Bernard Madoff, founder of Bernard L. Madoff Investment Securities, and former chairman of NASDAQ, admitted to defrauding investors out of billions of dollars. He was able to trick investors, auditors, and the Securities and Exchange Commission (SEC) for many years. He persuaded investors by telling them he is a “very successful financial advisor” (Bernard L. Madoff Investment Securities, 2010).
The stakeholder’s theory fits Madoff due to his taking from one investor to pay another.The sunk cost fallacy describes Madoff’s view of social responsibility towards his stakeholders. Enron was a “model of corporate social responsibility” (Mercer Law Review, 2011). Enron’s executive officers were involved in community activities and held benefits to help charities (Mercer Law Review, 2011). The utilitarianism theory fits Enron, because they helped their community.
Begging the question concept fits Enron, due the fact they lied about how financially successful they are (Mercer Law Review, 2011).Madoff’s and Enron’s accounting improprieties was one reason the Sarbanes- Oxley Act of 2002 was created. This act increases fines and penalties for corporate wrongdoers (Mallor, et all, 2010, p. 74).
Bernard Madoff, founder of Bernard L. Madoff Investment Securities, and former chairman of NASDAQ, was able to defraud his investors out of $65 billion by making them believe he is a successful financial advisor. He convinced his investors to give large amounts of money in return he would give them between eight and twelve percent return a year (Bernard L.Madoff Investment Securities, 2010). Instead of investing their money in the securities market; he deposited it in a Chase Manhattan Bank account.
He paid redemption requests with the money from his Chase Manhattan account. He also brought in new investors to pay the first investors their return (Ethics in Business, 2011). The stakeholder’s theory fits Madoff due to him using one investor’s money to pay others. Madoff used the sunk cost fallacy to cover his tracks.
Madoff made irrational and immoral decisions when he kept the investor’s money for himself instead of investing it in the securities market like he said he would. He also used appeals to tradition; by following in Charles Ponzi, and Italian immigrant, footsteps. Ponzi defrauded people out of their life savings by promising to make them a 50% return on their investment (The ‘Bernard Madoff’ Scam, 2011). Madoff did the same thing by promising to make his investors money, but instead he kept the money for himself.When Madoff got caught he pled guilty to “11 federal felonies, including securities, wire, and mail fraud, money laundering, making false statements, perjury, and making false filings with the SEC” ( The ‘Bernard Madoff’ Scam, 2011). He also got 150 years in prison.
Enron practiced utilitarianism because they was considered a “solid socially responsible citizen because of its much recognized funding of museums, hospitals and many other organizations in the community where they operated” (Ethics in Business, 2011).Enron fell due to failure of Corporate Governance to prevent fraud and deceit (Ethics in Business, 2011). Enron used begging the question concept because they lied about how financially successful they are to their employees, SEC, and the community. Enron put what numbers they wanted on their financial statements to make it look like they were making money; when they were going bankrupt (Ethics in Business, 2011).
The Sarbanes-Oxley Act of 2002 (SOX Act) was created due to the financial improprieties of Enron and Madoff.The Sarbanes-Oxley Act increased penalties for corporations that behaved unethically. The Sox Act requires CEOs to “certify financial statements, and imposes internal governance rules on public companies” (Mallor, et all, 2010, p. 82).
The SOX act requires CEOs and CFOs to reimburse the company when the corporation has to restate its financial statements to the SEC (Mallor, et all, 2010, p. 86). Also the CFO and CEO must “disgorge any bonus or stock compensation that was received within twelve months after a false financial report was filed with the SEC (Mallor, et all, 2010, p. 6).In conclusion, Madoff used stakeholder’s theory and sunk cost fallacy to defraud his investors and cover his tracks.
He also used the appeals to tradition concept when he followed in Ponzi’s footsteps by promising to make his investors money and instead pocketed the money for himself. Madoff pled to several charges when he got caught. He is serving 150 years in prison. Enron practiced utilitarianism when they helped fund museums and hospitals.They also used begging the question concept when they lied to their employees and community about how financially well off they are. They also lied on their financial statements that they sent in to the SEC.
The Sarbanes-Oxley Act of 2002 was created due to accounting improprieties by Enron and Madoff. The SOX Act requires CEOs to certify their financial statements, reimburse the corporation when they have to restate their statements and give back any bonuses that they received due to falsifying financial reports.
