...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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...Bernard Madoff was either the most ethically void individual or he just had no regard for ethics. He managed to pull off one the largest Ponzi scheme in history with very little help. He had a legitimate stock trading business on one floor and his illegitimate investment management business was on another floor (Ferrell, Ferrell & Fraedrich, 2011). The top executives in the company were family which leads to the question, did they really not know? This paper will examine the origin of the Ponzi scheme, a brief history of Bernie Madoff, and the fallout as a result of his fraudulent business. A Ponzi scheme is “a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from legitimate profits (Fitzpatrick, 2010).” The Ponzi scheme was named after Carlo (Charles) Ponzi who fled Italy for America at the age of 21. In 1919 Ponzi developed a scheme to get investors to buy postage coupons in one country and then sell them for more money in another country (Wells, 2009). Instead of investing the money he used the pooled funds to pay investors. This lasted until 1920 when a federal audit confirmed he was bankrupt, he had scammed investors for more than $4 million (Wells, 2009). According to Wells (2009), the Madoff scheme “...may be the largest single fraud of any kind in history...” The estimated total of the Madoff scheme is $65 billion, it is the largest financial fraud in the history of Wall Street. On...
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...A “Ponzi Scheme” is an investment fraud that involves the payment of alleged returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often seek new investors by showing potential in their company; they entice investors to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legal investment activity. The system is destined to collapse because the earnings are less than the payments to investors. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. The system eventually will collapse under its own weight. The scheme is named for Charles Ponzi, who became well known for his illegal techniques for using the Ponzi method in early 1920. He had emigrated from Italy to the United States in 1903. His operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth. At that time when the annual interest...
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...For over 50 years forensic accountants have exist. In the most recent years the need for them has increase due to the creativity of white collar crime and the use of technology. Forensic accountants are specialists who work with financial information such as business records, bank statements, and tax returns for the purpose of finding valid data. This data is used to prepare their reports. The report is prepared in a manner that will be easily understood by the attorneys to use in research, negotiations or court proceedings. In the business world forensic accountants are used to help clarify and resolve a wide number of legal disputes, including shareholder disagreements, malpractice claims, insurance claims, business dissolutions, bankruptcy proceedings, and divorce proceedings, as well as fraud and embezzlement. ("Forensic accounting,") Determine the most important five (5) skills that a forensic accountant needs to possess and evaluate the need for each skill. Be sure to include discussion regarding the relationship between the skill and its application to business operations. Depending on the nature of the case, the skills necessary of the forensic accountant may vary. However, there are skills that all forensic accountants should have; • Oral communication skills- having the ability to effectively communicate and explain the findings of a case, especially in a courtroom environment is important. The FA should be able to disseminate information about company’s...
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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...
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...history, there have been those who feel that the law is beneath them. This is highly unethical. Many companies have been destroyed because of poor ethical decisions. In turn, the person or people who called out their employers for violating the law end up losing their jobs, and in some instances, getting black-balled in their line of work. There are those who profit from blowing the whistle, aside from that is the risk really worth it? The answer is yes. In spite of the negative employment aspect, whistle blowing shows that a person has enough integrity to risk themselves in order to correct a bad situation. Three whistle blowers come to mind when the topic of ethical integrity arises; Sherron Watkins (Enron), Harry Markopolos (Bernie Madoff), and myself in my current place of employment. Each of us took the ethical high road and risked it all to try and make right what was/is blatantly wrong with the companies or people in question. Watkins & Enron Sherron Watkins worked at Enron for eight years. She sent a seven page letter to her employer mentioning the unethical accounting that was happening in the employee retirement sector. Sherron called it a Ponzi Scheme and worried that those who were making money off other people’s retirement would end up cashing and burning when this scam came to light. Watkins called this unethical treatment of worker’s savings “funny accounting”. She feared that her time at Enron would be considered worthless on her resume. However,...
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...Professor Mari Hadley Summary and Discussion The author provides an overview of the case of Bernard “Bernie” Madoff, a businessman and investment manager who is believed to have stolen as much as $65 billion from his investors (Stanwick & Stanwick, 2014). Bernie Madoff was operating not only the largest Ponzi scheme in history, but is also believed to have perpetrated the largest financial fraud in history. His network of investors included many prominent people from the financial world as well as the social elite. Madoff’s criminal career came to an end in 2008 when the recession developed. His supply of available funds began to diminish, and he was no longer able to pay his investors. Madoff was subsequently arrested, prosecuted, and sentenced to one hundred and fifty years in prison. The authors also discuss the question of how Madoff was able to maintain such a massive criminal operation over a twenty year period (Stanwick & Stanwick, 2014). In particular, the question is examined concerning why the Securities and Exchange Commission was not more thorough in its investigations of Madoff’s activities, especially after Harry Markopoulos had been warning the SEC for the better part of a decade that Madoff’s financial operations were questionable in nature. A discussion is also provided of how various warning signs were available, but how Madoff was able to manipulate potential investigators into failing to thoroughly investigate what he was doing. The impact of...
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...http://www.sec.gov/answers/ponzi.htm Who is Bernie Madoff? Bernard L. Madoff, who is currently serving a 150-year sentence in federal prison, orchestrated a multi-billion dollar Ponzi scheme that swindled money from thousands of investors. Unlike the promoters of many Ponzi schemes, Madoff did not promise spectacular short-term investment returns. Instead, his investors’ phony account statements showed moderate, but consistently positive returns — even during turbulent market conditions. In December 2008, the SEC charged Bernard Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud for the multi-billion dollar Ponzi scheme he perpetrated on advisory clients of his firm for many 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. Madoff had been a prominent member of the securities industry throughout his career. He served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He was also a member of NASDAQ Stock Market’s board of governors and its executive committee and served as chairman of its trading committee. Madoff founded his investment advisory firm in 1960. http://www.time.com/time/business/article/0,8599,1866680,00.html BRIEF HISTORY OF A Brief History Of Ponzi Schemes By Alex Altman Monday, Dec. 15, 2008 Ponzi was a charismatic Italian immigrant who, in 1919 and 1920...
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...Introduction As long as the investment financial market existed, only one man was able to etched his name to the investment history as the greatest fraudster, and his name is Bernard Madoff. A brilliant fraudster that able to swindled over $50 billion from thousands of people using a type of investment fraud called "Ponzi Scheme." Using this type of investment frauds and his charming personality, Madoff stolen money from politicians, such as Senator Frank Lautenberg, famous celebrities, such as Kelvin Bacon, hedge fund directors, such as R. Thierry Magon de la Villehuchet, universities, such as Yeshiva University, banking institutions, such as Union Bancaire Privee, and charitable organizations, such as Elie Wiesel Foundation for Humanity. (Deborah & Strober, 2009) In that one day in the 11th of December in 2008, thousands people wake up to know the money that they entrusted to Madoff is nothing more than just a "lie." In other words, numbers that exist without any meaning. Madoff's Biography Born in Queens, New York, Madoff established himself from a humble blue collar workers, who earned his money from lifeguarding and installing sprinkle systems, to a genius international million dollar investor, who stolen billions of dollars from his clients. His investment firm, Bernard L. Madoff Investment Security (BMIS), based in New York, but its clients are as far as from European, South America, and even Asian financial market; a feast which few investment firms able to accomplish....
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...Bernie Madoff It seems like they all start the same – with Secrets and Lies. With secrets and all the don’t tell anyone because it is exclusive talk - that’s the stuff that makes soap operas, scandals and the greatest ponzi schemes. Everyone likes feeling like they have a great opportunity that not everyone gets to have and that it is exclusive, especially when it feeds their financial greed. Those are the ingredients that helped Bernie Madoff build the biggest Ponzi investment scheme in history. Madoff maintains that he never meant for it to be anything more than him investing for close friends and family however the secrecy and not accepting just anyone are part of what made so many people want to be a part, thereby becoming one of the best marketing tactics ever. The first question I wanted to know was who is this man that earned the respect of some of the biggest names on Wall Street, the trust of friends, family and strangers and where did he come from? • Start of firm senior in college The firm that Madoff started in 1960 with the $5,000 he saved was a trading business that specialized in the trading of penny stocks – Continued to earn money as a life guard and landscaper until his business took off • Bernard Madoff is a former financier, American hedge-fund investment manager, chairman of the NASDAQ (National Association of Securities Dealers Automated Quotations) stock exchange, and chairman of the firm Bernard L. Madoff Investment...
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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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...courses in college that prepare them for the workforce. Even in high school, hard work is a must because the single most accurate predictor of college performance is high school grade point average, because grades reflect both capacity and hard work. High school students who choose not to attend college must prepare for the world of life-long work, which also requires strenuous personal effort. Students who do not go to college should enroll in training courses after high school. Without job training, an apprenticeship, or a two-year or four-year degree, young people are destined to a life of employment and marginal income. When personal responsibility is thrown away or forgotten, individuals often cite greed, like in the case of Bernie Madoff formerly of Enron. On December 11, 2008, he was...
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...The Ponzi scheme is named after an Italian immigrant named Charles Ponzi. Charles Ponzi is known for financial crimes by conning investors into giving him millions of dollars. He would pay investors through returns funded by other investor’s money. His returns was investigated by the Boston Post, which lead to his arrest and later conviction. He was brought up on 86 counts of mail fraud and was sentenced to 14yrs in prison. Charles Ponzi died in Rio de Janeiro, Brazil, with no money (biography.com) Bernie Madoff was head of one of the largest Ponzi schemes in U.S history. Madoff was a stockbroker and chairman of L. Madoff investments securities, who is believed to have defrauded over $65 billion from thousands of investors. After pleading...
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...JP MORGAN & CHASE CO. TURNS BLIND EYE TO PONZI SCHEME: MORAL HAZARD PROBLEM Banks have been at the forefront of the financial system for as long as they have existed and have captured the attention of stakeholders on both controversial grounds as well as being undisputed with regards to the many helpful services they provide. JP Morgan & Chase is one such bank, surrounded by hostile news articles and excessive scrutiny but rightfully so as it has of recent been the topic of much controversy as turning a blind eye to the moral codes established by the Securities and Exchange Commission (SEC) and assisting Ponzi Scheme masterminds in swindling unsuspecting investors. On January 7th, 2014, JP Morgan was accused of assisting its high profile client of two decades, Bernard Madoff, a mastermind ponzi schemer in executing his goal of duping investors into parting with their savings worth a whopping $17.3billion of which included pension funds that belonged to JPM shareholders. The bank was fined a penalty of close to $2billion stemming from two felony violations of the Bank Secrecy Act, which is a federal law that requires banks to alert authorities to suspicious activity. The bank was further required to pay $543million in resolving private claims over losses tied to the scheme. A reported $9.5billion has been recovered whilst almost $4.9billion has been returned to investors. It can be agreed that this by far does not compensate for the losses the investors incurred. The...
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...avoid having too many investors reclaim their ‘profits,’ Ponzi schemes encourage them to stay in the game and earn even more money” (Yang, 2014). One of the largest Ponzi schemes that has ever happened was pulled off by the prestigious and well respected Bernie Madoff. Madoff had been chairman of NASDAQ at one point and at the time was the founder of Bernard L. Madoff Securities LLC, where he had a position of status and power. This status and recognition was one of the reasons that he was able to pull off the elaborate Ponzi scheme, because no one would have thought he was capable of doing such a thing. Madoff had been running the scheme for several years until he was eventually caught and arrested in 2008. The scandal was a shock to the entire nation, but especially to his investors who had invested billions of dollars only to eventually find out that their money was gone. He tricked everyone and would have kept going had he not gotten caught. How did he intrigue people to invest in him though and trick so many people? Because he was laundering money, he was able to deceive his clients into thinking that there was never a down month and that their money was returning more and more investments as the time...
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