...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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...This paper will include a review of the Madoff Securities case. The Madoff Securities case involved the cunning Bernard L. Madoff swindling his clients to believe that he could guarantee them high profits. Madoff is the largest Ponzi scheme in history. Madoff Securities Case Bernard L. Madoff started the investment firm Bernard L. Madoff Investment Securities (BLMIS). Bernard Madoff began trading securities from the 1960s. From as early as 1962, it is believed Madoff started hiding his clients’ losses. Madoff hid the losses from his clients in order to boost his reputation. The larger portion of Madoff’s fraudulent activity began in the 1970s, under BLMIS. In this time Madoff began using his supposed genious tactics to make a profit from pricing errors in the stock exchange (Lewis, 2013). Madoff’s clients were led to believe that their invested funds were invested in as many as 35 to 50 common stocks from the S&P 100 index (Lewis, 2013). If there was a case in which all of the client’s funds were not invested in common stock, then Madoff told the clients the money was invested in money market accounts or government issued securities (Lewis, 2013). However, Madoff was not actually investing the client’s funds, but instead placed the money in his bank account. Madoff gave the client’s funds to friends, family, and those who aided Madoff in his fraudulent scheme (Lewis, 2013). Madoff boosted his character in the public eye...
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...Bernie Madoff & the Worst Pyramid Scheme in U.S. History It is said that we are the product of our upbringing, so it probably would not surprise you to learn that the biggest and worst financial fraud committed through a pyramid scheme in US History, was achieved by a man who was raised by parents that also commit financial frauds. Bernie Madoff was raised watching his parents Ralph and Sylvia Madoff run a business that was not successful in the financial trading world. That company was named Gibraltar Securities. Due to the fact that Sylvia failed to accurately report their company’s financial condition, the SEC closed the business in 1963 and started its investigative proceedings to determine if charges were needed to be brought against Gibraltar Securities. However, the SEC declined to continue with its proceedings against Gibraltar Securities in a deal that required them to stay out of the trading business. Even though it was admitted that they falsely reported the company’s financial condition. “The firms conceded the violation, but requested withdrawal of their registrations; and in this connection they represented that they are no longer engaged in the securities business and do not owe any cash or securities to customers. The Commission concluded that the public interest would be served by permitting withdrawal, and discontinued its proceedings." (Nicholas Varchaver, 2009) Even though Bernie watched his parents as they ran their business and also watched...
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...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 appearance that the investments of the initial participants dramatically increase in value in a short amount of time. These types of financial schemes promise investors large interest returns if they provide money as a loan. As more new investors participate, the money that is contributed by later investors is paid to the initial investors, allegedly at the promised interest on their loans. This method works initially, but will then fold as more investors participate and choose to take withdrawals. Though these types of schemes have happened before, the first of this caliber was documented in the 1920’s by its namesake, Charles Ponzi. In 2008, Bernard “Bernie” Madoff was exposed for running the largest Ponzi scheme to date, conning investors out of over $65 billion over thirty years. INTRODUCTION Bernard Madoff was responsible for the largest reported Ponzi scheme in history. How did this happen? Who else knew about it? Why did it take so long for him to be exposed? This paper will endeavor to answer all of those questions and more. This paper will offer dialogue into how Madoff’s scheme differed from a traditional Ponzi scheme and understand the ethical, emotional and financial fallout to those closest to him. It is also important to understand the psychology involved in those who choose to construct a financial scheme. I will also provide some discussion around the issues concerning the SEC and how they...
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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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...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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...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 and...
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...MVE220 Financial Risk The Madoff Fraud Shahin Zarrabi – 9111194354 Lennart Lundberg – 9106102115 Abstract: A short explanation of the Ponzi scheme carried out by Bernard Madoff, the explanation to how it could go on for such a long period of time and an investigation on how it could be prevented in the future. The report were written jointly by the group members and the analysis was made from discussion within the group 1. Introduction Since the ascent of money, different techniques have been developed and carried out to fool people of their assets. These methods have evolved together with advances in technology, and some have proved to be more efficient than other. One of the largest of these schemes ever carried out occurred in modern times in the United States, it was uncovered as recently as in late 2008. The man behind it managed to keep the scheme running for over 15 years in one of most monitored economic systems in the world. The man in charge of the operation, Bernard L. Madoff, got arrested for his scheme and pled guilty to the embezzling of billions of US dollars. It struck many as unimaginable how such a fraud could occur in an environment so carefully controlled by regulations and...
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...The Bernie Madoff documentary was one of the more interesting videos I have ever seen, and I actually have seen it previously on Netflix. While the Madoff controversy was a highly public topic, this documentary helped fill in this infamous story from the start. At the start of Bernie Madoff career, he had a very successful market making business. He originally would pay large institutions for their orders, or “flow”. After initial success, he then went on to manage some investment funds. His returns were outrageously high and people could only speculate as to why. Since he had his market making business, people assumed he must have been illegally “front-running”. Front-running is when he gets a very large order for a stock transaction, and jumps in front of the transaction with personal money. This allows the person front-running to be basically using insider information, since they know a large transaction is about to occur. One person, Harry Markopolos, discovered something was wrong. When he finally discovered the scheme, he went to the SEC. Originally, they took no action. A year later, Markopolos submitted another more detailed report. He basically led the SEC “with a map and a flashlight” and they still couldn’t discover the fraud. When the scheme was finally discovered, there were many government meetings to figure out why the SEC didn’t find it. At first, they dodged the questions stating it would interfere with ongoing investigations. Later, they admit that the SEC...
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...Report case of Bernard Madoff’s Ponzi Scheme. I. Nature and background of firm or person. * Bernard Lawrence "Bernie" Madoff was born in April 29, 1938. He is an American swindler convicted of fraud and a former stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market. * This financial fraud admitted case of a Ponzi scheme that is considers be the largest financial fraud in U.S history. II. Ethical issue * Since the arrest in December, 2008, Mr. Madoff has been under house arrest at the mansion of a $7 million Manhattan him in the neighborhood. At that time authorities say Madoff confessed to family that he had done a scam that amount had risen to $50 billion. III. Analysis problem * A Ponzi scheme is a fraud that attracts investors with a promise of high returns, which are initially paid out from the investments made by subsequent clients rather than from legitimate profits made from the initial investment. Bernard Madoff * The success of these initial investment entices future investors, and in many cases reinvestment from the original investors. Because the return are based on the ability to attract future investors into the scheme rather than on legitimate earning, the scheme can last only as long as the perpetrator is able to contract an increasing number of investors, all of whom expect higher than normal returns. * A Ponzi scheme is likened to a house of card that is destined...
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...The Madoff Scandal: 50 billion questions and few answers Table of Contents Abstract …………………………………………………………………………………3 Description of Events …………………………………………………………………..4 Analysis of Scenario ……………………………………………………………………4 Questions about Madoff ………………………………………………………………..5 Solutions and Alternatives ……………………………………………………………..7 Conclusion ……………………………………………………………………………...8 References ………………………………………………………………………………10 Abstract Bernie Madoff ran the biggest in the history of the world. The details surrounding the case and the events that were kept secret are the stuff in movies. With all of the regulations, rules, laws, checks and balances the Madoff scam inflated to massive proportions before popping. The scheme as complicated as it was didn’t fool everyone. In fact, there was well documented evidence released to the government years before the fraud was charged that this was indeed a fraud of massive size. The inability of government to uncover the fraud that was delivered to them brings into question the effectiveness of regulations and laws. Description of events Bernie Madoff ran the world’s largest Ponzi scheme. In 2008, the biggest investment fraud in history was revealed and over $50 billion dollars had vanished once all the losses were tallied (Anson, 2009, p. 294). High net-worth investors, movie stars, pension funds, university endowments and others had fallen victim to his swindle. The most fascinating factor of the whole situation is that an astute portfolio...
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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 Andrea L. Nolt Strayer University Intro to Business Professor Karina Arzumanova August 21, 2011 Bernie Madoff Bernard Lawrence “Bernie Madoff” is an American former 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. (Bernard Madoff, 2011) This paper discusses the massive Ponzi scheme that Mr. Madoff created and those that were affected by it. 1. Describe three types of illegal business behavior alleged against Mr. Madoff and for each type of behavior, explain how the behavior is illegal or unethical in the conduct of business. Madoff reportedly admitted to investigators that he had lost $50 billion of his investors' money, and pled guilty to 11 felony counts—securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the United States Securities and Exchange Commission (SEC), and theft from an employee benefit plan—on March 12, 2009. (Biography, 2011) Mail fraud includes any scheme that attempts to unlawfully obtain money or valuables in which the postal system is used at any point in the commission of a criminal offense. (Mail fraud, 2011) By using the postal system for any of his illegal activities, he was committing mail fraud. Mail fraud is protected by the United States Code. Madoff also admitted to money laundering. Money laundering...
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