Business Case Against Bernie Madoff
Bernie Madoff
Rebecca Freedline
Strayer University
Business law
Bernie Madoff Bernard L. Madoff (Bernie) is still making news headlines. He is currently incarcerated for numerous illegal and unethical behaviors. I am going to: Describe three types of illegal business behavior alleged against Bernie and explain how the behavior is illegal or unethical. Name three types of parties who were impacted by the actions of Bernie and how. Describe three business safeguards that may have prevented the harm caused by Bernie. Describe three ways investors might have better protected themselves from risk. Describe three legal actions that possibly may be brought against Bernie under criminal or civil law. And provide an analysis …show more content…
He would “buy” basket stocks and use puts and calls to create a ceiling and floor to limit risk. He could only make so much money, but he could only lose so much as well. In theory his investing genius consisted of knowing the best time to enter or leave the market based on BLMIS legitimate trading. Basically he was using insider information to choose the best investments at the right time. If this was true and he was front running then his results would still have to correlate with the market atleast between 30%-80%. However, Bernie’s records showed only a 6% correlation coefficient and his performance showed a 45 degree return line, a feat downright impossible in finance. (Markopolos 2010) “While Bernie didn’t acknowledge that his money management operation was a hedge fund, that’s the way he was set up.” (Markopolos 2010) When you protect long stock options by selling other stocks short you’re working with hedge funds. Hedge funds were also basically unregulated. The largest Hedge Funds managed about $2 billion, Bernie was managing an estimated $65 billion. For Bernie to be trading this volume of stocks it would have shown up in the market. Upon closer look an educated financier would have also seen that Bernie would’ve been trading more options than actually …show more content…
The SEC can take civil action, refer suspected criminal activities to state or federal prosecutors, and revoke licenses and prevent companies and individuals from participating in the market. However, the SEC has limited investigative authority, does not regulate over-the-counter markets, and their audit is mostly a paper chase. (Markopolos 2010)
However, Markopolos alone went to the SEC with documented evidence of Bernie’s fraud five times and he still wasn’t stopped. In 2005 the SEC did launch an investigation but after two and a half years they didn’t even know the 17th floor existed. (markopolos 2010) Bernie’s scheme hurt a lot of people and affected almost everyone. The most obvious are the people that directly invested their money with him. They lost everything. Some companies that handled retirement plans, college savings plans, and/or mortgages took the money given to them by many different customers (in one case 80% of their clientell) and created a feeder fund to invest with Bernie. Their clients often lost everything without even knowing he had their
Rebecca Freedline
Strayer University
Business law
Bernie Madoff Bernard L. Madoff (Bernie) is still making news headlines. He is currently incarcerated for numerous illegal and unethical behaviors. I am going to: Describe three types of illegal business behavior alleged against Bernie and explain how the behavior is illegal or unethical. Name three types of parties who were impacted by the actions of Bernie and how. Describe three business safeguards that may have prevented the harm caused by Bernie. Describe three ways investors might have better protected themselves from risk. Describe three legal actions that possibly may be brought against Bernie under criminal or civil law. And provide an analysis …show more content…
He would “buy” basket stocks and use puts and calls to create a ceiling and floor to limit risk. He could only make so much money, but he could only lose so much as well. In theory his investing genius consisted of knowing the best time to enter or leave the market based on BLMIS legitimate trading. Basically he was using insider information to choose the best investments at the right time. If this was true and he was front running then his results would still have to correlate with the market atleast between 30%-80%. However, Bernie’s records showed only a 6% correlation coefficient and his performance showed a 45 degree return line, a feat downright impossible in finance. (Markopolos 2010) “While Bernie didn’t acknowledge that his money management operation was a hedge fund, that’s the way he was set up.” (Markopolos 2010) When you protect long stock options by selling other stocks short you’re working with hedge funds. Hedge funds were also basically unregulated. The largest Hedge Funds managed about $2 billion, Bernie was managing an estimated $65 billion. For Bernie to be trading this volume of stocks it would have shown up in the market. Upon closer look an educated financier would have also seen that Bernie would’ve been trading more options than actually …show more content…
The SEC can take civil action, refer suspected criminal activities to state or federal prosecutors, and revoke licenses and prevent companies and individuals from participating in the market. However, the SEC has limited investigative authority, does not regulate over-the-counter markets, and their audit is mostly a paper chase. (Markopolos 2010)
However, Markopolos alone went to the SEC with documented evidence of Bernie’s fraud five times and he still wasn’t stopped. In 2005 the SEC did launch an investigation but after two and a half years they didn’t even know the 17th floor existed. (markopolos 2010) Bernie’s scheme hurt a lot of people and affected almost everyone. The most obvious are the people that directly invested their money with him. They lost everything. Some companies that handled retirement plans, college savings plans, and/or mortgages took the money given to them by many different customers (in one case 80% of their clientell) and created a feeder fund to invest with Bernie. Their clients often lost everything without even knowing he had their