Madoff Scandal

1822 Words Dec 20th, 2012 8 Pages
The Madoff Scandal: 50 billion questions and few answers

Table of Contents
Abstract …………………………………………………………………………………3
Description of Events …………………………………………………………………..4
Analysis of Scenario ……………………………………………………………………4
Questions about Madoff ………………………………………………………………..5
Solutions and Alternatives ……………………………………………………………..7
Conclusion ……………………………………………………………………………...8
References ………………………………………………………………………………10

Abstract
Bernie Madoff ran the biggest in the history of the world. The details surrounding the case and the events that were kept secret are the stuff in movies. With all of the regulations, rules, laws, checks and balances the Madoff scam inflated to massive proportions before popping. The scheme as complicated as it was
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295).

Questions about Madoff

Things Markopoulos questioned about Bernie’s business model made little sense. Madoff securities didn’t provide full service brokerage to its clients. He said they provided execution only services to select clients applying a technologically enhanced approach to a traditional trading strategy known as a split strike forward conversion. This made no sense to anyone since Madoff passed up standard hedge fund fees to feeder fund managers while simultaneously earning only execution commissions on his proprietary trading strategy. Why would anyone with Madoff‘s performance history of earning 16% plus returns with virtually no risk accept execution commissions when he could of run a hedge fund himself and earn the 1% a year and 20% of the profits? Given the size of Madoff‘s assets under management, the exchange traded option market could not have supported his trading strategy. Madoff would have had to access the over-the-counter (OTC) market to execute (Rhee, 2009 p. 368). Such a strategy would have been infeasible to go undetected given the purported size of Madoff‘s fund and the actual size of the option market. Markopoulos said with some of the trades he claimed to make there were not enough options in existence to provide the hedging Madoff claimed as part of the strategy (Ionescu, 2011, p. 247). The trades also would have been very noticeable taking up almost the entire options market in many cases, yet

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