...Analysis of Bernard Madoff's Ponzi Scheme | | ' 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...
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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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...Case Study Bernie Madoff’s Ponzi Scheme: Reliable Returns from a Trustworthy Financial Adviser By Denis Collins Denis Collins is a professor of management in the School of Business at Edgewood College in Madison, Wisconsin. His research interests include business ethics, management, and organizational change. Contact: dcollins@ edgewood.edu A [person] is incapable of comprehending any argument that interferes with his revenue. Rene Descartes Overview This case study is a chronology of the largest Ponzi scheme in history. Bernie Madoff began his brokerage firm in 1960 and grew it into one of the largest on Wall Street. While doing so, he began investing money as a favor to family and friends, though he was not licensed to do so. Over a period of fifty years, these side investments became an investment fund that mushroomed into a $50 billion Ponzi scheme. Bernie1 pled guilty without a trial on March 12, 2009, and was sentenced to 150 years in prison. Thousands of wealthy clients, philanthropic organizations, and middle-class people whose pension funds found their way into Bernie’s investment fund lost their life savings. What to Do? Bernie Madoff, at age 69, owned three very successful financial companies—a brokerage firm, a proprietary trading firm, and an investment advisory firm. On December 10, 2008, the brokerage and proprietary trading firms, managed by his brother and two sons, were performing as well as could be expected in the middle of a deep recession. His investment...
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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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...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 firm. “The explanation of his strategy, the consistency of his returns, the way he withheld information — it was a very clear set of warning signs,” said Mr. Hedges. http://www.nytimes.com/2009/03/14/business/14nocera.html?pagewanted=2&_r=1 Madoff's annual returns were unusually consistent, around 10%, and were a key factor in perpetuating the fraud. Ponzi schemes typically pay returns...
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...Licensed to: iChapters User Licensed to: iChapters User Fraud Examination, Fourth Edition W. Steve Albrecht Chad O. Albrecht Conan C. Albrecht Mark F. Zimbelman VP/Editorial Director: Jack W. Calhoun Editor-in-Chief: Rob Dewey Sr. Acquisitions Editor: Matt Filimonov Associate Developmental Editor: Julie Warwick Editorial Assistant: Ann Mazzaro Marketing Manager: Natalie Livingston Marketing Coordinator: Nicole Parsons Content Project Management: PreMediaGlobal Sr. Manufacturing Buyer: Doug Wilke Production House/Compositor: PreMediaGlobal © 2012, 2009 South-Western, Cengage Learning ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored, or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher. For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706. For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be e-mailed to permissionrequest@cengage.com Library of Congress Control Number: 2010940986 ISBN-13:...
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...Right or Wrong? The Welfare State in America What are welfare/transfer payments? It means many different things to many different people. A helping hand, robbery, support, way of life, wrong, right, and more. To me, welfare/transfer payments are charity that the government mandates upon people. While that may seem harsh to some, lets look at the facts and breakdown my definition. Charity is defined as: “generous actions or donations to aid the poor, ill, or helpless”, (Simpson 488) and mandatory is defined as: “authoritatively ordered; obligatory; compulsory”. (Simpson 1207)Those who are eligible to pay taxes must do so, and then the government uses some of that money to give to the “needy” at their discretion. We have to pay it, and it goes to the “needy” I think mandatory charity fits that description adequately. I view this as fundamentally wrong. I believe it is not the role of the government to decide how much money I should donate to others, if any at all; that is a personal choice. Imagine if the government began collecting taxes en-masse and donating them to help stop animal cruelty. There would be enormous uproar and people would cry that the government is wasting their money on a silly cause. Personally, I would not view this as silly, and think it would be an admirable endeavor, but many would not, which is my point. Each person who gives money to a charity does so because of his or her personal feelings. Why is it mandatory that I give to the government’s charity...
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...The Ethics Thing: Why It Matters More in Hard Times and Why It’s So Hard to Do What Makes Good and Smart People Do Dumb and Unethical Things? Professor Marianne M. Jennings W.P. Carey School of Business Ethical Lapses • • • • • • • • • • • • • • • • • • • • • • Student loan lenders: Sallie Mae and 17 universities Adelphia Boeing Cendant Computer Associates Tyco International T I t ti l General Electric Global Crossing Merrill Lynch Enron Qwest WorldCom Royal Shell Nortel Krispy Kreme Refco UnitedHealth Group Merck Chiquita World Bank BP Madoff Investment Securities • • • • • • • • • • • • • • • • • • • • • • • • • • • AT&T Titan Xerox Kmart Citigroup Lucent ImClone Arthur Andersen HealthSouth Royal Ahold Parmalat Apollo Group Marsh & McLennan AIG (twice)(Putnam)(Mercer) Fannie Mae (twice) KPMG (twice) GM Options scandals (200 companies) HP Universities and travel Siemens Countrywide Financial Société General Milberg Weiss Bear Stearns Satyam (India) Stanford Investments Jennings 1 Government Issues • • • • • • • • • • • • • • • • • • • • • • • • • • • • Illinois – Gov. Ryan Illinois – Blago Baltimore’s mayor Detroit’s mayor – Kwame Kilpatrick San Diego -- $1.1 billion pension fund deficit; skimming to meet city budget Connecticut – Gov. Rowland Chicago – Mayor’s office and contracts Embezzlement – BLM E b l t Former Delay aides and guilty pleas Abramoff Duke Cunningham -- $2.4 million from defense contractors State crime labs and scandals Tom DeLay Clark...
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...* Question 1 0 out of 10 points | | | A Ponzi scheme is characterized by: I. an investment whose growth is financed by high returns on its investment. II. an investment whose growth is financed by new clients who give money. III. an investment that relies on receiving funds from nonprofit institutions. | | | | | Selected Answer: | [None Given] | Answers: | A. I only | | B. II only | | C. III only | | D. I, II, and III | | | | | * Question 2 0 out of 10 points | | | Reasons why indirect finance is so important include: | | | | | Selected Answer: | [None Given] | Answers: | A. the persistent increase in the cost of stocks. | | B. the fact that banks provide liquidity to depositors. | | C. the fact that banks increase transaction costs for savers. | | D. the fact that banks increase transaction costs for investors. | | | | | * Question 3 0 out of 10 points | | | The free-rider problem arises: | | | | | Selected Answer: | [None Given] | Answers: | A. when people benefit from a good without paying for it. | | B. only when markets are perfectly competitive. | | C. if labor unions are strong. | | D. when a country is expanding. | | | | | * Question 4 0 out of 10 points | | | A project pays $125 with a probability of 0.75 or pays $90. What is the expected value of this project? | | | | | Selected Answer: | [None Given] | Answers: | A. $116.25 | | B. $93.75...
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...robin blackburn THE SUBPRIME CRISIS I n the summer of 2007 many leading banks in the us and Europe were hit by a collapse in the value of mortgage-backed securities which they had themselves been responsible for packaging.* To the surprise of many, the poisonous securities turned out to constitute a major portion of their ultimate asset base. The defaults fostered a credit crunch as all financial institutions hoarded cash and required ever widening premiums before lending to one another. The Wall Street investment banks and brokerages haemorrhaged $175 billion of capital in the period July 2007 to March 2008, and Bear Stearns, the fifth largest, was ‘rescued’ in March, at a fire-sale price, by JP Morgan Chase with the help of $29 billion of guarantees from the Federal Reserve. Many of the rest only survived by selling huge chunks of preferred stock, with guaranteed premium rates of return, to a string of ‘sovereign funds’, owned by the governments of Abu Dhabi, Singapore, South Korea and China, among others. By the end of January 2008, $75 billion of new capital had been injected into the banks, but it was not enough. In the uk the sharply rising cost of liquidity destroyed the business model of a large mortgage house, leading to the first bank run in the uk for 150 years and obliging the British Chancellor first to extend nearly £60 billion in loans and guarantees to its depositors and then to take the concern, Northern Rock, into public ownership. In late January Société...
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...An Argument for Regulation of the Reciprocal Trade (Barter) Exchange Industry Daniel Evans, Ormita Commerce Network It is well known that trust is the corner-stone of the financial services industry. Keynote speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, The Asian Banker Summit 2012 “Trust as a Pillar of the Industry”, Bangkok, 26 April 2012. Introduction Trust is a critically important ingredient in the recipe for well-functioning markets and a successful and vibrant economy. Unfortunately, due to market scandals, incompetence and fraud, trust in our neighbours is something that is in shorter supply today than any other time in history. As Alan Greenspan once remarked: "[O]ur market system depends critically on trust—trust in the word of our colleagues and trust in the word of those with whom we do business."1 Despite outward appearances, public confidence in the integrity of the reciprocal trade exchange industry is alarmingly low. While numerous factors have contributed to this problem, one of the most potent is the widespread failure of reciprocal exchange networks of all sizes over the past 30 years. These failures include the spectacular collapses of large commercial exchange networks such as Bartercard (in USA, Canada, India, China, Hong Kong, Singapore, Turkey, South Africa, Jordan 2 3 ), BarterTrust/Tradaq (USA, UK, Canada) 4 , BarterNet/Intagio (Canada, Mexico, USA & Europe) and Bigvine (Australia, Canada, USA)5; through to the dramatic...
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...JARAF The Journal of applied research in accounTing and finance V O L U M E 3 , i s s U E 1 , 2 0 0 8 Old Wine in New Bottles: Subprime Mortgage Crisis – Causes and Consequences Michael Mah-Hui Lim Information Lost: A Descriptive Analysis of IFRS Firms’ 20-F Reconciliations Marlene Plumlee and R. David Plumlee Negative Goodwill: Issues of Financial Reporting and Analysis Under Current and Proposed Guidelines Eugene E. Comiskey and Charles W. Mulford Electronic copy available at: http://ssrn.com/abstract=1263280 JARAF The Journal of applied research in accounTing and finance Publication Information JARAF - The Journal of Applied Research in Accounting and Finance is a scholarly peerreviewed journal jointly published by The Centre for Managerial Finance at Macquarie Graduate School of Management and the Faculty of Economics and Business at The University of Sydney. All journal articles published in JARAF are subjected to double-blind peer-reviews by qualified international experts. Months of Distribution: July – December Current Edition: Volume 3, Issue 1 (2008) ISSN 1834-2582 (Print) ISSN 1834-2590 (Online) Editors Tyrone M. Carlin Professor of Financial Reporting & Regulation Faculty of Economics and Business The University of Sydney NSW 2006 Australia Nigel Finch Director, Centre for Managerial Finance Macquarie Graduate School of Management Macquarie University NSW 2109 Australia Editorial Advisory Board Edward I. Altman Max L. Heine Professor...
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...work performed. With a good product and a fair compensation plan, !! the average person is given an opportunity to completely redefine their finances while operating a home based business. Distributors earn income primarily in two ways. First, they can purchase products at wholesale and mark them up for retail sales, thus earning an immediate profit. Secondly, they can form a “downline” by recruiting additional distributors and earn commissions on their sales to customers and purchases for personal use. Since distributors are paid commissions on sales made at “multiple levels” down a fixed sales organization, network marketing is commonly referred to as multilevel marketing. In his book titled The New Professionals, authors Charles King and James Robinson highlight the historical roots of direct sales. The roots of direct selling can be traced back to the colonial peddlers selling various goods door to door. 1 Until...
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...Enablers of Exuberance Jennifer S. Taub Sept. 4, 2009 DISCUSSION DRAFT Enablers of Exuberance: Legal Acts and Omissions that Facilitated the Global Financial Crisis Jennifer S. Taub1 I. Introduction This paper explores certain legal acts and omissions that facilitated the over-leveraging and near collapse of the global financial system. These ―Legal Enablers‖ fostered the boom that enriched a class of financial intermediaries who followed a storied tradition of gambling away ―other people‘s money.‖2 These mechanisms also made the pain of the bust disproportionately felt by the middle class and poor while shielding the middlemen who created the problems. These legal Enablers permitted the growth of a shadow banking system, without investment limits, transparency or government oversight. In the shadows grew a variety of highly leveraged private investment pools, undercapitalized conduits of securitized loans and speculation in complex credit derivatives. The rationale for allowing this unregulated, parallel system was that it helped to create innovation and provide liquidity. The conventional wisdom was that any risks associated with a hands-off approach could be managed by the ―invisible hand‖3 of the market. In other words, instead of public police, it relied upon private gatekeepers. A legal framework including legislation, rules and court decisions supported this system. This legal structure depended upon corporate managers, counterparties, ―sophisticated investors‖ and the...
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...International Macroeconomics1 Stephanie Schmitt-Groh´2 e April 26, 2013 Mart´ Uribe3 ın 1 The seeds for this manuscript were lecture notes taken by Alberto Ramos in a course on International Finance that Mike Woodford taught at the University of Chicago in the Winter of 1994. 2 Columbia University. E-mail: stephanie.schmittgrohe@columbia.edu. 3 Columbia University. E-mail: martin.uribe@columbia.edu. ii Contents 1 Global Imbalances 1.1 Balance-of-Payments Accounting . . . . . . . . . . . . . . . . 1.2 The Current Account . . . . . . . . . . . . . . . . . . . . . . 1 1 5 1.3 The Current Account and the Net International Investment Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4 Valuation Changes and the Net International Investment Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.5 The Negative-NIIP-Positive-NII Paradox: Dark Matter? 1.5.1 1.5.2 . . 20 Dark Matter . . . . . . . . . . . . . . . . . . . . . . . 22 Return Differentials . . . . . . . . . . . . . . . . . . . 23 1.6 Who Lends and Who Borrows Around the World? . . . . . . 26 1.7 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 35 2 Current Account Sustainability 2.1 Can a Country Run a Perpetual Trade Balance Deficit? . . . 35 2.2 Can a Country Run a Perpetual Current Account Deficit? . 39 2.3 Savings, Investment, and the Current Account . . . . . . . . 41 iii iv 2.3.1 CONTENTS Current Account Deficits...
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