Core Concepts Of Accounting And Madoff Ponzi Scheme

Introduction: Bernie Madoff was a well-respected financier, his company Bernard L. Madoff Investment Securities, LLC was very well known and even helped launch the Nasdaq stock market. Madoffs company was well trusted and he even had celebrity cliental such a Steven Spielberg, Kevin bacon, and Kyra Sedgwick. Madoff came from a low income family however, he was able to start his company from getting a $50,000 loan from his in-laws and he using money that he had saved from side jobs such as lifeguarding and installing sprinkler systems to found his company. The successfulness of Madoff’s company came from the company’s ability to adapt to change and us modern day computer technology. As his business grew he stated employing family members to help “His younger brother, Peter, joined him in the business in 1970 and became the firm 's chief compliance officer. Later, Madoff 's sons, Andrew and Mark, also worked for the company as traders. Peter 's daughter, Shana, became a rules-compliance lawyer for the trading division of her uncle 's firm, and his son, Roger, joined the firm before his death in 2006”(Bernard Madoff Biography 2016) Unfortunately on December 11th 2008 Bernie Madoff became well known for a whole new reason. He had been accused of performing an elaborate Ponzi scheme and he had been reported to the federal authorities by his own sons. A year later he admitted to the investigators that he had lost $50 billion dollars of his investors’ money and pled guilty to 11

This “rags to riches” story began long before BMIS was ever founded; furthermore, there is an underlying story that indicates the fraudulent behavior was witnessed early in Bernie Madoff’s life. When Bernie Madoff’s was young, his parents were running an illegal brokerage firm out of their home in an effort to raise money to pay back taxes owed on the property (Biography, 2016). These impressions of his parent’s early failure and deviant behavior may have influenced the compulsive behavior and determination to accumulate wealth Bernie Madoff displayed. Traumatic events experienced as a child or young adult oftentimes influences future behavior without understanding where the inspiration came from.

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.

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

What is right or wrong? People base their values of right and wrong on what they have learned from their experiences (Ferrell, Fraedrich, & Ferrell, 2018). What one person sees as wrong, may be a normal for another. Most people are taught to work hard, save money, and invest for a future retirement. However, when it comes to money, some people lose all principles and standards of behavior. There were several ethical issues in the Madoff case. They include: stealing, cheating, lying, misrepresentation, and deliberate deception. Madoff used the Ponzi scheme or the money pyramid to make his money. In the Ponzi scheme, money was taken from new investors and given to existing customers as earning without being invested. Was this right or wrong? Throughout this case study ethical concerns can be seen on both sides, the investors and Madoff’s.

BMIS engaged in three different operations, namely investment advisor services, market making services and proprietary trading. Bernard Madoff conducts certain investment advisory business for clients that are separate from the BMIS proprietary trading and market making activities. Bernard Madoff has been conducting a Ponzi-scheme through the investment advisor services of BMIS, and through their scheme have defrauded investors out of monies estimated to exceed $50 billion. When a senior employee was told by Madoff that there had been a request from clients for approximately $7 billion in redemption and he was struggling to obtain the liquidity necessary to meet those obligations. Madoff also told another employee on December 9, 2008 that he wanted to pay bonuses to employees of the firm. This was earlier than bonuses were paid, and also with another employee admitting that his investment advisory business was a fraud that it’s all just one big lie and that it was basically giant Ponzi scheme. Bernard Madoff also informed employees that he planned to surrender to the authorities but before he does that he had approximately $200-300 million left and planned to use that money to make payments to certain selected family and friends. Madoff would make people believe that BMIS was a legitimate enterprise engaged in the lawful brokerage and sale of investment securities, when BMI

On Dec. 11, 2008, Bernard Lawrence Madoff confessed that his vaunted investment business was all "one big lie," a Ponzi scheme colossal in volume and scope that cost investors $65 billion. Overnight, Madoff became the new poster child for Wall Street gall, greed and

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

Even this didn’t stop Ponzi. During this time Ponzi and his wife moved to Jacksonville Florida and began a new scam. This time it was land. He borrowed money from friends. Opened a company called Chatpon Land Syndicate. Which play on the name Charles Ponzi. He began to buy up cheap land in Jacksonville. Most of it swampland, and began selling of lots for nearly 500% profit. (Zuckoff, 2005) When Florida found out who he was Massachusetts and Florida teamed up to shut him down again. He was then sentenced to one year in jail for violating securities laws.

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

Most recently, the revelation that the SEC failed to discover a $50 billion Ponzi scheme at Madoff Investment Securities, despite having received allegations of wrongdoing for over a decade, suggests fundamental weaknesses in its core enforcement

All of that money is assumed to be gone”. Others try to pinpoint just how did Mr. Madoff lose all of that money? Most really don’t know and can’t say for sure. According to the Wall Street Journal, Mr. Madoff indicated that he traded stocks and options through European counterparties, instead of his own trading firm,. But the records reveal that investigators don’t believe that to be true. There is no evidence that Mr. Madoff lost or made large sums of money on good or bad trades, or that he traded at all. In some recent cases of spectacular losses, the causes were clear. There were wrong-way bets on oil prices, for instance, or mortgages that turned out to be toxic, but there is no indication that Mr. Madoff made any such bets. Nor are there signs that he simply wasted the money on a lavish life style. While he did enjoy a lifestyle of the rich and famous life, he owned a stock-trading business that could have provided him with enough money to fund it. Many have asked if there is any money left over to repay all of the swindled investors. Since most don 't know if he lost any money or how much he ever had, investigators don 't know what might be leftover, or where it might be. Investigators in the SEC and in the Securities Investor Protection Corp. are looking for the money by trying to follow the money trail. However it is probably safe to say if he was smart enough to outsmart thousands of investors out of their money, he is probably smart

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

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 illegal construction of the Bernie Madoff securities pyramid scheme grew to preposterous proportions from legal, auditing, and regulatory weaknesses of the Securities Exchange Commission, the designated regulatory body of the U.S. financial markets. The required expertise, authority, and relevant penalties needed to deter management from committing ethical breaches lacked substance in the case study of BMIS (Crews 11). Even after the wake of the Enron and WorldCom scandals that occurred in the early 2000s, the SEC unexplainably revoked provisions created to help avoid fraud. The provision the SEC revoked specifically mandated firms structured like Madoff’s to be audited by accounting firms registered and audited by the Board. By revoking the provision, BMIS was allowed to continue its Ponzi scheme for another half a decade with the aid of utilizing an unregistered, small accounting firm called Freihling & Horowitz (“Madoff’s Jenga”