Bernard Madoff

In December 2008, one of the largest Ponzi scheme surfaced when Mark and Andrew Madoff reported the works of their father, Bernard Madoff to the federal authorities. A Ponzi scheme is an investing scam that promises high rates of return with little risk to investors. The operator generates returns for older investors by gaining new investors. Bernard was arrested on December 11, 2008 and charged with securities fraud. He pled guilty to 11 counts and was sentenced to 150 years in federal prison-the maximum possible prison sentence. A reported $17.3 billion was invested into the scam by Bernie’s clients and only about $2.48 billion have been returned to these victims as of September 2012.

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

Bernie Madoff was one of the most prolific Ponzi-scheme artists in history. Madoff schemes netted him millions of dollars. Mr. Madoff used his BMIS Bernard L. Madoff Investment Securities a New York Limited Liability company, to commit fraud, money laundering, and perjury. This is just a few things that Mr. Bernard Madoff has done to many innocent investors, who believed in Mr. Madoff, and everything he stated. Due to Mr. Madoff’s action he has changed so many people’s lives. Some have lost everything, some committed suicide, and others just humiliated by Mr. Madoff. This paper is to tell you about Mr.

Eventually, his scheme reached a staggering 50 billion dollars under his management. It came to an end after market conditions led to a considerable amount of redemptions when investors started to take their money back.

This book talks about how Bernie Madoff was a liar and a cheat to American society where people got used betrayed and lied to because of him in belief they were going to becoming wealthy. Madoff was the world’s biggest thief that stole millions from people and destroyed numerous lives. He made people believe they were going to ‘get rich quick’ and that was his incentive on getting people to participate in his schemes. The book reports how this crook used his legal business as a broker-dealer and his standing as an innovative creator of Nasdaq to attract investors and avoid harsh scrutiny from the Securities and Exchange Commission. It described how he parlayed the reputations of a few valued and respected investors and associates into large followings in high-class communities like the Upper East Side of Manhattan and Palm Beach, and how he used feeder funds, which drove clients’ money to him, to extend his global reach.

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.

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.

Ponzi orchestrated the first recorded fraud of that kind in the 1920s (Ponzi Schemes, 2013). Although Charles Ponzi was the creator of the Ponzi scheme, Bernie Madoff could be deemed the master of the Ponzi scheme, primarily because of the grand total he defrauded his investors out of. At a total of amount of fifty million dollars, Madoff’s fraud became the largest Ponzi scheme in history. After

This is according to affidavits collected by Austrian prosecutors that The Wall Street Journal reviewed. Madoff in return was supplied with an estimated $3.5 billion from European investors after Khon turned three Medici funds into feeder funds. The net worth of Madoff’s Ponzi scheme was $65 billion, and the investigations show how Madoff may have convinced fund managers oversees to root for investors for Madoff. In his lawsuit against Bank Medici AG and its founder, Sonja Khon, Irving Picard referred to Khon as Madoff’s criminal soul mate. According to Picard, the scheme made Khon and her family rich, including Bank Austria and UniCredit

He guaranteed his investors high and stable returns on their investments. Madoff used a so-called Ponzi scheme which originated with Charles Ponzi, who promised the investors 50% returns on investments in only 90 days. Madoff tricked his victims by making the operations look real and profitable, even though no actual profit was being made. He used the funds from the new investors to pay some high returns to the existing investors. Those who saw high returns on their initial investments were encouraged to put more of their money into Mr. Madoff’s firm.

Bernie Madoff had a role in finding the Nasdaq stock market in 1971. Nasdaq became a fast and easy way to trade stocks. New York Stock Exchange specialists charged a small fee for trading stocks, but Madoff would pay firms a small amount for their orders. This was called, “payment for order flow” and was a completely legal way to conduct investments. It was very controversial, however, and many New York Stock Exchange specialists were up in arms about it. NSYE specialists complained that payment for order flow was unfair and was influencing firm’s decisions of who to invest with. The NASD reviewed this process in 1990. In the end, the NASD panel decided that the process was no different from other inducements offered on Wall Street (Bandler & Varchaver, 2009). This allowed Madooff to continue to be a big player in trading.

In the Bernie Madoff Ponzi scheme, three facts were demonstrated. One, investors often lack information needed to make wise investing decisions, and lack procedures to hold companies accountable when the investing decisions are not wise. Two, auditors often have conflicts of interests. Three, the regulatory agencies often lack the necessary expertise, resources, authority, and penalties.

It is very clear that Bernard Madoff’s corporate governance wasn’t effective at all. They didn’t have any governance mechanism for identifying risks and for planning for recovery when mistakes or problems occurred.

What were the weaknesses in the “control environment” of Bernard L. Madoff Investment Securities LLC?

In this culture it was not questioned whether there are reasons beyond being a trustful and reliable statesman. Another important role played the middlemen. These “feeders” were closely connected to Madoff and also to big investors. The ethical issue is that they were not independent but associates of some of Madoff’s companies and at the same time working in regulatory institutions such as the SEC. On top of it, they have received extremely high rewards from Madoff and they even had invested heavily their own money. They have set their personal interests – of becoming wealthy – at the highest importance.  (Davis,