The Fraud of the Century: the Case of Bernard Madoff
The Fraud of the Century: The Case of Bernard Madoff
December 2008
Case Study 11
Maria E. Delgado
Madoff Ponzi Scheme
Bernard Madoff took his investors for $65 billion over the course of nearly two decades. His list of victims includes billionaires, celebrities, individual investors, banks, and charities. His scheme was revealed when he confessed in March 2009, when he pleading guilty to the charges against him, and was then sentenced to 150 years in prison. Madoff was successful for so long because he was respected, well-established and esteemed financial expert. Having a reputation for his role in the foundation of the NASDAQ stock exchange. Additionally he was simultaneously running a legitimate business and earned his investors' trust because he didn't tempt investors with unbelievable returns.
Amazingly no one paid any attention to the telltale signals of Madoff’s scheme. Investors were made to believe they were selected and privilege to be part of his investment group. Membership was more of a private club, as only the invited could invest. Many investors were friends with each other and with Madoff. Another obvious sign to investor should have been Madoff’s unwillingness to describe his strategy. When prospective clients asked about details of his strategy or investment group’s results the invitation to invest was withdrawn. Aside of the secrecy and strategy disclosure Madoff also had his company issue customer statements. He manipulating statements to reflect positive returns regardless of market environments. Perhaps if investors would have had an independent objective advisor to act in their best interest, understanding the investment strategy, and be able to explain it to investors this case would not have escalated to this extent.
Issues Raised However the question remains on how he was able to continue with this scheme, red flags going off and no agency investigation. He may have been the mastermind but he had accomplices to
December 2008
Case Study 11
Maria E. Delgado
Madoff Ponzi Scheme
Bernard Madoff took his investors for $65 billion over the course of nearly two decades. His list of victims includes billionaires, celebrities, individual investors, banks, and charities. His scheme was revealed when he confessed in March 2009, when he pleading guilty to the charges against him, and was then sentenced to 150 years in prison. Madoff was successful for so long because he was respected, well-established and esteemed financial expert. Having a reputation for his role in the foundation of the NASDAQ stock exchange. Additionally he was simultaneously running a legitimate business and earned his investors' trust because he didn't tempt investors with unbelievable returns.
Amazingly no one paid any attention to the telltale signals of Madoff’s scheme. Investors were made to believe they were selected and privilege to be part of his investment group. Membership was more of a private club, as only the invited could invest. Many investors were friends with each other and with Madoff. Another obvious sign to investor should have been Madoff’s unwillingness to describe his strategy. When prospective clients asked about details of his strategy or investment group’s results the invitation to invest was withdrawn. Aside of the secrecy and strategy disclosure Madoff also had his company issue customer statements. He manipulating statements to reflect positive returns regardless of market environments. Perhaps if investors would have had an independent objective advisor to act in their best interest, understanding the investment strategy, and be able to explain it to investors this case would not have escalated to this extent.
Issues Raised However the question remains on how he was able to continue with this scheme, red flags going off and no agency investigation. He may have been the mastermind but he had accomplices to
References: Ferrell, O. (2011). Business ethics. (9th ed., p. 423). Mason, OH: South Western Cengage Learning. Hays, T. (2012, JUNE 29). Peter madoff pleads guilty, to serve 10 years in megafraud. Retrieved from http://www.usatoday.com/money/industries/brokerage/story/2012-06-29/peter-madoff-guilty-plea/55910188/1