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Madoff Investment Scandal Case Study


Abstract:

The case examines the 'Ponzi Scheme' operated by Bernard Madoff (Madoff), a prominent Wall Street trader and former Chairman of NASDAQ, through the investment management and advisory division of his firm, Bernard L. Madoff Investment Securities LLC (BLMIS). During the investigation, it was revealed that Madoff operated the 'Ponzi Scheme' since the 1980s. Though Madoff was supposed to invest the clients' money in securities market, he deposited the entire amount in a bank account in Chase Manhattan Bank. He fulfilled redemption requests of his clients using this money. This fraud that amounted to US$ 50 billion became public with Madoff's confession on December 10, 2008.


It was the biggest financial fraud in the history of the US affecting a large number of investors. Industry experts blamed the regulators and investors for neglecting the warning signals which enabled Madoff to carry on with the fraud for decades. The case ends with a discussion about the impact of the scam on the already strained US economy.

Issues:

» Analyze how Bernard Madoff conducted the fraud.

» Understand the events that led to the disclosure of the fraud.

» Examine the role of regulatory agencies and the reasons for not detecting the fraud.

» Analyze the impact of the fraud on the US economy.

Contents:

Keywords:

Bernard Madoff, Financial Scam, Ponzi scheme, Bernard L. Madoff Investment Securities LLC, NASDAQ, Split-strike conversion, Corporate Frauds, Options, Financial Scandal, Standard & Poor's 500 index, Global financial crisis, US Mutual Funds Industry, Regulations for Mutual Funds, Investment Management, Financial Industry Regulatory Authority, Hedge Fund, Harry Markopolos, Securities Exchange Commission, Friehling Investment Fund, Charges against Madoff

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The Bernard Madoff Investment Scandal Essay

2640 Words11 Pages

Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to…show more content…

Eventually, his scheme reached a staggering 50 billion dollars under his management. It came to an end after market conditions led to a considerable amount of redemptions when investors started to take their money back.
After Bernard Madoff, a former NASDAQ chairman, was arrested on December 11, 2008, he acknowledged that his performance was nothing but the Ponzi scheme. He pled guilty to the biggest investor fraud ever committed by anyone on March 12, 2009. On June 29, 2009, he was sentenced to 150 years in prison.
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Madoff was able to align himself with wealthy individuals, leaders involved in foundations, business entities, and government. This gave him unlimited access to different groups of investors. Among Madoff’s Ponzi scheme victims, it is easy to find wealthy individuals, charitable organizations, and its stakeholders, such as employees, communities, vendors, and even the government.
Investors that took the biggest losses, which was in the billions, because of this scheme are named in the Wall Street Journal; among them are Fairfield Greenwich Group, Tremont Capital Management, Banco Santander, Fortis, and many others.
Investors lost their money because of their lack of conscious and unwillingness to understand or realize that it is impossible to have such high returns in a legally managed

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