What Is 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.

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

In December 2008, the highly respected American businessman Bernard Madoff made the headlines when the US authorities accused him of orchestrating a $65 billions Ponzi scheme which is the biggest financial frauds of all time and made of him “ The Conman of the Century”.

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

References Berman, K., & Knight, J. (2009). What Did Bernard Madoff Do? Retrieved February 21, 2016, retrieved from https://hbr.org/2009/06/what-did-bernard-madoff-do Collins, D. (n.d.). Bernie Madoff’s Ponzi Scheme: Reliable Returns from a Trustworthy Financial Adviser. Retrieved from http://dcollins.faculty.edgewood.edu/pdfdocuments/Madoff Case.pdf E. (2009, May 12).

Introduction Bernard Lawrence "Bernie" Madoff ran one of the largest Ponzi Schemes. A Ponzi scheme is a scam investment designed to separate investors from their money. It is named after Charles Ponzi, who constructed one such scheme at the beginning of the 20th century. The scheme is designed to convince the public to place their money into a fraudulent investment. Once the scam artist feels that enough money has been collected he disappears taking all the money with him.

Bernard Madoff engaged in creating a Ponzi scheme because of greed. Bernard Madoff and his family lived a very lavish lifestyle. Madoff spent an extreme amount of money monthly on restaurants, boutiques, one night hotels, and exclusive country clubs totalling more than $100,000 (Associated Press, 2009). Not only did he spend hundreds of thousands of dollars a month, but he also had two private planes, a yacht, luxurious homes that totalled between $5 and $10 million each. As Madoff became more and more successful, Madoff was able to move locations and started making changes himself to make it easier for trading electronically, making it easier to control the funds in house (Ferrell, Fraedrich, & Ferrell, 2013). Rather than performing ethically,

Life is simply a game, a game played by billions of people every day. Just like any other game some players play by the rules and others choose not to. Some players go to work every day to earn money whereas some cheat and find alternatives to working hard to become wealthy. Majority of these cheaters play money making schemes on those who have worked hard and countless hours for their money. There have been many people affected by countless amounts of schemes in the past. A conspiracy in particular that has destroyed the lives of hundreds of thousands is a scheme known as the Ponzi scheme. Named after Charlie Ponzi, it was first used in the year of 1919 by Ponzi himself. Charlie, who is now nicknamed the father of the Ponzi scheme, was thirty-seven at the time and was successful in

Allen Stanford’s Ponzi scheme is considered to be one of the top grossing Ponzi schemes that have been at the forefront of white collar crime. As stated on the U.S. Securities and Exchange Commission website, “a Ponzi scheme is an investment fraud that involves the payment of purported returns to earlier investors by the contribution of new investors that promises to generate high returns with little or no risk” (Sec.gov). These schemes take advantage of people who put their faith in the offender out of trust or any other personal reason and in the case of Allen Stanford it is no different.

Madoff’s Ponzi scheme was very complex and operated on major scale. Typically scam artist would take money from new “investors” and use it to pay off existing investors. Eventually the scheme ends when there are no new

Madoff was able to align himself with wealthy individuals, leaders involved in foundations, business entities, and government. This gave him unlimited access to different groups of investors. Among Madoff’s Ponzi scheme victims, it is easy to find wealthy individuals, charitable organizations, and its stakeholders, such as employees, communities, vendors, and even the government.

The Bernie Madoff scam truly made history. Bernie Madoff probably would not have been able to prolong this scam without the continued help of the Accounting Firm of Friehling & Horowitz CPAs PC, who at last reported purported to audit financial statements and disclosures of Madoff firm for the last 17 years. Ponzi schemed to help Madoff by trying to go undetected because of Friehling deceiving investors and regulators by declaring that Madoff enterprise had clean audit records. Ponzi’s scheme enabled Madoff by falsely stating in annual audit reports that F & H audited Madoff financial statements pursuant to GAAP, including the requirements to maintain auditor

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.

This case results from Rothstein and his fellow conspirators’ greed and quest for power, and the avarice of investors. Crime in general, and fraud in particular occur when three conditions exist. There must be a motivated offender, suitable targets, and few or no guardians preventing the offender from preying upon the targets. In this instance Rothstein and his cohorts were motivated, and by at least some accounts Rothstein was predisposed to personality traits encouraging his offense. Many of his co-conspirators traveled in social circles that provided a target rich environment while allowing an affinity fraud approach. Lastly, there was no independent oversight of the activities Rothstein and his friends were involved in. A number of significant red flags existed that would have been revealed through due diligence of investors and their agents. High, guaranteed returns with little or no associated risk typify Ponzi scheme attributes (Benson, 2009). Every

Bernard L. Madoff, who is currently serving a 150-year sentence in federal prison, orchestrated a multi-billion dollar Ponzi scheme that swindled money from thousands of investors. Unlike the promoters of many Ponzi schemes, Madoff did not promise spectacular short-term investment returns. Instead, his investors’ phony account statements showed moderate, but consistently positive returns — even during turbulent market conditions.