How Fraud in the Financial Markets Influence Government Action

Madoff’s case taught many life lessons. The first would have to be, diversify. Many people should not put all of their golden eggs in one basket. Even though it is easier to invest money within one firm, it is best to disperse the money to avoid losing it. Secondly, if it is too good to be true, it is probably not true. Madoff had said he made ten to twelve percent a year in good or bad markets. That is impossible; otherwise,

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

Often, financial fraud is conducted through multiple individuals. Therefore, it is important that this oversight panel be at the board level, instead of relying on the financial team on the ground (Zack, et al, 2015).

Internal fraud consists in “a type of fraud that is committed by an individual against an organization. [Furthermore], a perpetrator of fraud engages in activities that are designed to defraud, misappropriate property, or circumvent the regulations, law, or policies of a company”[8]. Not only has the incidence of internal fraud increased in frequency because of the availability of sensitive information such as client details or confidential business documents; moreover, this type of fraud is found in various types of organizations, ranging from corporations, public service institutions and financial institutions. Our analysis will concentrate on the most common and prolific types of internal fraud, namely identity theft, insider trading, loan fraud and wire fraud. Interestingly, PriceWaterhouseCooper conducted a survey that revealed that the “demographics of a typical fraudster are as follows: males (85% of cases), 31-50 years (72% of cases), reached high-school level (50%), Bachelor’s or post graduate degree (50%) and middle or senior management (52%)”[9].

This book brought out the failures of the Securities and Exchange Commission (SEC) in one of the biggest Ponzi schemes in America’s history, as orchestrated by Bernie Madoff. Harry Markopolos caught up with Madoff’s Ponzi scheme earlier on in his career and saw all the red flags. There was no explanation of the continuous one percent yield in over forty five stocks that Madoff dealt with. Madoff took advantage of the laxity by the SEC officials in failing to follow up complains with an investigation, and the trust

88 Case 1.12 Madoff Securities Instructional Objectives 1. 2. To identify the principal precursors of financial fraud. To identify “red flags” or risk factors typically indicative or symptomatic of fraud.

It is important to first gain an understanding of the various types of fraud, in order to aid understanding in regards to the prevention of fraudulent activity. This paper begins with a review of the definition of financial fraud, and identification of the different fraud types. Further, included is an examination of what motivates individuals to commit fraud, including an identification of some of the method in which people commit fraud. A discussion of the importance of the fraud triangle, and how rationalization contributes to fraud is a key area of focus. Finally, there is an examination of some controls that prevent and detect fraudulent behavior, including the value and importance of understanding the nature of fraud for

Through the history of the United States and the history of corporate fraud, many infamous people and entities have taken advantage and abused the corporate system while finding loop holes or discrepancies to use in their favor. Corporate Fraud consists of activities undertaken by an individual or company that are done in a dishonest or in an illegal manner, and are designed to give an advantage to the perpetuating individual or company (Ivestopedia,1). Investors have been known to throw money around if its meaningless as seen on Wolf of Wall Street and other movies. In such large public firms, its rather difficult to keep track of every dollar, so cutting corners here and there in everyday transactions, is something that becomes a

Fraud deterrence occurs in several stages, and the key is to know that prevention is not to same as deterrence. First is the impact of controls

The significant finding from this article is that the world of finance is a very strange world. This world can offer opportunities to many, and at the same time, it can prove to be a mess for the others. Many people are not corrupt in their person, but by being negligent or by being careless, they fail at doing their duty successfully at some points in time. However, what the article talks about is the complete picture. Steven A Cohen faced a problem. He got entangled in an enormous financial mess.

In the case of Bernie Madoff this is perfect example of how unethical behavior can turn into corruption. Madoff, a former investment and stock broker, was formally introduced to the world as the 'sole' operator in the largest Ponzi scheme on record. Madoff turned his financial management company into a colossal Ponzi scheme that swindled billions, from thousands of his investors. In this paper we determine the regulatory oversight that was in place while the Ponzi scheme was operating, and speculate on the main reasons why they did not discover the scheme, we’ll look at investing in Madoff Securities and how to expose the potential fraud.

According to Daniel F. Dooley (2008), a member of the Commercial Fraud Taskforce, financial fraud with private middle-market companies is on the rise. In fact, Mr. Dooley believes that he has seen more instances of fraud in the past two years than in the previous ten. He notes seven areas in which financial fraud has increased over the past few years:

In today’s society crime occurs everyday across all aspects of life. One particular crime is that of white collar and corporate level crime. It is important that we as a society study this type of crime in depth because many individuals believe that white collar and corporate level crimes are victimless crimes when in reality they have the potential to destroy major corporations and economies all with one single case. The news or media rarely talk about this type of crime because it is often difficult to understand and individuals typically lack interest in these types of cases. One particular case is that of Jordan Belfort. Dubbed the infamous “Wolf of Wall Street” Jordan Belfort is a former stockbroker who robbed investors of over $200 million dollars to create his wealth through “pump and dump” schemes, insider trading, money laundering securities fraud, and stock-market manipulation. As an attempt to further understand these complex cases I will break down Belfort’s case as far as the methods and means as to how he got started, his use of “pump and dump” schemes and other means as to how he acquired his wealth. In addition to this I will discuss the sanctions and disciplinary action that Jordan Belfort was given, how the case affected society and what new regulations were

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.

Essentially, all three elements of the fraud triangle must be present for fraud to be committed: pressure, opportunity, and rationalization. Additionally, nine factors provided the atmosphere for the perfect fraud storm of 2000 through 2002. The nine factors included: economy, moral values, incentives, expectations, debt, accounting rules, auditor dependence, greed, and educator failures (Albrecht et al., 2012). When combined with the elements of the fraud triangle these factors enabled organizations such as Enron and WorldCom to commit the fraudulent activities that resulted in this perfect storm.