...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that took place approximately between 1991 – 2008 was influenced by Bernie Madoff’s reliance upon an unqualified staff, outdated software, organizational seclusion, a personal halo effect, and weaknesses in the regulating body.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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...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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...technology, and some have proved to be more efficient than other. This case study is 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, New York, USA .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. Bernie 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. Background In December 2008, the highly respected American businessman Bernard Madoff made the headlines when the US authorities accused him of orchestrating a $50 billion Ponzi scheme which is the biggest financial frauds of all time and made of him “The Conman of the Century”. Bernard Madoff also called “Bernie" is a former American businessman, stockbroker, investment advisor, financier and the former non-executive chairman of the NASDAQ stock market and held a seat on the government advisory board on stock market regulation. During his entire long successful financial career Madoff has been considered as a trustworthy, well respected and responsible man. Bernie epitomized the American dream indeed he started a legal investment...
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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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...THE BERNIE MADOFF'S SCANDAL Jayne Egharevba RES/351 February 16,2015 Business Management/Human Resources The Bernie Madoff’s Scandal The Bernie Madoff scandal is widely recognized as an example of an unethical business research, Bernie Madoff managed to build a multibillion-dollar investment firm based on skewed research and false financial data. The wealth management eluded the SEC and other authorities for decades before finally being shut down in 2008. Unethical business research played a large role in the company’s ability to hide their criminal conduct. However, the actions of the business were uncovered and federal charges were filed against Madoff. The incident has provided one of the best examples of how additional safeguards can be implemented to prevent similar actions from happening in the future. Madoff wealth Management Company skewed research and performance results, and this is an example of unethical research behavior. Highly positive outcomes were provided to new potential investors to attract new money to be invested in the firm. ( Henriques 2011). However, these findings were completely factious. In fact, there many companies in the wealth management industry that viewed this outcome with suspicion, and refused to conduct businesses with Madoff’s company. When financial downturn of 2008 started to get worse, investors began to withdraw their funds at an accelerating rate. Had the research data been reported accurately, the investor can make a logical...
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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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...pyramid here making all of these decisions. Yet, the article clearly states that not only would she be charged, but that her gatekeepers who are male, would be the ones taken down. This speaks volumes to how women are underrepresented among white collar offenders and even when a women commits such a crime, they are not taken seriously. The article goes on to say that an indictment may also be based on anyone who's given a false statement to the FBI regarding this case, meaning a number of people could be under investigation. Once, again this deflects the attention off of Hillary Clinton herself. According to our text, women in white collar crime have different motivations (e.g financial help for family) then men do to commit white collar crime. This case and article alone are a prime example that this is not always the case and women should not continue to be underrepresented in the business world, as they are just as component as men and have the skill set to commit this type of crime...
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...giving 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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...Utilitarian approach This approach basically focuses on the consequences of a particular action (capsim.com). For example, it considers whether an action will eventually lead to greater good than other related actions. Therefore, the most ethical decision to be made will be that which will offer maximum benefits. Rights approach In this approach, the most ethical decision to be made will have utmost respect and protection for human rights (capism.com). In this case, people have the right to make their own decisions and everyone ought to be respected in the decisions they make. Fairness approach Just as the name suggests, fairness is an emphasis considered in this case. This implies that actions are considered in terms of their fairness to those who are affected. This approach postulates that ethical actions ought to fair and consistent in every way unless moral differences exist. Common good approach This approach assumes all individuals to be a part of a bigger community. In this case, people within the community...
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...Author’s Viewpoint In the case study about the Bernie Madoff scandal, the author makes the point that the motivation to succeed in business can present a conflict with the fiduciary duty that a business person has to the client. There is question whether Madoff was motivated solely by greed, in which case he was engaged in a simple Ponzi scheme, or whether he used the Ponzi scheme to hide his failure to generate returns for his clients. Madoff’s lack of transparency violated the trust of his clients, even if he did not initially intend to defraud his clients. There is some ethical ambiguity in this case. Discussion The lesson of this case is that transparency is the best policy, since secrets only allow the unethical behavior to continue. If Madoff had told his clients that his investments had failed, and they had lost their money, rather than engage in the Ponzi scheme, there would have been far fewer victims. The number of victims increased as Madoff was able to use the Ponzi scheme to hide his failure, which gave existing and future investors the impression that he was generating enormous returns for his clients. Questions One Greed and trust were intertwined in a way that makes the Madoff scheme somewhat ethically ambiguous as far as Madoff’s intent is concerned. He probably did not intend to create Ponzi scheme from the outset. By positioning himself among the Wall Street elite and being the former chairman of the NASDAQ, Madoff gained the trust of his clients....
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...BA 310 Case Study #1 In any business instances whether it be directly dealing with money, or any type of contract or agreement it is imperative to have trust between the two parties. This is to ensure that the process is successful and handled correctly. In the case study Madoff gained an insane amount of investors by promising them they would have a guaranteed return on their investment. Later on, the investors figured out that the money they invested was in fact put towards a fake company resulting in no return on the investment after all. Greed is very apparent in this study as shown all throughout the case. Greed is the obsessive desire to want money far beyond the basic survival and comfort. This definition sums up Madoff and his ill intentions completely. Ponzi schemes are still very prevalent in today’s society. Although the consequences of the scheme are very harsh and scary, the con artist still believe they are able to come out with a better outcome if they follow through with the scheme. Ponzi scheme’s are a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors. Charles Ponzi first introduced the Ponzi scheme to the American public. Simplicity] is the trait that seems to make all of this easier and more gullible to believe. There have been several people that attempted to this act of scheming. Martin Frankel...
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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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...4. Martha Stewart’s Lost Reputation Discussion of ethical issues 1. What was the basis of Martha Stewart’s reputation? 2. Why did MSO’s stock price decline due to Martha Stewart’s loss of reputation? 3. Who is Martha Stewart’s target market? 4. What qualities were associated with the Martha Stewart brand, before the controversy? Which of these were affected by the accusations of insider trading, and how? How would you find out for sure? 5. What level of sales and profits would MSO have reached if Martha’s reputation had not been harmed? Refer to SEC or MSO websites for information on financial trends. 6. What range would the stock price have been in at the end of 2002 based on your estimates? 7. Martha’s overall net worth was huge relative to her investment in ImClone. Assuming she did not have inside information, was there any way she could have avoided the appearance of having it? 8. How could Martha have handled this crisis better? 9. Why is insider trading considered harmful? Should insider trading be banned if it assists in moving a stock price to a new equilibrium quickly, so that non-insiders are trading at appropriate prices sooner? 10. If you wished to sell an investment in a company where one of your friends is an insider, or even a significant employee, should you call your friend to advise him you are about to sell? Why, or why not? 5. China’s Tainted Baby Milk Powder: Rumored Control of Online News Discussion of Ethical Issues 1. Given...
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...years to build a reputation and five minutes to ruin it” claims billionaire Warren Buffett. “If we think about that, we will all do things differently.” Bernie Maddof and Martha Stewart had their reputation permanently ruined in the business world due to poor business decision making, likewise their involvement in financial crime and unethical business practices. If the above mentioned people had the opportunity of turning back the hands of time, they would have done things differently and be more ethical in their business practices. Sarbanes-Oxley Act of 2002 is a United States federal law that set new standard for ethical business practices for all U.S public company boards, management and public accounting firms. The bill was enacted as a reaction to a number of major corporate and accounting scandals which cost investors billions of dollars. Many experts think business Ethics can be thought and examined in business schools, but the question is, is it possible to enforce or instill the act of doing right things and making right decisions at all times in the business world? Ethics is a branch of philosophy dealing with values relating to human conduct with respect to the rightness and wrongness of certain actions and to goodness and badness of the motives and ends of such actions. Where as, Business ethics is the study and examination of moral and social responsibility in relation to business practices and decision-making in business. In response to the numerous corporate...
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