(Institution Name)
Bernie Madoff
Abstract
Bernie Madoff was found guilty of having administered the biggest monetary fraud in the history of the United States. He administered a Ponzi scheme for more than four decades before he got caught. The court sentenced him to prison for 150 years, and his company was dissolved. To increase his credibility for the Ponzi scheme to work, Bernie Madoff used his designation as chairperson of NASDAQ and also used Wall Street as his business point. In addition to that, he used his Jewish background to extract money from Jewish investors. The national authorities of taxation and the regulatory and institutions like the Securities and Exchange Commission of the United States kept silent throughout the operations of the company. They are blamed for what is considered the largest case of financial fraud in the history of the United States.
Introduction:
Ponzi schemes are a type of fraud done for financial gain overnight without properly educating the affiliated people. Ponzi schemes also involve hiding of the true motives of the organizing authority. A Ponzi scheme does not involve generation of money of any sort but only involves a revolution of money from one hand to another to give an illusion that money is being produced (Investopedia, 2016). The associated people in the form of investors are made to believe that they are getting a return on their investment. The money handed over to the Ponzi schemer (the organizing authority) is handed over to the older investors, which is what gives this illusion. The paper is about the largest financial fraud case that has ever occurred in the United States in the form of Madoff Investment. The scandal was a Ponzi scheme and hence it is one of the best devised and administered financial frauds in history. The volume of the finance that it was able to gather from the people who took the bait was enormous. The assignment aims to critically evaluate the occurrence of this fraud and the findings drawn from the event. Since Bernie Madoff was involved in a financial fraud, this event is to be assessed as an event of a crime.
Findings from the Case:-
Bernie Madoff Used His Name and Title:
Several factors make a Ponzi scheme a success. The first and foremost thing that makes a Ponzi scheme successful is the image of its organizer. Of course, the interested finance bearers do not know that it is a Ponzi scheme and think of it as an investment opportunity. The organizing head of the presumed financial institution is considered as the main person. The credibility and the influence of that important person are regarded as high reflectors of the expected outcome of the venture. Bernie Madoff, who was the head of Bernard L. Madoff Investment Limited Liability Company, used his name to showcase the credibility of the company. Bernie Madoff had held one of the biggest seats in the United States (Biography.com Editors, n.d )
NASDAQ is the largest stock exchange in the United Sates and volumetric bulks of trade in shares, and other forms of securities take place there. Madoff had remained a chairperson of the organization and hence was a very well known person among the people who made a living out of financial institutions. The competence and working ability of Madoff was considered without doubt by all the associated people (Yang, 2014). Bernie Madoff used his name to promote his organization and to make it seem more promising. There was a delusion that the company owned by the former chairperson of the stock exchange would open a very reliable financial company. People trusted the name that Bernie Madoff carried, and he used that factor in his favor to invite the inflow of money from investors.
Bernie Madoff Placed the organization to Gain Credibility:
The company that Madoff had opened was placed strategically to improve the image of the company as a genuine financial institute. The company was opened on Wall Street, which is considered to be the financial hub of the United States. No head offices are stationed at Wall Street. Wall Street hosts the largest financial institutes and money accumulating institutes of the world. Hence, it was placed so to showcase how large the company of Madoff was or intended to become (Sterngold, 2013). The prospect of the corporation was sugar coated. It is also deliberated that the Securities and Exchange Commission of the United States did not perform their duty well enough to prevent such a large-scale fraud.
The first thing that raises suspicion is that the Securities and Exchange Commission allowed and did not thoroughly check the financial management of the company that was required for a corporation to operate at such a level. Additionally, the commission did not uncover such a massive fraud despite having conducted multiple investigations into the matter. This lack of awareness raises questions about the credibility of the commission and raises skepticism about the involvement of the authorities in this large scale fraud. The organization also held great importance in the Jewish community because Bernie Madoff was a Jew by religion and was nothing less than a very credible person to invest money with for the Jewish. Considering his Jewish ethnicity, several Jewish non-government organizations, federations, and even hospitals lost millions of dollars to Madoff. It is assumable that Madoff very expertly used his ethnicity as a way for him to attract money from these institutes.
Family Business Involvement:
The case also discloses that family members ran the company. Members of the same family held all the key positions. While Madoff was the founder and the chairperson of the company, he appointed his brother Peter, as senior managing director of the Enterprise. Additionally, his daughter was the Rules and Compliance Officer in the company. His two sons, named Andrew and Mark, also held prime positions in the company. Bernie Madoff was very much concerned with the top level management of his company, and he did not want a foreign hand at the top level (Kapner, 2006). The placement of family members on all high positioned seats would ensure that the owners would be able to make all the decisions according to their will without anyone knowing about it or causing speculation. The family members kept the secrets of the company safe because of their stakes involved.
Events after Being Caught:-
The scam however was caught in 2008. In 2008, the intentions of Bernie Madoff as a Ponzi conspirator were realized, and he was apprehended. Just two years after the arrest of his father, Bernie’s son Mark committed suicide. This came as a gesture of repent and guilt from the former beneficiary of the massive fraud. Charges were placed on Madoff regarding fraud and malpractice in a financial institution. A total of 11 charges were imposed on him. He was declared to have been the biggest Ponzi scheme administer in the country’s history. The reputation of the company that had established since 1960 was brought down to the floor suddenly. He received a very severe punishment from the court of law. It was recognized that the crimes of the offender were relentless and that they demanded a serious punishment. He was hence sentenced to 150 years in prison, and it was made liable to his formerly held company that $170 billion are to be restituted. Through careful estimation, Bernie Madoff had executed a fraud worth at $64.8 billion (Yang, 2014). These statistics were collected from the claims made by 4800 clients of Madoff. Madoff had been claiming that the company only has liabilities of $50 billion which was presented as the amount that the company had taken from the customers (Yang, 2014)
Largest Accounting Fraud in the United States:
The case of Bernie Madoff has been recorded as the largest accounting fraud in the history of the United States. This is because the financial position of the company was reported wrong. The company had been “investing” in the projects that did not even exist and had been asking the investors to join based on fictitious profits which were shown in the portfolio of the company. Once they had lured in more investors, their money would be used to provide the previous investors a part of their profits. The company also reported that they had paid a tremendous amount of tax on the income generated. In the books, the investors were presented with enormous amounts of taxes that were paid, and since the company never generated income, the taxes were never actually paid.
However, as a silver lining, half of the investors in the company did not lose money. This, however, does not include the loss that they still had to bear because of the opportunity cost that had occurred till then. The liquidation of the company was so magnificent that it was considered as one of the biggest market makers on the Wall Street. This was because the company always had much cash in hand because investors had paid a lot of money to the business that had never been invested anywhere. This was also misreported in the books of the company.
Outcome of the Apprehension:
Because so much money was involved, the business of the entire region, in fact, the whole world had to bear a serious jolt. Several companies had to close after the declaration of bankruptcy of Bernie Madoff due to the ripple effect. The announcement of bankruptcy caused a lot of business to lose their receivables from Madoff, and some mutual funds that had invested in the company were forced to close down.
Skepticism on the Matter:
The courts of law quickly took to the Securities and Exchange Commission that had completely failed to apprehend the malpractice business. Questions were raised about the role of national authorities in letting the case develop to such a level. A fraud of such magnitude is not easy to hide from the authorities and the amount of tax that Madoff had been claiming to have paid should have been captured by the relevant tax authority. It is argued that not only is this case the biggest event of fraud in the history of the United States, it is also the greatest failures of the national institutes that have been established for the regulation of finance in the economy. Clearly, all the institutions are to be blamed for their incompetence in apprehending this business sooner. It kept working for more than four decades before it was found to be folly. This is a huge failure in itself. It is hence not hard to imagine that the national institutions might be involved throughout, and they might have kept silent all the time as they would have been beneficiaries as well.
References
Biography.com Editors. (n.d.). Bernard Madoff Biography. Retrieved March 17, 2016 from http://www.biography.com/people/bernard-madoff-466366
Investopedia. (2003). Ponzi Scheme Definition | Investopedia. Retrieved March 17, 2016 from http://www.investopedia.com/terms/p/ponzischeme.asp
Kapner, N. (2009). Is Madoff A Symbol Of Jewish Greed? Retrieved March 17, 2016 from http://www.realjewnews.com/?p=377
Sterngold, J. (2013, December 10). Unraveling the Lies Madoff Told. Retrieved March 17, 2016 from http://www.wsj.com/articles/SB10001424052702303330204579250501351961302
Yang, S. (2014, July 01). 5 Years Ago Bernie Madoff Was Sentenced to 150 Years In Prison – Here's How His Scheme Worked. Retrieved March 17, 2016 from http://www.businessinsider.com/how-bernie-madoffs-ponzi-scheme-worked-2014-7
