...Bernard Madoff Research Paper Bernard (Bernie) Madoff committed this century’s largest Ponzi scheme to date. First we will define Ponzi Scheme – it is a fraudulent pyramid scheme where original investors are paid their gains out of new investors money so it would appear to old investor that the scheme (business) is producing an unusually large return (Albrecht, 2009). The Ponzi scheme that Madoff created and pulled off for years was quite intricate. In a standard pyramid scheme each victim unknowingly brings in more and more victims, where as a Ponzi scheme has a single entity (group or individual) to keep up with and organize the fraud. The operator of the Ponzi scheme then will take new money brought in from recent investors and pay off previous investors. For this to continue on there must be a constant influx of new investors so there must be someone working that angle on a regular basis. Eventually the group of new investors will run out because the funds dry up. In a lot of Ponzi schemes when they begin to run low on victims things seem to fall apart and investors loose it all. In some cases the perpetuator escapes the area with all the money he / she have scammed. When or if they are caught the perpetuator will have to face prosecution and / or repayment of all money to victims and possible jail / prison time or pay restitution to the government. In some cases there are assets seized to reimburse victims and pay restitution (Smith, 2011). Madoff committed...
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...Bernie Madoff Research Project Abronia S. Young D03202587 On March 12, 2009, Madoff pleaded guilty to 11 federal offenses, including securities fraud, wire fraud , mail fraud , money laundering, making false statements, perjury, theft from an employee benefit plan, and making false filings with the SEC. The Fraud In March 2009, Madoff admitted that since the mid-1990s he stopped trading and his returns had been fabricated. Madoff's sales pitch, an investment strategy consisted of purchasing blue chip stocks and taking options contracts on them, sometimes called a split-strike conversion or a collar. Typically, a position will consist of the ownership of 30–35 S&P 100 stocks, most correlated to that index, the sale of out-of-the-money calls on the index and the purchase of out-of-the-money 'puts' on the index. The sale of the 'calls' is designed to increase the rate of return, while allowing upward movement of the stock portfolio to the strike price of the calls. The puts, funded in large part by the sales of the calls, limit the portfolio's downside. Rather than offer high returns to all comers, Madoff offered modest but steady returns to an exclusive clientele. The investment method was marketed as too complicated for outsiders to understand. He was secretive about the firm’s business, and kept his financial statements closely guarded. One of the most prominent promoters was J. Ezra Merkin, whose fund Ascot Partners steered $1.8 billion towards Madoff's...
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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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...3710 22 February 2013 Bernie Madoff Case Study Throughout history, people have done unethical things dealing with money. In 2008, the man known for running a massive Ponzi scheme, known as Bernie Madoff, was arrested and charged with criminal securities fraud, and sentenced for a hundred and fifty years in prison. Bernie Madoff continued his scheme for thirty years because his company was the largest market maker on NASDAQ. He had an impressive rate of returns that his firm earned annually, and the Securities and Exchange Commission did not oversee the stock market and protect investors. Madoff also had flawless credentials. His scheme was so clever that he knew he could only aim toward the investors that were unlikely to question his investment strategy. It affected his personal life, because he wanted to have a regular life like others and not have to live with his conscience telling him it was not right. Professionally, he had it made because everyone wanted to be a professional business man like him. Madoff’s investors kept the cycle going because they thought like every other person that gave their money to a man that they had never met. The society and business today has changed tremendously. Every business after Madoff Securities were given strict procedures they have to follow by the government. Madoff’s personal and professional characteristics made him become a better individual. It brought together buyers and sellers of investments. Since Madoff was a man of respect...
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...Bernie Madoff: An Issue of Ethics There are many ethical issues in the world’s news today, some bigger than others, and many that get swept under the rug. One particular ethical issue is at the core of a huge story that has dominated the news for months on end and has lead to more trying times on Wall Street. The story is about Bernie Madoff and the massive effect he and his ponzi scheme had on hundreds of people who trusted him. This paper will discuss the ethical issue underlying the conflict, the damage that resulted from it, and the leadership that acted to counter suit his disaster. Bernie Madoff’s ponzi scheme is sure to go down in history as one of the largest business scandals ever and should make every person stop and make sure there ethics are in check. Bernie Madoff exploited ethical theories much like a hawk swooping down to kill its prey. Bernie’s twisting of moral philosophy, virtue ethics, universalism and business ethics controlled both common and upper classes within predominately Jewish investors, prominent social groups, banks, successful foundations and charities. He wielded his genius in investments and securities tantalizing those who could not spot his cabal. Bernie’s acute cognizance of small investors and the ruling classe’s desire to believe in moral philosophic principles, rules, and values let to the contamination of right and wrong with financial deals earning him 50-65 billion dollars. Bernie literally earned the title of greatest Ponzi schemer...
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...Like a Duck” Assignment 2 – Bernard Lawrence “Bernie” Madoff Business Law I March 4, 2011 Bernard Madoff Abstract Unethical behavior…sounds bad doesn’t it? But what employee can truly say that he is completely innocent of any unethical behavior in the workplace? Some of the most common unethical business behaviors are fudging work hours, making phone calls on business lines and photo copying of personal paperwork. Simple acts such as these are highly unlikely to have an employee face criminal charges but when the acts of embezzling money or falsifying business records are committed a company is more apt to prosecute. People have different views regarding what is ethical and what is unethical. Some feel that it’s okay to tell a little "white lie", or to make a quick long distance call on the company's dime, as long as they are not hurting anyone. In the case of Bernard Madoff unethical behavior crossed over from gray to definite black and white. The world Bernard Madoff offered to his investors was just too good to be true but because things were covered up and made to appear more than what they were he was able to roll out the red carpet of capital promises and people came running to be included at the party. Mr. Madoff was certainly an equal opportunity crook, he took advantage of everyone, and the only prerequisite was to have money. Influential people from all walks of life found themselves mesmerized by “Uncle Bernie” and invested millions of dollars, failing...
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...investigation of Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work. The OIG also did not find that former SEC Assistant Director Eric Swanson's romantic relationship with Bernard Madoffs niece, Shana Madoff, influenced the conduct of the SEC examinations of Madoff and his firm. We also did not find that senior officials at the SEC directly attempted to influence examinations or investigations of Madoff or the Madofffirm, nor was there evidence any senior SEC official interfered with the staffs ability to perform its work. The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six! substantive complaints that raised significant red flags concerning Madoff s hedge fund operations and should have led to questions about whether Madoffwas actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoff s investment operations...
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...Bernie Madoff and The SEC Bernie Madoff is the face of multi-billion dollar Ponzi schemes that swindled money from investors. Madoff was a prominent member of the securities industry throughout his long career. He once served as a vice chairman of NASD, a member of its board of governors, and a chairman of its New York region. Also, he was a member of the NASDAQ Stock Market board of governors and its executive committee and served as a chairman of the trading committee. His own investment advisory firm, Bernard L. Madoff Investment Securities LLC, was founded in 1960. A Ponzi scheme is “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” (US SEC, 2012) The organizers of such schemes, promise to invest their funds properly into new opportunities that have the chance to generate high returns with little to risk. Usually, the organizers look for new investors to make the promised payouts to those early stage investors. They can also use this money for personal expenses, instead of using it legitimately for investment activity. In 2008, the Securities Exchange Commission found Bernie Madoff and his investment firm guilty of securities fraud for the multi-billion dollar Ponzi scheme he ran on clients of his firm for years. “The SEC filed emergency motions to freeze assets and appoint a receiver, and worked to return as much money as possible to harmed investors.” US SEC. (2012) Madoff is now serving...
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...Bernie Madoff Fraud Case Bernie Madoff Fraud Case Introduction One of the largest fraud cases of all times is that of the “Bernard Madoff Case.” According to Armstrong (2008), “for a number of years Madoff managed to lure billions of dollars away from huge charities, as well as wealthy individuals in both the United States and Europe by getting them to invest in his hedge fund. This he did by offering extraordinary returns to investors, until his scheme eventually reached a staggering $50 billion under “management.” Within this paper, efforts will be made answer a number of questions, including how was this fraud executed; who were the perpetrators, accomplices and victims; how was the fraud discovered; what were some of the possible red flags; and what role did the SEC play in discovering the fraud. In addition to this, mention will be made of how the case was resolved and what are some of the measures that could have deterred or prevented the fraud from occurring in the first place. Given these harsh economic times which we live in, all efforts have to be made to enforce strict rules and regulations within financial institutions – so that investors and other stakeholders’ interests are protected. Had there been closer attention given by the Securities Exchange Commission and other regulators to the ‘red Flags’ associated with Madoff and his firm, then so many persons would not have lost billions. Bernard Madoff Investment Securities (BMIS) Founded in 1960...
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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: A key element to comprehending the “Bernie” Madoff Scandal is understanding the concept of a ponzi scheme and how they are spotted on the markets. The operations of a ponzi scheme are complex and are reliant on the joint effort between multiple scam artists to be successful. Unlike common market schemes where a company or organization attempts to gather victims in mass for a large return, a ponzi scheme focuses solely on a small group or individual. The idea behind a ponzi scheme is to promise large returns to the small group of investors over a period of time. A key issue behind convincing a small group of investors to give up their money is proving that the investment and the return is legitimate and not fraud. So, during that time period that the scam company promised the return on investment, it needs to find another set of more investors to pay off the previous group with interest....
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...Bernie Madoff has become known to many people as the man that perpetrated by far the largest scam in the history. His reputation of a successful investor, financial genius, and a chairman of NASDAQ took a turn for the worst when his so called split strike conversion strategy turned out to be nothing but a huge ponzi scheme affecting thousands of investors from around the globe. Although many financial advisors questioned his strategy and argued that it is virtually impossible to achieve, he managed to hide his scheme for many years. Why did Madoff got away with his fraud scheme for so many years? This is not a million dollar question as many would argue. The answer comes down to trust and greed. Investors trusted him because he had strong financial expertise and experience, he contributed substantial donations to various charities and foundations, investors were referred to him by friends and family, and he actively served on the board of directors of several high-profile companies. Greed was the other source of keeping Madoff away from getting his successful scam revealed. Investors were getting steady returns on their investments not annually, not quarterly but on a monthly basis. These returns were too good to be true but most of the investors were so happy with the profits they got from Madoff that they did not bother to further investigate and get a better understanding of his strategies. In essence, the way Madoff orchestrated his fraud scheme was by promising investors...
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...Introduction Operated through a complex, cryptic structure Bernie Madoff, CEO of Bernie L. Madoff Investment Securities (BMIS), perpetuated the most embellished Ponzi scheme the world has ever seen. The basis of the securities fraud that took place approximately between 1991 – 2008 was influenced by Bernie Madoff’s reliance upon an unqualified staff, outdated software, organizational seclusion, a personal halo effect, and weaknesses in the regulating body. Madoff had the confidence of the public, yet to pull off such an elaborate scheme, he relied on a startling number of family members, vital accomplices working on the illegal trading floor such as Frank D. Pascali, IT staff members, and a separate BMIS branch of international employees in the U.K. to seemingly legitimize the whole thing. Domestic and European institutional investors, friends and acquaintances of Madoff’s, and an additional couple of thousand people who had exposure to BMIS funds, trusted as much as their entire life or retirement savings. Investors were dumbfounded when the jenga-like pyramid came crashing down on them, despite many caveats from whistleblowers. Leading up to December 11, 2008, the date Bernie Madoff was taken into federal custody, he acted especially cross and frantic, specifically when the SEC was mentioned. Another sign of the impending collapse was Bernie’s reluctance to accept any more large sums of money, contrast to the usually receptive Bernie (Henriques). As a result of Madoff’s arrest, further...
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...Case Study: Bernie Madoff Eric Ranzinger Organizational Behavior – OL 500 Jascia Redwine Abstract Bernie Madoff was one of the top dogs on Wall Street for over 20 years. He managed tens of billions of dollars in client’s funds. His firm was one of the most consistent with profitable returns. When most others were reporting losses during the recession, his firm was consistently reporting net gains. Many celebrities even entrusted their money with Madoff because he was such a reputable name on Wall Street, being the former head of NASDQ. In December of 2008, Madoff turned himself into the authorities because his operation was just a giant Ponzi Scheme. His investors were scared of losing more money in the recession so they tried to cash out. Since he had been defrauding investors for years he was not able to keep up with demand. He ended up losing a total of 17 billion dollars by providing his clients with false reports. There were many red flags dating back to the late 80’s that should have tipped the authorities. Many Wall Street executives knew that Madoffs firm was fraud and did not try to bring him to justice. This is unacceptable. His scheme should have been shut down years ago before it got this bad. There are several solutions available to assure that this type of fraud does not happen again. In my case analysis, we will dig into each option in depth. It will be clear that the best option that needs to happen is to make the SEC adhere to their responsibility...
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...The fraud perpetuated by Bennie Madoff was one of the largest and longest running Ponzi schemes in history and it caused a ripple effect throughout our country and beyond. There were a considerable number of people and organizations harmed; many were directly affected, but an even larger number were indirectly impacted. Clearly the investors that he defrauded were harmed, both by losing substantial amounts of and by losing faith in investment professionals and financial markets as a whole. But so many more were indirectly affected as well because an event as big as this does not occur in isolation. A number of Bernie Madoff’s associates were also investigated and several were charged with assisting him in his crime, including his CFO, his...
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