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The year 2008 was a very scary one for anyone involved in the US stock market. Due to subprime lending, and cheap mortgages, the housing market became grossly overinflated. Naturally, as with a balloon that’s filled too much, it “popped”. The resulting collapse of the housing bubble had severe implications for the rest of the US economy, housing, and related industries such as lumber, construction, and realty all came crashing down, and the people employed in those fields soon found themselves out of work. As with the stock market crash of 1929, fear of the economic instability caused people to pull their money out of any investments they had. This can be a problem for a healthy bank, being unable to supply the money people are requesting if it’s tied up in loans. However, this would prove to be an even bigger problem if the money never existed in the first place, and would take down one of the largest scams in American history. “Bernie Madoff began investing in penny stocks in 1960, and due to his impressive work ethic, received several big breaks. The first of which was his father in-law loaning him $50,000 to invest, and soon after, Carl Shapiro, a man who made his fortune in women’s clothing gave Madoff $100,000 to invest on his behalf” (Collins 2011). With this kick-start, Bernie quickly began making a name for him, especially as he promised clients a guaranteed 20% annual return on investment. This, coupled with his firm’s adoption of the latest technology made them a tour-de-force in the investment world. But what makes his eventual downfall more interesting is that he was not just a crook, Madoff did manage a successful, and legitimate brokerage firm. To some extent, the credibility he earned from these legitimate busines... ... middle of paper ... ...d to investors, and most of Madoff’s assets have been sold off. Perhaps the greatest irony is that Madoff’s wife, Ruth, is now struggling to pay her bills as a result of the government freezing assets, and selling their belongings to repay the people Madoff ruined. In the end, justice has been served, and the Madoff family has paid for the crimes of Bernie. Though, there is a great tragedy in this, Bernie’s son Mark Madoff committed suicide in 2010, leaving behind two children. “Mack says the ordeal led Mark Madoff to commit suicide last December, on the two-year anniversary of his father's arrest. Mark had first attempted suicide in 2009” (Cuomo and Rhee 2011). As of now, Bernie’s tragic downfall stands as a stern warning against financial improprieties, and the main focus of investigators should be returning as much money as possible to those who were victimized.
In September 2008, Federal agents swarmed the offices of Tom Petters uncovering a billion dollar Ponzi scheme. A similar case in dimension and scale of the well-known Bernie Madoff case is Tom Petters; the mastermind of a 3.7 billion, fourteen-year long deceit, the second largest Ponzi scheme in the United States. Similarly, Robert Allen Stanford, whose scheme emerged in February 2009 and is thought to have lasted ten years, involving the enormous sum of $8 billion, as well as S. Rothstein, who admitted to managing an approximate 1.2 billion dollars Ponzi scheme at the end of 2009. According to Maglich (2014) Ponzi schemes continue to thrive and leave a trail of financial destruction. “In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses” asserts Maglich (2014). Even though Ponzi schemes eventually collapse, Ponzi schemes remain
Madoff started the scheme by misleading his clients to think that he was an elite investor because he was on a vast amount of important boards. Many believed the scheme and invested billions of dollars with Madoffs company. He was able to achieve some of the scheming through running his investments through a different part of his business. This was a way for only him to see the investments and the financial reports behind the investments. Bernard Madoff involved people
The book The Banker’s New Clothes: What’s Wrong with Banking and What to Do About It was wriiten out of necessity after the worst economic downturn in the United States in more than eighty years. The massive breakdown of the United States housing market in 2006 and 2007 had overwhelming consequences on domestic and global economies and devastated the global banking systems. Between 2001 and 2006, many large financial institutions had accumulated large positions in the subprime mortgage market that gave out superb returns. Asset prices in this market inflated to unreasonable levels due to the quality of the loans being packaged and sold by commercial bankers and would soon create a major asset bubble in the markets. The bursting of the housing
After having them signed as investors to his company, he would pay them very handsome returns and in gaining their trust, they would give him extremely positive feedback, which would eventually attract more investors. In addition, Madoff would capitalize on his business having this foresight of exclusivity. His promise to investors of a 10percent return annually was never openly questioned until 2001 and 2005. Articles and magazines were written, and the person in question was none other than Madoff himself. The SEC would request reports throughout the life cycle of his operation, but Madoff would escape their radar by instructing his employees to construct false trading records and monthly investor statements. Moreover, Madoff would also gain money from fees on investors through feeder funds, which are funds that combined money from other investors and were then transferred to a Madoff Securities account. Another reason Madoff escaped from the SEC is through his family. At some point in time, SEC boss Christopher Cox ran an internal investigation and found out that one of his own employees from the SEC, Eric Swanson, was in charge of monitoring Msdoff’s firm, who also happened to be married to Madoff’s niece. The last reason Madoff managed to hide his Ponzi scheme so well was due to his veteran
The Bernie Madoff Ponzi Scheme is a well-known case and is known as one of the biggest Ponzi scheme’s. In summary the scheme occurred for many reasons that I will some up into 3 points; A lack in competency by regulatory agencies, a lack of regulation, and finally a breach in ethics by Bernie Madoff himself. To explain further, the regulatory agencies like the lawyers and SEC are supposed to prevent schemes such as this one from happening but because they lacked the skills to correctly assess the situation, interpreting the number of tips they had received regarding scheme that had been filed, and to act on those in an efficient manner. One of the tips was made by Harry Markopolos in 2000, of who correctly predicted that Madoff was guilty of fraud. Even after this tip from Markopolos, Madoff was not arrested until 2009. Many family members were also a part of the fraud along with some non-family members such as Frank DiPascali and a team known as the 17th floor team, who helped Madoff carry out his fraud. The idea behind Madoff’s fraud was that he would produce false statements of their investments and when people wanted to pull out their investments, the money wasn’t actually there, which rightfully rose more than a few eyebrows and ultimately led to his arrest.
Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to invest billions of dollars into his hedge fund. And they did so because of the extremely high returns, which were promised by Madoff’s firm. If anyone would have looked deeply into the structure of his firm, it would have definitely shown that something is wrong. This is because nobody can make such big money in the market, especially if no one else could at the time. How could one person, Madoff, hold all of his clients’ assets, price them, and manage them? It is clearly a conflict of interest. His company was showing high profits year after year; despite most of the companies in the market having losses. In fact, Bernard Madoff’s case is absolutely stunning when you consider the range and number of investors who got caught up in it.
Bernie Madoff is one of the greatest conman in history. The Bernie Madoff scandal takes the gold as one of the top ponzi scheme in America. Madoff started the Wall Street firm, Bernard L. Madoff Investment Securities LLC, in 1960. Starting off as a penny stock trader with five thousand dollars, earned from his workings as a lifeguard and sprinkler installer, his firm began to grow with the support of his father-in-law, Saul Alpern, who helped by referred a group of close friends and family. Originally, his firm made markets by the National Quotations Bureau’s Pink Sheets. However, in order to compete with the bigger firms that were trading on the New York Stock Exchange floor, his firm started to use very intelligent computer software that help distributed their quotes in second’s rater then minutes. This software later became the NASDAQ that we know today. In December of 2008 Bernard Madoff confessed that he had embezzling billions of dollars from investors. It is estimated to have lasted nearly two decades, and stolen approximately $64.8 billion. On December 11, 2008 he was arreste...
Scott Rothstein was a lawyer based in Florida. He used the Ponzi scheme to supply his lavished lifestyle. He persuaded his victims to invest in a constructed settlement with the guarantee of 20% on return within three months of investing. Rothstein is serving a 50 years sentence for $1.4Billion of fraudulent investments and his wife is serving a 1.5 years sentence.
A report compiled by the U.S Financial Crises Inquiry Commission shows that the infamous global crises could have been avoided. It pointed out that failure in different financial institutions including the Federal Reserve accelerated the crises. Lehman brothers; one of the three largest investments banks in the United States has been cited in the financial crises in 2007. The bank went bankrupt and it had to be sold in September 2008 (Currie, 2010). The other two banks Morgan Stanley and Goldman Sachs had to become commercial banks where more regulation was done. The collapse of large and significant financial institutions like the Lehman Brothers propagated the economic crises. Investors withdrew over $150 billion from the money funds in the USA in two days after the collapse of the Lehman Brothers. This caused the money markets to get unstable thereby nee...
Although not as big as the 1929 crash, the crash of 2008 still had a huge impact on Americans. Unlike the crash of 1929, the crash of 2008 was caused by activities outside of Wall Street, namely, the failure of congress to pass the bank bailout bill. The bank bailout bill was made to bailout companies like HSBC and Lehman Brothers, who went bankrupt as a result of poor and illegal business practices. Some of these business practices included money laundering. Money laundering is when someone makes illegally obtained money look like it was legally obtained, or in other words, making dirty money look like clean money. The rejection of the bank bailout bill by congress sent the Dow into a nosedive, dropping almost 800 points in one day, the largest point drop in any single day in history. Another cause of this crash was the subprime mortgage crisis. This crisis occurred when companies hired rating companies like Standard and Poor’s to give good ratings to the mortgages that these banks were giving out to people. These mortgages were sold to other places, such as investment banks and government agencies, as mortgage-backed securities. Mortgage-backed securities are paid like regular mortgages, except that interest and principle payments don’t go to the company that lent you the money. For example, if you get a mortgage from Chase bank, Chase can sell your mortgage to the Federal Home Loan Mortgage Corporation (Freddie Mac). Freddie Mac then
Jordan Belfort is famous for his crooked way of earning his millions as a stockbroker on Wall Street. Even Belfort started at the bottom, on his first day in Wall Street he was told he was “lower than pond scum”(Belfort 1). After writing a book about his happenings on Wall Street, we’ve seen the
One of the most infamous characters that captured the public’s attention this past year is Jordan Belfort, a stockbroker better known as the “Wolf of Wall Street.” Jordan Belfort, played by Leonardo DiCaprio in the reenactment of Belfort’s first book titled, “The Wolf of Wall Street,” became a public spectacle when he aired his crime-ridden past and the momentous downfall of his life in his autobiographies turned blockbuster hit (McFarland et al., 2013). Belfort, who started his career by no unusual circumstances, became a multi-millionaire in the late 90’s selling a “pump and dump” scheme to unsuspecting investors (“Jordan Belfort Biography,” 2014). According to his autobiography, which admittedly could very well be an exaggeration of himself, claims that Belfort was a natural stockbroker, landing his first job because of an impressive sales pitch of a pen in his initial interview. Once he developed a reputation on Wall Street, Belfort opened his own firm called Stratton Oakland. He details the extraordinary company culture that he was part of and explains how it led to his eventual arrest for fraud and money laundering. His pompous personality is emphasized by his anecdotes of sex, drugs and money that were the three most important aspects in his life, whether it was at work, or in his personal life. It is clear that Belfort sported a type of superiority complex, as well as some kind of inherent drive for this type of lifestyle. Once he reached the top, no expense was too much, and he actively sought the attention from his peers for his style of living. Belfort’s personality was excessively grandiose and eccentric, revealing a sort of maladaptive manner in dealing ...
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
Imagine owning a company that was in control of customer assets valued at $65 billion. Bernie Madoff was in this position through his company Bernard L. Madoff Investment Securities. Now imagine investing your entire retirement account with Madoff 's company, and losing it all. It turned out that Bernard L. Madoff Investment Securities was a Ponzi scheme that ran for many years under the appearance of a profitable company.
Smith, Aaron, “Five things you didn't know about Bernie Madoff's epic scam” (December 11, 2013) http://money.cnn.com/2013/12/10/news/companies/bernard-madoff-ponzi/ (March 31, 2014)