Summary
This case is a narration of fraud conducted by Bernie Madoff, the CEO of Bernie L. Madoff Investment Securities (BMIS), which today has been termed the most embellished Ponzi scheme ever to be witnessed in history. Apparently, Bernie Madoff began his firm in 1960 and was successful in growing it into one of the largest brokerage firms in Wall Street. Initially, he began by investing his friends’ and family’s money as a favor, though he was not licensed to do so. Slowly his business grew and eventually grew into a big investment company. Thousands of wealthy clients, philanthropic organizations, and middle-class people entrusted their cash into this business which showed potential to pay them good dividends little did they know that Madoff paid them returns from new capital paid by new investors and not from the profits that their investment into the company had gained (Stanwick & Stanwick, 2015). The idea was initiated by Charles Ponzi, who in the 1920s had promised above average returns on an investor’s investment. Apparently, to make it possible and easier to steal, Bernie Madoff hired unqualified staff, used outdated software, applied the personal halo effect, and took advantage of the weaknesses in the regulating body. He took advantage of the confidence of the public, relied upon startling members of his family, vital accomplices who perpetuated illegal trading and who included among others Frank D. Pascali, skillful IT staff members, and a separate BMIS branch of international employees in the U.K to enact such an elaborate fraud. By the end of it, Madoff had stolen approximately $65 billion from domestic and European institutional investors, friends and acquaintances in addition to thousands of people who had trusted as much as their entire life and retirement savings (Stanwick & Stanwick, 2015).
Despite many caveats from whistleblowers, many of these investors were blind or dumbfounded since they never realized what was going on. Nevertheless to their relief, Madoff was arrested and following his guilty pledge without a trial on the 12th of March 2009, he was to 150 years imprisonment (Stanwick & Stanwick, 2015).
Among the issues that are vividly seen in this case include that of greed for money. Initially, Bernard Madoff conducted his business honestly which explains why he managed to acquire such a large investors’ base. It was during the early the 1990s, when he started fabricating returns and issuing false statements. He was not satiated with what he made and greed led him to divert from an honest businessman he was into a thief (Stanwick & Stanwick, 2015).
Another issue that crops up is that of authority. Having assumed many authoritative positions such as chairmanship at NASQAD, Madoff knew that authority figures are influential people. He, therefore, used this knowledge to influence friends, family, and executives, etc. to side with him in carrying out his secret deals (Stanwick & Stanwick, 2015). It is through his influence that he championed their trust as well as that of investors which made it easier for him to carry out fraud for all those years without them ever suspecting him negatively.
Answers to questions
Question 1: Trust is extremely important in business transactions; Greed also plays a role in some business transactions. Discuss how these two concepts are intertwined in this case
Trust and greed are the two obvious things that feature in this case and played a big role in enabling the fraud to take place. Trust is what warrants individuals, organizations, institutions and groups to promote Madoff’s business thinking that he was an investment genius. He was a champion to the majority of the people in Wall Street including big names. He had a reputation which went far not to mention his business techniques which made not even individuals respect his but also other investment companies (Stanwick & Stanwick, 2015). That made Madoff’s company a center for many people whose trust for him left him entrusted with handling more trading volumes on Wall Stree than any other firm. It is this trust that makes him be chosen as the chairman of the exchange firms. However, although he earned very much due to the large volume clientele and several investors, it seems he was not satiable. Greed led him to steal from people who trusted so much on him with their businesses and savings. The much people trusted him, the much he stole. As such, trust and greed are the core issues in this case.
Q2: Describe a Ponzi scheme. Find several examples of other Ponzi schemes that have occurred in recent years
A Ponzi scheme is that which involves purportedly paying the existing investors their dividends using the funds contributed by new investors rather than the actual amounts that their investments may have gained. Apparently, what these old investors get are a small amount and the organization, and its owner pockets the larger amount of their money. That is all that Madoff was doing. He took funds contributed by the new investors and used it to pay dividends and redemption requests to older investors and pocketed a (large) portion for himself (Stanwick & Stanwick, 2015).
Other examples of Ponzi schemes include the following. First is that involving Nicholas Cosmo stealing $400 million dollars from hard working investors. Nicholas operated from three sites: Hauppauge-based companies, Agape World, and Agape Merchant Advance. Another Ponzi scheme involved Joanne Schneider, who operated a large security fraud in the state of Ohio. Joanne and husband Alan were accused swindling more than $ 60 million from over 740 investors.
Q 3: Speculate about how likely it is that Madoff’s sons, who were employees of the firm, knew nothing of the fraud as they stated.
According to their reports, the two sons of Madoff claim to have been being blindsided by their father and were not aware of the scheme that went on for decades leaving charities, individual investors, and financial institutions reeling (Stanwick & Stanwick, 2015). Though it might be true, it’s difficult to believe that these two had no knowledge of what was going on the whole time. This organization had minimal employees, most of which were family members. It is possible that even if their father never told them anything, they suspected something fishy with how the company was making billions of dollars in such a short time. As part of the organization’s executives, I believe they knew something about the fraud (Stanwick & Stanwick, 2015).
Q4: Explain the ethical issues associated with running a family-owned business. Are these issues present at Madoff’s firm?
Ethical issues associated occur because families are raised certain ways and depending on those families’ values, it is easier to overlook or accept the unethical behavior. For instance, there always will be conflicts of interest when operating family businesses. Apparently, these issues were present within Madoffs’ business. As such, it’s almost certain that the family members were well aware of that fraudulence was going on, since they may be, was used to doing such business and did not accept to look at it as unethical behavior.
References
Stanwick, P. A., & Stanwick, S. D. (2015). Understanding Business Ethics. Thousand Oaks : SAGE Publications
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