The Ponzi Scheme versus the Madoff 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.

Describe a Ponzi scheme. Find several examples of other Ponzi schemes that have occurred in recent years.

Facts: In November 2008, the parties signed an employment agreement providing that Relator was to serve as the director of the school for the 2008-09 school year. The title of the agreement states the dates July 01/2008-June 30/2009. "The first sentence of the agreement lists the administrative positions to which the agreement applies and states, "This is a general at will agreement."(Ellis vs. BlueSky, 2010). Yet the agreement provides that "[p]ositions will automatically

In the past few years, enterprise integrity has come up on a regular subject of conversation. In the past ten years only, we have seen numerous situations associated with collaborative scams which have shaken the people 's trust in businesses and also the general economic climate. A few of the many salient frauds are the WorldCom and Enron 's scams, the ponzi scheme perpetrated by Bernard Madoff 's, the latest accusations of Goldman Sachs tricking option traders to guarantee the company 's personal profit. Incidents such as these designed us all, as upcoming corporation professionals as well as market leaders, think about ethics and its particular function in the commercial world (Gross, 2010.)

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

At first, Madoff was in a broad sense unusual Ponzi manipulator. The extraordinary model was social, connecting with, and set out to bewilderment others with his cerebrum, his thoughtfulness, his thriving. Madoff sharpened a sort of energized spirit about his character, turning that radiant speculation that people would overlook: He won trust not by endeavoring to influence people that he was gorgeous making to move, yet expected that they were well-known. People who may never have fallen for the excellent Ponzi progressive were totally debilitated by Madoff's hypothesis.

Fraud in the financial community is consistently hidden in "style." Since its beginnings in the "great depression," to now, "the great recession" fraud has undoubtedly taking many forms and styles. Subsequently, many non suspecting patrons have been severely damaged as result of this greed and corruption. Many of America's largest and most established individuals are not exempt from this form of style manipulation. As we will soon see, many individuals, including Bernie Madoff, have both the ability and incentive to commit fraud. In today's fast paced information age, fraudulent activities are now becoming more difficult to detect, and even more difficult to prove. To begin, I believe it necessary to show how fraud has affected our current economic state. I will then venture as to the means in which Bernie Madoff committed fraud and the implications on current business prospects.

Most people, when they hear the word “crime,” think about street crime or violent crime such as murder, rape, theft, or drugs. However, there is another type of crime that has cost people their life savings, investors’ billions of dollars, and has had significant impacts of multiple lives; it is called white collar crime. The Federal Bureau of Investigation defines white collar crime as

We chose Bernard Madoff’s case because we thought that we could relate his case to many unethical behaviors. The analysis can be made on decision making and lack of ethical training which we think is an important topic to focus on this course.

According to Investopedia.com, “A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors.” Charles Ponzi was a businessman in the early 1900s. His scheme was promising his client’s 50% return within six months. When in fact, Charles Ponzi was using later investors’ money to give back to the early investors. This financial scheme has been repeated several times since then but in smalls ways changed. The most famous in recent news is Bernie Madoff. Bernie Madoff was a hedge fund investor. As a very famous hedge fund investor, Bernie Madoff was entrusted with individuals’ entire savings (cbsnews). In return, Madoff “cooked” his books and almost always had a positive return. Only in one month out of the year did Bernie Madoff record a down month. According to a 60 minute episode, this is equivalent to a hitter in baseball hitting, .960 (cbsnews). In the end Bernie Madoff lost almost all of his investor’s life savings. So this is another case of the Ponzi except at a bigger scale. These examples prove that although one could be wealthy, they always want

Nevin Shapiro, the former owner of Capitol Investments USA, Inc., is currently facing charges that he ran a $900 million ponzi scheme. The modern day schemer has pleaded guilty to count one of money laundering. The term Ponzi refers to “an investment scheme or a scam designed to separate investors from their money” (Jackson, D., 1993). It is named after Charles Ponzi, who constructed one such scheme at the beginning of the 20th century, even though the concept was well known prior to Ponzi (Jackson, D., 1993). On 1927, while in Boston, Charles Ponzi concocted a mail fraud in which he said he would pay investors $1.30 for each dollar they invested. He claimed to make money playing “fluctuation” in overseas postage rates, but he actually paid

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).

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.

A Ponzi scheme is an illegal business practice in which new investor’s money is used to make payments to earlier investors. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. The returns are repaid out of new investors’ principal, but not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once.

Operated through a complex, cryptic structure Bernie Madoff, CEO of Bernie L. Madoff Investment Securities (BMIS), perpetuated the most embellished Ponzi scheme the world has ever seen. The basis of the securities fraud that took place approximately between 1991 – 2008 was influenced by Bernie Madoff’s reliance upon an unqualified staff, outdated software, organizational seclusion, a personal halo effect, and weaknesses in the regulating body. Madoff had the confidence of the public, yet to pull off such an elaborate scheme, he relied on a startling number of family members, vital accomplices working on the illegal trading floor such as Frank D. Pascali, IT staff members, and a separate BMIS branch of international employees