Bernie Madoff Research Paper

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.

Bernie Madoff was convicted of $65 billion in a Ponzi scheme investment that started in the early 1990s (Ferrell, Fraedrich, & Ferrell, 2013). Ponzi schemes were named after Charles Ponzi, a man who told investors he could make them money by swapping out international coupons for more expensive stamps in countries where they were more expensive and have a higher value (Ferrell, et al, 2013). When Madoff started his proprietorship, Madoff Securities, in 1960, serving as a “wholesaler” between institutional investors (Ferrell, et al, 2013). He moved Madoff Securities from Wall Street to Third Avenue so he was able to make changes electronically easier. Serving as chairman on the NASDAQ, a seat on the government advisory board, and throughout his investment career of networking, Bernie became very well trusted and gained the likes of new investors.

Bernard L. Madoff was born into a family that had originally immigrated to the United States during the Great Depression. Bernard’s parents, Ralph and Sylvia Madoff had originally tried their hands in the financial world unsuccessfully. His mother registered as a broker-dealer in the early 1960s but the SEC forced her to close the business for failing to report her financial condition (like mother like son right). When Bernie was younger, he did not care for finance; he was focused mainly on his girlfriend Ruth and his high schools swim team. In his spare time Bernie would work as a lifeguard and save his money for later investments. After graduating high school, in 1956, he set off to college at the University of Alabama for a year and

Bernie Madoff ran one of the largest (if not the largest) and longest-running Ponzi scheme in the United States. The website BusinessInsider.com says Madoff made off with about $20 billion of investors’ money. He was very well-known and trusted in the financial industry. He even started his own investment firm in 1960 and helped start the Nasdaq stock market. He promoted his investment “profolio” to be highly exclusive, and even required a recommendation from a friend. He even kept the “intrest rate” of return at 10% to be more believable. But once the housing market crash occurred, tons of investors became nervous and asked for there money back. With $7 billion dollars of pending buy outs, and Madoff only having about $300 million there was no way Madoff could cover his fraudulent portfolio. He now is serving 150 years in prision due to his fraudulent

A Ponzi scheme like Bernie Madoff had more elements than usual. The (SEC) did not investigate Bernie Madoff because of his impeccable business history. Bernie Madoff already had a successful investment firm. The (SEC) felt that this could not be happening. The chance

As part of the Ponzi scheme hosted by Madoff he promised investors consistent returns on their investment. With this promise and his position many investors were quick to place billions of dollars in his hands. This also draws the attention of the U.S. Securities and Exchange Commission, also known as the SEC, who somehow managed to let Madoff slip under the radar. Madoff also had relationships with several middlemen who were responsible for encouraging other wealthy individuals to invest in Madoff and in return these middlemen would receive a profit. Even down to the final week before Madoff confessed and the scandal broke, investors were still pouring millions into Bernard L. Madoff Investment Securities LLC (Ferrell, Fraedrich, & Ferrell). When an investor requested to withdrawal funds, he was quick to pay them with the funds invested by another individual. Madoff later admitted that he never invested any of his client’s

Bernard Madoff was an investment advisor and former chairman of NASDAQ and he was most famous for perpetrating the largest Ponzi Scheme in history. In 1960, Bernie founded Madoff Investment Securities, LLC, and his firm was one of the first to use computer technology to trade. They specialized in over the counter stocks. He grew his company by networking and got his family involved in running the company. His first clients were people in his neighborhood, and people who went to his same church.

The idea is to lure investors with the false implication of higher returns than what they originally invested, and higher returns than their competition, and usually 50 percent of their investment returned to them within 90 days. According to Robert Palestini’s book, Leadership with a Conscience: Educational Leadership as a Moral Science, Bernie Madoff is considered a “Structural Frame Leader”, as well as a “Political Frame Leader”. Bernie was a businessman, and like most great business men, he was always looking for a way to cut corners, and become more technologically and strategically advanced than his competition. To do so, he created what was called the “third market”, which traded outside the lines of the New York Stock Exchange, and the American Stock Exchange. This “third market” allowed Madoff to execute over a million trades of shares a day. His drive to want to advance the systems and reap a higher return, in a shorter amount of time, displays how Bernie Madoff was a Structural Frame Leader. He also pursued computerized trading, which relieved a lot of time and effort from his firm, and was eventually adopted by NASDAQ(National Association of Securities Dealers Automated Quotations exchange). Also, by co-founding the ITS (Intermarket Trading system), Madoff helped improve the stock market world, once again displaying his Structural Framing

This is why it is important for individuals to try and detect the signs of fraud to avoid losing all of one’s wealth. Auditors and Regulators have not always detected fraud cases of either Ponzi or illegal pyramid structures until it is too late. Not only will individuals want to make returns, but withdraw the profit that was made from the investment. In the Madoff case of 2008, it was up to a whistleblower, Harry Markopolos, to uncover the massive fraud Enterprise Bernie Madoff had constructed. In a story detailing the case Hickery writes. “He reported Madoff's behavior to the SEC five times in eight years. Regulators either ignored or flubbed every opportunity to unmask his Ponzi scheme. In the end it was only uncovered when Madoff confessed to his sons and was handed over to the authorities as the inevitable mathematics of financial entropy caught up with a scheme that was worth US$65 billion by the end of 2008” (Hickery, 2013). This is an example, of how the government unable to protect the victims nor able to catch Bernie after years of false documentation. The laws detailing pyramid schemes and multi-level marketing schemes make it just as difficult to detect and convict organizations before the damage is

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

According to Ferrell , Fraedrich and Ferrell (2015) text, The Chair of SEC disclosed that the SEC examiner missed several red flags while reviewing the Madoff firm. Madoff also admitted to the unethical and illegal behavior of deceit. Madoff disclosed operating the Ponzi scheme since 1990 (Ferrell, Fraedrich, & Ferrell, 2015). The Ponzi scheme was very successful until the crash of the economy and the inability to bring in new investors. Madoff was able to maintain this scheme for well over 30 years. There had to be several accomplices that were intended or unintended participants.

It is almost impossible to conclude or prevent individuals from being unethical, especially when billions of dollars are being transferred daily. Furthermore, people seem to always find a way to maneuver around standards and regulations when money is involved. Also, the continuous creation of new technology allows people with the mindset of a Madoff the ability to avoid detection from his or her criminal behavior for some time. Without the help of federal regulators, a person like Madoff should not have had the opportunity to run a Ponzi scheme of this magnitude for so long. Moreover, federal regulators of the SEC were created to protect investors and these investors depend on the system developed by the SEC to uncover fraudulent behavior in a timely manner. “Madoff had attracted a wide following because he delivered consistently high returns with very low volatility over a long period. He claimed to use a split-strike conversion strategy to obtain these low-risk returns” (Bernard, & Boyle, 2009, p. 62).

Your point about Madoff scheme purposely avoiding scrutiny cannot be understated. Madoff encouraged investors from all over the world to invest in his hedge fund rather than the traditional mutual funds which according to Armsrtong (2008) was ingenious due to the fact that hedge funds generate higher returns owing to different compensation structures  and relative freedom from excessive government intervention and regulation. I believe through Madoff's experience, he was able to mitigate scrutiny on two fronts-the investors and the SEC. In fact keeping both stakeholders distracted was the underlying factor of his short lived success as is most fraudsters.

This paper introduces Bernard L. Madoff a fraudster who orchestrated a multi-billion dollar Ponzi scheme. The paper discusses elements that make up a Ponzi scheme and explains what a Ponzi scheme is. The paper goes on to introduce some of the victim’s and examines some reasons why someone might fall victim to a Ponzi scheme. The paper describes the three elements making up the fraud triangle and how they relate to the fraud and the fraudster. This paper covers Bernard Madoff’s background and history and how he committed the fraud analyzing the fraud triangle. The paper describes ways to correct the issue, accounting principles violated, and recommendations for a fix. Finally, the paper looks at internal and external controls violated and ends with a conclusion.

The SEC probed Mr. Madoff’s business on numerous occasions for sixteen years. Despite many blatant warning signs, not once was there an investigation that uncovered the fraudulent auditing being performed. Regarding the SEC, Madoff was quoted in a jailhouse interview as saying that “it never entered the SEC’s mind that it was a Ponzi scheme,” and also that he had “too much credibility with them and they dismissed” the idea of a Ponzi scheme.(7)