The People Who Fall Victims: Madoff's Ponzi Scheme

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 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

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.)

Judge Denny Chin presided over the Bernie Madoff Ponzi scheme case where Madoff was sentenced to 150 years in prison. “The penalty sparked a burst of applause in a courtroom packed with victims of the fraud.” (Frank). Mr. Madoff ruined hundreds of lives that put their life savings and trust in his hands. Bernie expressed remorse after fraud victims address their concerns in the courtroom in regards to massive Ponzi scheme. Friends and family were not there to support Madoff in his day of sentencing and remain inadequate of further information of details about the fraud. Bernie Madoff is believed to have betrayed everyone including his two sons who work for the investment firm. Rich and poor people alike shared in this despair after all of their

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.

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.

Bernard Lawrence Madoff was born on April 29, 1938, in Queens, New York to parents Ralph and Sylvia Madoff. In early life Bernie had come from a household of diverse culture, with his father Ralph being a child of Polish immigrants and mother Sylvia being the daughter of Romanian and Austrian immigrants. Ralph and Sylvia had gotten married in 1932 during the height of the Great depression. During this time, the family had been financially struggling and decided to invest most their time into finance to change for the better. Young Bernie didn’t have much interest in finance at time and remained most of his focus towards his academics, sports, and his girlfriend Ruth Alpern; Who down the road became his wife. During High School Bernie was hired as a lifeguard by his swimming coach and worked as a life guard at “Silver Point Beach Club in Atlantic Beach, Long Island” when Bernie wasn’t occupied by swim meets. Madoff began saving most his earnings from his lifeguard gig towards later investments. After graduation from Far Rockaway High School Bernie Madoff enrolled and graduated from Hofstra University, Long Island with a bachelor’s degree in political science in 1960. Shortly after graduation Bernie had used 5,000 dollars of savings from his lifeguard job back in high school as well as a 50,000-dollar loan from is in-laws to invest in Bernard L. Madoff Investment Securities, LLC. A firm founded by Him and Ruth.

This paper will provide an overview of the Bernie Madoff investment fraud, a Ponzi scheme that continues to affect the lives of the individuals Madoff defrauded under the screen of a legitimate investment firm. It will argue that the signs of the Madoff fraud were obvious and that a combination of a lack of regulatory oversight and incompetence allowed Madoff's chicanery to continue, even longer than Madoff himself thought possible. However, this does not excuse individual investors from taking responsibility for their willful blindness to Madoff's improbably high returns.

Due diligence is “A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.” (Oxford Dictionaries). Every investor and self-respecting business should do their homework before trusting any other business with their money. Fairfield Greenwich Group claimed a loss of $7 billion that has “vaporized” with Bernie Madoff (Blodget, H., April 1, 2009). The Fairfield Greenwich assured their e-clients that they did their due diligence by thoroughly researched Madoff by learning about their managers, operational practices, staff, and infrastructure. The group also said that they have higher standards and sorting process than any other average consulting firm (Blodget). However, FGG were also supposed to analyze Madoff’s trading records. Apparently, they did not do their proper due diligence because Madoff did not have trading records; thus, it was impossible to replicate and analyze those essential documents. In addition, FGG needed to at least, monitor his activities for a couple of months to see what kind of results he is getting. The group is being sued by Massachusetts regulators for not doing due diligence that they claimed they did, misleading their clients, and investing more than a half of their assets into Madoff’s firm (Henriques, D.B., April 1, 2009).

Introduction: Bernie Madoff was a well-respected financier, his company Bernard L. Madoff Investment Securities, LLC was very well known and even helped launch the Nasdaq stock market. Madoffs company was well trusted and he even had celebrity cliental such a Steven Spielberg, Kevin bacon, and Kyra Sedgwick. Madoff came from a low income family however, he was able to start his company from getting a $50,000 loan from his in-laws and he using money that he had saved from side jobs such as lifeguarding and installing sprinkler systems to found his company. The successfulness of Madoff’s company came from the company’s ability to adapt to change and us modern day computer technology. As his business grew he stated employing family members to help “His younger brother, Peter, joined him in the business in 1970 and became the firm 's chief compliance officer. Later, Madoff 's sons, Andrew and Mark, also worked for the company as traders. Peter 's daughter, Shana, became a rules-compliance lawyer for the trading division of her uncle 's firm, and his son, Roger, joined the firm before his death in 2006”(Bernard Madoff Biography 2016) Unfortunately on December 11th 2008 Bernie Madoff became well known for a whole new reason. He had been accused of performing an elaborate Ponzi scheme and he had been reported to the federal authorities by his own sons. A year later he admitted to the investigators that he had lost $50 billion dollars of his investors’ money and pled guilty to 11

What is right or wrong? People base their values of right and wrong on what they have learned from their experiences (Ferrell, Fraedrich, & Ferrell, 2018). What one person sees as wrong, may be a normal for another. Most people are taught to work hard, save money, and invest for a future retirement. However, when it comes to money, some people lose all principles and standards of behavior. There were several ethical issues in the Madoff case. They include: stealing, cheating, lying, misrepresentation, and deliberate deception. Madoff used the Ponzi scheme or the money pyramid to make his money. In the Ponzi scheme, money was taken from new investors and given to existing customers as earning without being invested. Was this right or wrong? Throughout this case study ethical concerns can be seen on both sides, the investors and Madoff’s.

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.

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