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Bernie Madoff pulled off one of the largest Ponzi schemes in history to date. Madoff figured out a way to get clients to invest money by providing false hopes of a profitable return on investment. This money then would cycle back through and he would use the money to pay existing clients when they wanted to take cash out but claimed to use a legitimate strategy to attract new clients. He also had thought it through enough to move large sums of money between accounts in the U.S. and London making it look like he was investing his client’s money all along. Throughout it all Bernie with help from hired individuals outside and inside his company defrauded his clients almost $65 billion overall all for the benefit of himself.
Within the crime what Madoff did that was illegal was overall committing investment fraud, money laundering, making false filings with the SEC, etc. In the scheme, he was unethical by lying to the public who trusted him with their investments. He became deceiving to the public when allowing them to think that their investment was growing. However, in reality they were getting the returns from the newer investor’s money.
What had allowed him to be so successful and able to sustain a large Ponzi scheme like this was mostly the ability to falsely create a successful persona of a hardworking, respected and honest businessman. He did this according to the textbook Business Ethics: A Stakeholder and Issues Management Approach “He became a notable authoritative figure by securing important roles on boards and commissions, helping him bypass securities regulations. One of the roles included serving as the chairman of the board and directors of the NASDAQ stock exchange during the early 1990s. Madoff was knowledgeable and smart enough to understand that the more involved he became with regulators, the more “you could shape regulations.” He used his reputation as a respected trader and perceived “honest” businessman to take advantage of investors and manipulate them fraudulently. Investors were hoodwinked into believing that it was a privilege to take part in Madoff’s elite investments, since Madoff never accepted many clients and used exclusively selective recruiting in order to keep this part of his business a secret” (Weiss 33). The next reason he was able to carry it on for so long was that there were always incoming clients willing to invest so there was always some money being able to be sent out to existing clients with no suspicion. Last but not least another reason is Bernie having the right people working for him and helping him falsify the documents. He paid his employees very well in order to keep their mouths shut about any activities happening inside of the company. A prime example is the three-person accounting firm, Friehling & Horowitz. Friehling confessed that for over 15 years the firm did not conduct any type of audit on Bernie Madoff’s business. In doing so it protected the company from any outside auditors needing to come in and check up on the company’s books.
The major stakeholders were some of the richest individuals at the time. Some high listed investors were Norman Braman, Larry King, and John Malkovich. Major global banks such as Royal Bank of Scotland, France’s largest bank, BNP Paribas, Britain’s HSBC Holdings PLC, and Spain’s Santander also got involved in the scheme. Bernie did not only target foreign financial institutions but ones inside the states such as Bank of America Corp., Citigroup, and JPMorgan Chase. A 162- page list was submitted to the U.S. Bankruptcy Court in Manhattan listing almost everyone affected. Individuals lost small portions to some being their whole life savings forcing them to change their daily lives. However, when most people think of who was affected they always think of the people who invested but never anyone close to Bernie Madoff himself. This scheme devastated close lives around him especially being started as a family business. After the scandal came out his family took most of the heat from everyone saying that they were involved and knew about what was happening. It devastated one of his sons, Mark, to commit suicide in December of 2010. His wife Ruth went into depression and received nonstop hate which led her into being ashamed of herself and her husband. This forced her to go into depression and hiding.
At the start of the scheme be employed several family members such as his brother, nephew, niece, and his two sons. Once the investments started to pick up he created a special area in the building on the 17th floor where about two dozen workers were authorized to be in this area. This large of a scheme could not have also been done without the help of the auditing firm who helped cover up the books making them look like there was nothing to hide. Each top member of the Bernie Madoff scheme had a special place in covering up the falsifying acts and knowing what they were doing.
Overall the Bernie Madoff Ponzi scheme started to go downhill in the year 2000. It all started when Harry Maropolos, CFE, CFA discovered the scheme. Shortly after Harry and his team presented an eight-page document of their findings to the Securities and Exchange Commission. Over the course of the following years 2001, 2005, 2007, and 2008 Harry resubmitted the documents because his findings were being highly overlooked. According to an article from business insider, “things began to deteriorate after clients requested a total of $7 billion back in returns. Unfortunately for Madoff, he only had $200 million to $300 million left to give.” (Stephanie Yang). With feeling the pressure and incoming doom, he confessed to his sons about the illegal scams his business had been running. He was finally caught and arrested on December 11, 2008, a day after his sons told the authorities of his doings. On June 29, 2009, Judge Denny Chin found Bernie guilty and sentenced him to 150 years in prison. Madoff was also made to pay a $170 billion legal judgment passed by the government (Weiss 37).
Some major lessons that can be learned from the Madoff scandal are to never judge a book by its cover or in this case personality. Just because someone is thought to be a good law biding individual does not always mean it is the case. Everything should be fact-checked out and in large companies like the company Bernie created should always be checked by several outside sources to make sure all financial aspects and inside functions are running properly. If something seems too good to be true financially, usually it is. Another lesson we can learn is how far someone will go knowing what they are doing is wrong but yet continuing for financial gain with no awareness of how it could affect people around them.
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