The Madoff Affair Bernard Madoff was a former stock broker who was involved in the largest Ponzi scheme in history from which he earned billions of dollars. A Ponzi scheme is an illegal operation in which all profit that each investor earns is actually just the individuals own money or another investor’s money that is just cycling through the system. There is not actually any profit being earned through the investment. A Ponzi scheme is able to stay in business as long as there is a steady flow of money being invested into it from the investors. The reason that so many people get involved with these schemes is because the investments are offered with very high interest rates. This scheme is not very sturdy however, because there are very few earnings to the amount of money owed to the investors. So the scheme will either fall apart on its own, or if it succeeds greatly it is usually detected by the authorities. The SEC was alerted three times in 2001 that Madoff was believed to be running a Ponzi scheme, but there were no actions taken. The first time that there were actions taken were in 2006. It is unbelievable that a man could get away with such a large crime for so long without being questioned. This may have been because at the same time he was running this scheme he was also operating another high-profile business; this one was of course legal. In this business Madoff was the middleman between buyers and sellers of stock. His Ponzi scheme was not questioned because he was greatly contributing to the economy with his other work; no one believed that he would be stealing all of this money. Madoff said to get away with this without the SEC knowing “You don’t want them to think that you’re concerned about anything. With them you should just be casual.” The red flags were raised though when Madoff registered as an investment advisor in September 2006. They wondered why after all these years he was registering now, this is when his work was beginning to be questioned. After Madoff was found running this illegal Ponzi scheme all of his investors lost everything that they sent to Madoff. Legally, Madoff was at fault here, he was running an illegal business that he knew would never last, and that these people would lose all of their investments. There was no one else to blame but himself because he was the only one that knew what was going on with this business. From an ethical standpoint though, there was no one else to blame but the investors. They should have figured it was too good to be true and they should have got out when they still could have. They should have realized that they should not have been making such good interest even when the stock market was crashing. Something should have gone off in their heads that this was not right. An event like this is tragic to the economy, and it will take many years to recover from it. Some people will never recover, those who lost everything. There are a few ways that we can prevent another Ponzi scheme from happening. One way is too watch out for investors that are offering very high interest rates. This should alert everyone that it is not easy to have such high rates, and these accounts are probably very risky. Another way is to research all investors to see if they are in fact trustworthy, and are running a legitimate business. One last way to prevent this scheme is to have proof that all of your deposits are being recorded and that not only your investor knows about them but also the authorities.