Bernie Madoff's Ponzi Scheme

Many times in a Ponzi scheme the offender targets people they do not know personally but not Madoff. He had family, friends, employees and even charities and non-profit organizations as investors. “He tapped local money pulled in from country clubs and charity dinners, where investors sought him out to casually plead with him to manage their savings so they could start reaping the steady, solid returns their envied friends were getting” (Colesanti, 2012). “Levy invested $100,000” for Dell’Orefice, who felt honored to be a part of the “exclusive fund” (Lewis, 2010). Sheryl Weinstein, who was a friend of Madoffs for nearly 24 years, lost her entire savings to Madoff’s Ponzi scheme. “The charitable foundation of philanthropist Carl Shapiro had invested about 45 percent of its assets ($345 million) in Madoff's fund” (Auerbach, 2009). It is “estimated that Madoff's scam cost Jewish philanthropies at least $600 million, and

Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to

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

Bernard Madoff ran the worlds largest ponzi schemes; he lost investors approximately seventeen billion dollars in principle. The following report goes through the events in general from begging to end including a description of the fraud committed, the stakeholders involved and the consequences for them, the role of the auditors and finally the outcome for those held responsible for the ponzi scheme.

Bernie Madoff began his career as an investment broker in 1960, where he legally bought and sold over-the-counter stocks not listed on the New York Stock Exchange (NYSE). From the 1960’s through the 1990’s, Madoff’s success and business grew substantially, mainly from a closed circle of known investors and friends through word of mouth. In the 1990’s Bernard L. Madoff Investment Securities traded up to 10 percent of the NASDAQ on any given day. With the success of the securities business, Madoff started an illegal money-management business, promising his investors consistent returns from 10-12 percent, unheard of returns at the time, which should have tipped off most investors that something was amiss.

Before the exposure of his scheme, Bernard L. Madoff Investment Securities seemed to be a normal investment firm (Bandler & Varchaver, 2009). Bernie was a well-respected in the financial industry, evidenced by being named chairman of the NASDAQ and by being asked to testify before congress (Bandler & Varchaver, 2009). Bernie’s brother, Peter served as the head of compliance in the legitimate trading side of the firm. While Peter was technically savvy, Bernie was anything but (Bandler & Varchaver, 2009). His computer was set up to report financial news and nothing else (Bandler & Varchaver, 2009). He didn’t have an email account, and it was said that “he could barely turn his computer on” (Bandler & Varchaver, 2009).

Ponzi scheme was first known as robbing Peter to pay Paul, meaning you borrowing money from one person or thing to pay back the money you borrowed from someone else. In a classic Ponzi scheme, investors are informed that they will earn unusual high returns because the con artist extraordinary skills and master plan the investors believe in them. However, there was only one known Ponzi scheme before Charles Ponzi came along and it was committed by William Miller in 1899.

Madoff was well aware of the fact that these representations were false. Madoff failed to keep his promises to BLMIS clients by failing to invest the BLMIS investment clients’ funds in securities like he said he would. Madoff caused there to be tens of thousands of account statements and other documents sent through the United States Postal Service to BLMIS clients throughout the operation of his scheme. Madoff was able to steal billions from his victims through his scheme. This large making came from more than just individual investors but also from charitable organizations, pension funds, and some victims even lost their life savings due to this scheme. Madoff also obtained investor funds through interstate wire transfers from financial institutions located outside New York State and through mailings delivered by the United States Postal Service.

Successful millionaire, Wall Street celebrity and esteemed philanthropist who ran the largest Ponzi scheme turned in by his own children. Some of the laws he broke include: securities fraud, wire fraud, money laundering and mail fraud among others. As a result of his scheme and disregard for the law many people were affected and lost their savings and retirement plans. The consequence to his actions: life in prison and all of his belongings auctioned off by the U.S. government.

Plato argues that a justice will lead us to the good and happy life. So, if Plato had seen the Madoff’s case, he would assert that first, we must arrest and punish Bernard Madoff because this guy is a classic representation of an injustice man. His career as a crook started unjustly from the very beginning. He began to work as a stock broker in 1930 (I will check the exact period later) without an official stock broker license. He registered his first firm illegally. After that, the rest is a history. He cheated, lied, and committed all kinds of unjust actions to deceive the clients and stole their millions and billions of dollars by using a Ponzi scheme, the scheme that guarantees the 12-percent-annual return without no downfalls. For Plato,

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.

“Bernard Madoff, the perpetrator of the largest Ponzi scheme in history, had a reputation as an upstanding citizen before his fraud was uncovered” (Ferrell, Fraedrich, & Ferrell, 2015). I believe his family were involved in his scheme to a certain degree. Peter Madoff the brother of Bernard Madoff signed compliance reports in one sitting, changing pens and ink colors, and hid millions from the IRS. Bernard Madoff admitted to his sons that he was “finished” and the asset management arm of his firm was a Ponzi scheme. His sons Mark and Andrew then reported him to the authorities in December 2008. Bernard Madoff could not have possibly pulled this scheme off all by himself. How did people in his company internal system such as the accountant

Bernard Madoff created an image which ultimately allowed him to defraud over 4,800 people in a multi-billion dollar Ponzi scheme spanning over a possible 30 year timeframe (Ferrell, 2009). Maddof’s Ponzi scheme was made possible by his ability to secure new investors to fund the existing clients. “Ponzi scams are like fires with plenty of fuel: They keep going until the new money stops. Then they collapse” (Wasik, 2012, n.p.). Madoff built a “family” business, as well as a credible reputation (Ferrell, 2009). He made a name for himself in the investment world by effectively networking, NASDAQ chairman services, and falsely convincing investors a high rate of return on investments.

Just a little over five years ago one man named Bernie Madoff was sentenced to 150 years in prison for running the biggest fraudulent scheme the U.S. has ever seen. (Yang, Stephanie. "5 Years Ago Bernie Madoff Was Sentenced to 150 Years In Prison – Here's How His Scheme Worked." Business Insider. Business Insider, Inc., 2014.) Still till this day many of the people caught in this scheme have not regained what they contributed towards this scheme. In his time Madoff made over $65 billion dollars from people he got to believe to invest in him. He was well respected and worked in finance in which during his run he falsely advertised for his investor’s consistent profits if they were to donate. Which leads to the question, what kind of scheme

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