to electronic securities trading. Literally millions of investors have benefitted from the lower transaction costs of electronic securities trading that were in large part a result of the pioneering efforts of Bernie Madoff. Unfortunately, Bernie Madoff will not be remembered as a pioneer of electronic securities trading. Instead, the word “Madoff” will always be associated with the phrase “Ponzi scheme.” Although his stock brokerage firm was extremely lucrative, Madoff eventually established a parallel business, investment advisory services. Over a period of several decades, Madoff became...
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...THE RISE AND FALL OF BERNIE MADOFF Bernadette Smith Business Law Professor Kopf 8/22/2010 Bernard Lawrence "Bernie" Madoff , born April 29, 1938 is an incarcerated former American stock broker, investment adviser, non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi scheme in history. In March 2009, Madoff pleaded guilty to 11 federal crimes and admitted to turning his wealth management business into a massive Ponzi scheme that defrauded thousands of investors of billions of dollars. Madoff said he began the Ponzi scheme in the early 1990s. However, federal investigators believe the fraud began as early as the 1980s, and that the investment operation may never have been legitimate. The amount missing from client accounts, including fabricated gains, was almost $65 billion. The court-appointed trustee estimated actual losses to investors of $18 billion. On June 29, 2009, he was sentenced to 150 years in prison, the maximum allowed. Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest on December 11, 2008. The firm was one of the top market maker businesses on Wall Street, which bypassed "specialist" firms by directly executing orders over the counter from retail brokers. On December 10, 2008, Madoff's sons told authorities that their father had just confessed to them that the asset management arm of his firm was a massive...
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...Conclusion---------------------------------------------------------------- Page 11 Reference----------------------------------------------------------------- Page 12 Executive Summary This report is through the case analysis about the collapse of Baring Bank, to talk about how the corporate social responsibility influences a company. Through the related CSR problems in Baring bank and trying to find what matters that the organization lack of. In addition to know more about how CSR effect the global business environment, depends on the Sarbanes-Oxley Act, the report talk about the five acts can possibly prevented Leeson to destroy the company. And also discuss why the SOX act is not effective which lead to the Madoff investment scandal and could not prevent the 2008-2009 financial melt down using the ethical decision making process. \ Introduction Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million ($1.3 billion) due to speculative...
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...CASE STUDY #1 | The Function of Accounting Information Systems in the Enron and Bernard Madoff Fraud Cases | | | | | | | What is the definition of accounting information system? The Core Concepts of Accounting Information Systems textbook defines accounting information system “as a collection of data and processing procedures that creates needed information for its users” (Bagranoff, 2010). A key factor in determining the success in an organization is its accounting information system. It is the combination of the organization’s resources, such as its people, procedures, and business records that it (the organization) maintains to provide financial data. The basis of this case study is to disagree with the question of whether or not accounting information systems played a role in the Enron and Bernard Madoff fraud cases. All organizations should have an adequate, effective, and efficient accounting information system in tack. In my opinion, the Enron and Bernard Madoff fraud cases had the classic signs of pure greed; the accounting information systems were perhaps manipulated, ignored, and compromised to financially suit the personal gains of the individuals involved and did not assist with the cases. An important part of the accounting information system is its internal control system. Internal controls are methods and procedures used by an organization to safeguard assets, authorize transactions, and ensure accuracy of the accounting records...
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...Mary Schapiro and SEC Management and leadership SEC • Criticism for failing to predict, control or even contain the GFC • Under its watch Bernard Madoff, managed to operate the largest Ponzi scheme and Lehman brothers collapsed, bringing down business confidence and reputations • Regulators and traders were investing in schemes they did not understand and whose behaviour they could not predict • The SEC was exposed as ill-equipped to deal with the chaos after the GFC • US govt handed the financial sector a multi-billion dollar bailout • In 2010, it SEC reached it largest ever settlement when Goldman Sachs was fined $550 million for committing fraud by misleading investors about mortgage securities • Lack of attention to detail to every level of an enterprise Mary Schapiro • Career regulator • She was appointed by the president to assess what went wrong and to ensure it did not happen again • 29th chairman of the SEC and this first female chair • Restoring the agency’s vigour and credibility within the financial regulatory community • A high functioning, agile and intelligent agency, that is committed to investor protection and market integrity is necessary to ensure the success of the economy • Time pressed • Main priorities 1. Assessing what needs to be done within the organisation 2. Shifting the agency’s focus back to protecting the investor 3. Acknowledging its mistakes • Resigned from the SEC to join Promontory financial as a consultant • On...
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...Movie Project: Broken City The movie I choose is Broken City and I choose this movie because even though this movie isn’t related directly to the accounting field the situation that happen in the movie does because is very similar to the ones that happens in big companies. This movie was release in 2013 and is classify as Thriller/Drama. There main characters are Billy Taggart (Mark Wahlberg), Cathleen Hostetler (Catherine Zeta Jones) and the New York City’s Mayor Nicholas Hostetler (Russell Crowe). The biggest issues in this movie are the lack of integrity, abuse of power and corruption. The summarize is that Billy worked as a police in the City of New York but he was fired and then starts working as a private investigator. After 7 years Bill was hired for the Mayor to investigate Cathleen, the mayor’s wife, because the mayor think she was having an affair and he agree to pay Bill 50,000 dollars for the job, so he accept. Bill begins to investigate Cathleen and found out it looks like she was having an affair and give the pictures to the Mayor. But the real problem was not that, it was that Billy was double-crossed by the Mayor because the Mayor hired Billy to find the source that was giving critical information related to him to his wife, so he wanted to find that person before all that information comes to the public and affect him to be reelected for New York Mayor again. After Billy give the Mayor the pictures later that day Paul...
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...The Madoff investment scandal broke in December 2008, when former NASDAQ Chairman Bernard Madoff admitted that the wealth management arm of his business was an elaborate Ponzi scheme. Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its Chairman until his arrest.[1][2][3] At his firm he employed his brother Peter as Senior Managing Director and Chief Compliance Officer (Peter has since been sentenced to 10 years in prison), Peter's daughter Shana Madoff as the firm's rules and compliance officer and attorney, and his sons Andrew and Mark (Mark committed suicide by hanging exactly two years after his father's arrest). Alerted by his sons, federal authorities arrested Madoff on December 11, 2008. On March 12, 2009, Madoff pleaded guilty to 11 federal crimes and admitted to operating the largest private Ponzi scheme in history.[4][5] On June 29, 2009, he was sentenced to 150 years in prison with restitution of $17 billion. According to the original federal charges, Madoff said that his firm had "liabilities of approximately US$50 billion".[6][7] Prosecutors estimated the size of the fraud to be $64.8 billion, based on the amounts in the accounts of Madoff's 4,800 clients as of November 30, 2008.[4][8][9] Ignoring opportunity costs and taxes paid on fictitious profits, half of Madoff's direct investors lost no money.[10] It is also the largest accounting fraud in American history. Investigators have determined others were involved...
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... Bernard Madoff took his investors for $65 billion over the course of nearly two decades. His list of victims includes billionaires, celebrities, individual investors, banks, and charities. He didn’t care who or what. His scheme was revealed when he confessed in March 2009, when he pleading guilty to the charges against him, and was then sentenced to 150 years in prison. Madoff was successful for so long because he was respected, well-established and esteemed financial expert. His reputation and role in the foundation of the NASDAQ stock exchange. He was running a legitimate business and earned his investors' trust because he didn't tempt investors with unbelievable returns. No one paid any attention to the signals of Madoff’s scheme. He was extremely smart and charismatic. He gained his investors trust. He had his family work for him his wife worked at firm for a time creating an atmosphere of friendliness. Even though his family was not charge, they were suit. His sons and daughter were all under investigation, no one was charged as Madoff took all responsibility. Bernard Madoff who is now serving his sentence in Butner Federal Complex in North Carolina. In his words he “knew this day would come.’’ Questions 1. What are the ethical issues involved in the Madoff case? They are plenty of moral and ethical issues regarding this case. I think lying and stealing which is the biggest one. 2. Do you believe that Bernard Madoff worked alone, or do you...
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...Bernard Madoff and the 2008 Financial Crisis On December 11, 2008, the Securities and Exchange Commission (“SEC”) charged and arrested Bernard Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud for a multi-billion dollar Ponzi scheme. On March 12, 2009, Madoff pled guilty to an 11-count criminal complaint admitting to running an international Ponzi scheme and defrauding thousands of investors. The SEC defines a Ponzi scheme as an investment fund that involves the payment of purported returns to existing investors from funds contributed by new investors (SEC). In the 1920s, the originator of the Ponzi scheme, Charles Ponzi, conned thousands of New England residents into investing in a postage stamp speculation scheme. Ponzi promised his investors returns of 50% in 90 days, which, at the time, was exceptionally high considering the annual interest on bank accounts was only 5% (SEC). Unlike Ponzi, who targeted average people and was very open with his scam, Madoff was very private and targeted wealthy individuals promising them steady returns of 8 – 12% each year. Madoff was perceived as a successful Jewish investor in the financial community and his investment fund was considered as an exclusive membership club. The key to running an ongoing Ponzi scheme is an unlimited supply of new investors because without new incoming money the entire system would collapse. Unlike most Ponzi schemes, which usually fail due to a lack of new...
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