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A History Of The Fraud

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A History of the Fraud Bernie Madoff had his start on Wall Street beginning in the 1960s, gaining his success as a broker, eventually offering him the opportunity to manage funds for people close to him. News of his apparent ability to make gains and never lose money spread like wildfire throughout the Wall Street community and eventually turned his small family business into a huge investment firm. To reduce suspicion, Madoff maintained that his gains were because he was mitigating risk on his stock purchases by exploiting options to hedge his portfolio. In the simplest form, this means that he was telling people that he was engaging in a pretty common investment strategy, which is creating an insurance plan for their investments by using “put options.” This is the agreement to sell the assets that one has on or before a particular date, in case the assets decline in value at a rate unfavorable to the purchaser. Although he was able to fool the majority of people, there were those who were suspicious of his activity and alerted the SEC, almost causing Madoff’s scandal to be exposed on several occasions (Scheer, 2009). Most believe that his scheme began in the early 1980’s, Madoff, however, claims that it had not begun until the 1990’s. It started with Madoff losing money, and therefore having to make a decision—either come clean to his investors that there was no money being made in his portfolio, or find a way to fudge the numbers. He chose the latter. This forced
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