Bernie Madoff Ponzi Scheme

The most prominent indicators of fraud would have to be Madoff’s internal audits. There had to be some type of pay off with the audit. There was no way that Madoff could have passed the tax audition and impose the question on the SEC internal system. Another indicator, during the time of his scheme, would be why his company’s financial reports were never made public. The fraud could have been prevented if the SEC would have protected investors’ interest and should have been under a tighter government inspection. The government also has to fund SEC enough to investigate the case before the damage had been made. If the government would have funded SEC enough money and were to be able to investigate, then they would have saw red flags immediately. They also would have known that Madoff never invested any of his money. Instead, he transferred money from one bank to the other. The last indicator would be the return of investment was higher than it usually was.

Bernie Madoff, son of Ralph and Sylvia Madoff, grew up in a modest three-bedroom home in Laurelton, a small middle class area outside of Queens, New York. Little is known about Bernie’s parents, except each had one or more issues with the government. Ralph, had a tax debt in excess of $13,000, placing a lien on his home, assessed in 1956 and not paid until 1965. Sylvia was part of Securities and Exchange Commission (SEC) proceedings in 1963 to determine if broker-dealers of Gibralter Securities failed to report financial conditions, which could revoke their registrations. However, in 1964, the SEC dismissed the proceedings with what appeared to be a deal for these identified individuals to stay out of the business.

In December 2008, one of the largest Ponzi scheme surfaced when Mark and Andrew Madoff reported the works of their father, Bernard Madoff to the federal authorities. A Ponzi scheme is an investing scam that promises high rates of return with little risk to investors. The operator generates returns for older investors by gaining new investors. Bernard was arrested on December 11, 2008 and charged with securities fraud. He pled guilty to 11 counts and was sentenced to 150 years in federal prison-the maximum possible prison sentence. A reported $17.3 billion was invested into the scam by Bernie’s clients and only about $2.48 billion have been returned to these victims as of September 2012.

Madoff’s scheme to defraud his clients at Bernard Lawrence Madoff Investment Securities began as early as 1980 and lasted until its exposure in 2008. Bernard carried out this scheme by soliciting billions of dollars under false pretenses, failing to invest investors’ funds as promised, and misappropriating and converting investors’ funds to benefit Madoff, himself, and others without the knowledge or authority of the investors. To execute the scheme, Madoff solicited and caused others to solicit potential clients to open trading accounts with Bernard Lawrence Madoff Investment Securities (BLMIS) on the basis of a promise from him. He promised to use investor funds to purchase

The Bernie Madoff case was the largest dollar amount and longest running fraudulent Ponzi scheme identified to date. Madoff has admitted that the fraud started in the early 1990s and ran for 18 years before it was above his head when the economic depression set in and investors began to request payouts.

Schneeweis &Szado (2010, p.9) suggested that ffinancial fraud in general and Ponzi schemes in particular continue to maneuver investors. A Ponzi scheme is frequently described as a securities fraud in which the investment manager is in fact taking money from new investors to fund redemptions from current investors. These strategies are often discovered when new investors cannot be found to offset redemptions from current investors. The Ponzi method received its name from Charles Ponzi, who marketed an investment based on managing the International Postal Reply Coupons. Ponzi suggested that an arbitrage opportunity existed because he could exchange U.S. dollars into the necessary foreign currency, and use the foreign currency to purchase postal reply coupons. The postal reply coupons could be redeemed for U.S. postage stamps, which could then be sold for U.S. dollars. Ponzi promoted unusually high returns to investors when in fact he simply used the new investment to pay of the previous investors. While the scheme soon collapsed, there are similarities between him and the Madoff scheme. For example, Madoff sold primarily to the Jewish community and also Ponzi sold primarily to the immigrant community of the North End of Boston, to which he belonged. Along with that, the validity of Madoff's strategy was a subject argued by the public press (Barron's) as well as by individuals (Markopolus) on the grounds. Comparable to Ponzi's investors, Madoff’s investors, have received

to make sure everything was being done legally. Having non family members in the key positions would have made it more difficult for Madoff to participate in illegal activities. Another safeguard would have been if the company employees, investors had practiced due diligence. clients and

Madoff Securities Fraud / Ponzi scheme was one of the article I read and I thought that it was interesting because he maculated so many peoples including the employees of the company invested their life saving, and he fraudulent stolen over 50 billion dollars before he was caught. Because he was high in power he was allowed to change records submit important document and get funds without having the approval signatures that was needed. Madoff was able to use the mail, wire communication to launder money from the employees benefit funds to different location and no one question his unethical behavior within the company. He gave false information to the (SEC) Securities and Exchange Commission for

Bernard Madoff engaged in creating a Ponzi scheme because of greed. Bernard Madoff and his family lived a very lavish lifestyle. Madoff spent an extreme amount of money monthly on restaurants, boutiques, one night hotels, and exclusive country clubs totalling more than $100,000 (Associated Press, 2009). Not only did he spend hundreds of thousands of dollars a month, but he also had two private planes, a yacht, luxurious homes that totalled between $5 and $10 million each. As Madoff became more and more successful, Madoff was able to move locations and started making changes himself to make it easier for trading electronically, making it easier to control the funds in house (Ferrell, Fraedrich, & Ferrell, 2013). Rather than performing ethically,

After researching the details about this case there are two questions that I ask “what took so long for Mr. Madoff to get caught, and how did they finally catch him.” According to www.stockpickssystem.com , financial analysts started to become suspicious of the claims that Madoff was making. Logically thinking that realized that things were not adding up. To answer my first question of what took so long for him to get caught, it was a fault on the Securities and Exchange Commission (SEC). This organization completely ignored the suspicions made, which allowed Madoff to continue with his tactics for almost another 10 years. In December of the year 2008, is when Madoff had finally opened up to his children and confessed to his scheme. After confessing to his sons, they reported him to the Federal Bureau of

To combat this assumption it turns out large amounts of money of the value of $300million was invested in Bernard Madoff accounts in the form of pension funds. Some officials knew that the unscathed performance of Madoff securities were too good to be true as their prices consistently climbed up in spite the financial crisis. However, still they pawned its own shareholders’ funds with the hopes of jumping on the same band wagon as Madoff and reaping further profits. Another angle at probing the case was that the CEO, directors as well as executives were only looking out for themselves. Evidently they had direct benefits in the form of handsome compensation packages for retaining high profile clients such as Madoff and Wise which

A Ponzi scheme is an illegal business practice in which new investor’s money is used to make payments to earlier investors. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. The returns are repaid out of new investors’ principal, but not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once.

It is almost impossible to believe that Madoff’s sons did not know about their father’s fraud, and thus they were complicit ethically if not legally. They could have simply reviewed the investments that Madoff claimed to have made to generate the returns, which would have revealed no link between investor assets and the investments. Madoff would have had to prevent his sons from reviewing any of the transactions. Madoff’s sons not knowing of their father’s scheme may be far fetched, since his sons were directly involved in trading as the Director of Trading and Director of Proprietary Trading.

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

Madoff admitted to his faults but what he didn’t admit was that he had multiple accomplices. Madoff said he acted alone, but several investigations and convictions prove other wise. Madoff’s right hand man, Frank DiPascali Jr., plead guilty to 10 charges and stated he “ended up being loyal to a terrible, terrible fault.” DiPascali Jr. participated in the scheme for over 20 years. Another significant person in the scandal was Madoff’s accountant and the firm’s auditor, David Friehling. Friehling also plead guilty to numerous charges and stated that he was “unaware of the scandal going on around him.” Bernie’s brother, Peter Madoff, was also involved in illegal activity at Madoff Securities. Peter admitted he: