Bernard Madoff is a very successful investor and investment adviser in his early career.
He is former stock broker, investment advisor, non-executive chairman of the NASDAQ stock market, Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest on December 11, 2008. The firm was one of the top market maker businesses on Wall Street, which bypassed "specialist" firms by directly executing orders over the counter from retail brokers.He use Ponzi scheme to defraud his clients: With the promise of large returns as bait, the fraudster takes in money from new investors and uses it to pay off the earlier investors until no more new recruits can be found and the whole scheme collapses, with the newest investors losing everything which include nonprofit organization and education institution.Bernard Madoff have a legal firm to attract investors with high return rate and also elude the investigation from SEC, he injects money to the legal firm from illegal one when the loss happened.
His family does a lot for this fraud, Bernard’s son and his brother involve in his business, his wife do the social networking to attract celebrities to open account in his firm. Everything goes smoothly until 2008, when economic recession happened, everything goes down, and then Bernard Madoff go to jail.SWOT Analysis Strengths: 1. Madoff receives higher education that he can handle most sophisticated financial instrument. 2. Madoff’s reputation and public influence is the high investment return guarantee for investors 3.
Inventors lack relevant professional knowledge and they over trust Madoff, according to case, many investors do not care if Madoff can provide annual account statement 4. Madoff’s family do the team work that is hard to find criminal clue and also can allocate external risksWeaknesses:1. With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out, that means Madoff require a amount of new investors. 2. What Madoff do is absolutely illegal that his action will be penalized one dayOpportunities: 1.
Economy was going well from 1900 to 2000 that people prefer invest their saving to financial market than deposit in bank that can earn a decent return 2. SEC investigator and relevant regulation is not strict enough that Madoff have chance to collect money illegally.Threats: 1. SEC and other regulator will investigate Madoff’s firm 2.
Economic climate will affect market confidence that if people withdraw their money, Madoff’s business will down. 3. Accountant and Auditor have opportunity to check his original account record 4. Investors accuse his firm no matter what the reason it is, he admit that he afraid of SEC’s investigation.1.
What are the ethical issues involved in the Madoff case? Madoff’s case is very complex; this case is a typical White-collar criminal. From this case, I want to ask a question: greed is good or not? This question was asked in Wall Street for thousands times. Madoff and his family scarifies public interest to meet their own interest, it is the ethical issues at beginning, however, when his Ponzi scheme go to the right track and nobody control this situation, ethical issues turn to legal issue; Because people regard greed is good thing that more and more investors invest their money to Madoff’s firm to get so called “high return” even they do not know the account detail, when scandal happened, people still want to get what they “earned” which is just from other investor’s account, if everybody allocate the rest of money properly, there is no ethical dilemma happened among investors. I should mention that, many none profit organization and education institution lose a lot in this case, those losses are the public loss for every tax payer.2. Do you believe that Bernard Madoff worked alone, or do you think he had help in creating and sustaining his ponzi scheme? Would this represent a conflict of interest? I do not believe Madoff can worked alone, Ponzi scheme require team work, why internal accounting and auditing make no sense for Madoff’s action? How Madoff elude investigation of SEC by transfer between his account and his family’s account? those question indicate that Bernard Madoff need other’s help, he cannot do these alone.
The motivation of Madoff to set Ponze scheme is very pure which only for money. The conflict of interest exists, the conflict is between personal interest and public interest, Madoff and his family enjoys their luxury life style by cheating, public interest gets hurt.3. What should be done to help ensure that Ponzi schemes like this one do not happen in the future? We should prevent this happen in the future not only depend on external supervision but also should change people’s conception.From external control, SEC, relevant regulator and public accountant should pay more attention on the financial report and other record.For investors, Many Ponzi schemes share common characteristics.
Look for these warning signs. * High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity. * Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns.
Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.* Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances. * Unlicensed sellers.
Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms. * Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.* Issues with paperwork.
Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised. * Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment.
Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.
