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Bernie Madoff

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Submitted By Abronia74
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Pages 11
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 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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