Case Study Of Bernard Madoff Ponzi Scheme

1374 Words3 Pages
bulb-icon

Recommended: bernie madoff ponzi scheme case study

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. A Ponzi scheme is a type of investment fraud. The return on investment promised by the fraudster is above average. Returns are paid to current investors with the money made off new investors as opposed to money made off an actual investment. Part of the money that the scheme obtained also goes to support the fraudster Irwin Lipkin was hired by Madoff in 1964, he eventually became the controller of BLMIS. It was Lipkin 's job, as controller, to maintain the general ledger, stock reports, Financial and Operational Combined Uniform Single Report (FOCUS) and the company 's financial statements. Customers received annual financial statements with false information and the Securities and Exchange Commission (SEC) also received FOCUS reports with false information. While entering his guilty plea, Lipkin stated that for the past 35 years he had falsified financial records for Madoff 's company. Lipkin stated further that he was not aware that Madoff was running a Ponzi scheme; to offer proof for that Lipkin said that he encouraged his wife, sons and grandchildren to invest with Madoff and they have lost most of their investment (Lewis, Madoff did this by giving his scheme the appearance that the fund was closed and only available for certain people. Lewis (2013) describes how a childhood friend fell for Madoff 's trap and began investing with him. The friend phoned Madoff and asked for some investment advice, Madoff told the friend about his asset management fund, but then told the friend that it was a closed fund. The friend spoke to Madoff 's wife and then spoke to Madoff again who said he could get the friend into his fund for two million dollars. The friend accepted the offer and then asked Madoff if he could bring in other people and Madoff said he could (Lewis, 2013). The higher than average and consistent returns combined with the fact that this investment was not available for everyone gave it the appearance of being exclusive and

Show More
Related

  • Madoff's Case: The Madoff Ponzi Scheme In The World

    857 Words  | 2 Pages

    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

    Read More

  • Bernie Madoff

    966 Words  | 2 Pages

    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

    Read More

  • The Bernie Madoff Ponzi Scheme

    2602 Words  | 6 Pages

    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.

    Read More

  • Frauds and Scams: The Schemes and Cons of Criminals and the Victims They Prey Upon

    1503 Words  | 4 Pages

    In 1919, Charles “Get Rich Quick” Ponzi began redeeming coupons obtained overseas for between 100 to 300 percent profit. The investors in his plan were promised 40 percent profit on their investment within 3 months (Hagan, 2011). Word quickly spread about the money-making opportunity and Ponzi found himself with more investors than he could handle. He paid the early investors with money obtained from later investors, creating a situation that simply couldn’t be sustained.

    Read More

  • The Bernard Madoff Investment Scandal

    2631 Words  | 6 Pages

    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.

    Read More

  • Understanding the Complexities of Fraud

    1791 Words  | 4 Pages

    In a simple word fraud means deceitful practice. Fraud means someone who manage your whole business with each and every right he is doing misrepresentation to you with some intense. Sometime misrepresentation is false is but induce the other person “to act”- resulting in injury or damage to him or her.

    Read More

  • Fraud: Early Warning Signs of Fraud

    2700 Words  | 6 Pages

    A Ponzi scheme is a type of fraud called investment fraud. It, “involves the payment of purported returns to existing investors from funds contributed by new investors” (6). Investors are usually promised a high return rate. The fraudsters attract new investors and pay back their old investors with the new investor’s money. Ponzi schemes are named after Charles Ponzi who created scheme by getting residents to invest in a postage stamp scheme. Bernie Madoff is a well known and not well liked Ponzi scheme fraudster. He is currently in federal prison. These types of fraud schemes hurt hundreds or millions of individuals and families.

    Read More

  • Essay On Bernie Madoff

    605 Words  | 2 Pages

    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...

    Read More

  • Ponzi: The Boston Swindler

    3331 Words  | 7 Pages

    “Fifty percent profit in forty-five days!” was the claim of Charles Ponzi. Ponzi was a purported financial wizard. In the summer of 1920, he ran an “investment company” in Boston. He claimed to reap great profits by trading postal reply coupons. Nonetheless, the investment scheme was a fraud. Ponzi was using investors' money to pay off earlier investors, while keeping some for himself. In the end, he had collected $9,500,000 from 10,000 investors.

    Read More

  • Lou Pearlman Ponzi Scheme

    561 Words  | 2 Pages

    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.

    Read More

  • Bernie Madoff Essay

    1148 Words  | 3 Pages

    Madoff’s business model was the massive Ponzi Scheme orchestrated by himself. His funds came from a simple yet effective scam, Madoff used the money of new investors to pay the promised return of previous investors. Bernie Madoff’s mark on the economy was not a good one at all. Coming from a struggling family he was consumed by his greed and his success this can be seen by his comments that everyone should’ve known better. Bernie’s willful dismissal of the effects of the crimes brings insight into what kind of man he is. Many in the United States were brought to ruin overnight by a unsympathetic man who blames the investors for their sudden crash. Although illegal and morally wrong Madoff’s crime could only be executed with a certain level sophistication. What made Bernard Madoff’s Ponzi scheme so successful was how atypical the model for it was. The Ponzi scheme usually consisted of a charismatic and witty man trying to persuade you into investing with them, but Madoff made investors feel brilliant he made them feel like they were geniuses for investing with him. If too many questions were asked Bernie would simply say the fund was closed. Madoff’s mistakes were simply and could easily be avoided, besides the obvious criminal actions, Bernie trusted entrusted his family which turned him in. The major set piece in all of this would be Bernard Madoff’s thirst for success and his craving of greed. Bernie’s cold heartedness can be seen through one of his quotes describing jail “It’s actually very pretty. More like a college campus. Everything is provided for you.” Other of his quotes include “In today's regulatory environment, it's virtually impossible to violate rules” and “Today, basically, on Wall Street, the big money is made by taking risks” These prove to be ironic as both show a contradiction between his mentality and his actions. Along with these come views on the government, “The whole government is a Ponzi scheme”. Finally my personal favorite, “Wall

    Read More

  • Lack of Ethical Behavior in the Cases of Bernie Madoff and Enron

    669 Words  | 2 Pages

    Bernie Madoff, “a former American stock broker, investment advisor, non-executive chairman of the NASDAQ stock market, and the admitted operator of what has been described as the largest Ponzi scheme in the history of the world”. (Bernard Madoff, 2011, para. 1) Bernie was able to convince investors to give him large sums of money with the promise that they would received between eight percent to twelve percent return a year. Bernie ran a pyramid scheme where Bernie kept the large sums of money for himself, and then he used the new investors funds to pay off the o...

    Read More

  • Ponzi Scheme Essay

    1256 Words  | 3 Pages

    This particular kind of scheme has been around for a long time dating back the 1920's. They are fraudulent investment operations , operated by a person or an organization, they promise significantly high return rates to investors to draw them in. They are able to pays returns to investors from new capital paid to the operators by new investors, rather than from proceeds obtained by the operator. The scheme was named after Charles Ponzi , who became notorious for using the technique in 1920's. Ponzi's became the first scheme to be widely known across America despite other schemes being done before, because the staggering number of money and people he defrauded. Ponzi's original scheme was based on the arbitrage of international reply coupon however, he soon redirected investors' money to make payments to initial investors and himself. A wide variety of investment vehicles or strategies, usually legitimate, have become the basis of Ponzi schemes.For example, Hedge funds which can degenerate into ponzi schemes if they unexpectedly lose money or fail to properly earn the returns promised or expected by investors. The promoter might decide to fabricate fals...

    Read More

  • Reasons behind the White Collar Crimes of Charles Ponzi

    1874 Words  | 4 Pages

    An inheritance from his father allowed Ponzi to attend the University of Rome, which only further perpetuated the goals his mother desired for him. From the stories his mother often told him of the aristocracy of the family, Ponzi sought after the wealth to accompany the reputation. At school he was accepted into a group of the wealthy elite, and often gambled to increase his monetary allowance. This however only bankrupted him, forcing him to drop out of the University. Urged by his uncle to leave Italy in pursuit of the United States because “he was refined and from a good family” and he could easily become wealthy in the United States. His uncle continued by telling young Ponzi, “in the United States, the streets are actually paved with gold. All you have to do is ...

    Read More

  • False Refund Scheme: Detection And Prevention Schemes

    1528 Words  | 4 Pages

    An unscrupulous agent begins by creating false documents, which are then use to lure investors.

    Read More

More about Case Study Of Bernard Madoff Ponzi Scheme

Open Document