MEMORANDUM
TO: Prof.
FROM: Group 5
SUBJECT: Bernie Madoff Ponzi Scheme.
DATE:
The Bernie Madoff ponzi scheme had effects worldwide and brought
... [Show More] discussions about the U.S
financial system and ethical misconduct in the financial market. This memorandum discusses the
intended and unintended consequences on the market, victims, the Madoff family, and also the
roles of the SEC regarding the Madoff financial scandal.
Bernie Madoff was a nationally known stockbroker, investment advisor, financier, and executive
chairman of the NASDAQ stock market. Not only was he very successful in the financial world,
he was well-known and trusted. With years of experience and knowledge under his belt, people
easily trusted in him and his work. Unfortunately for Madoff, his most substantial fame came
from something other than his financial successes. The Bernie Madoff scam was no doubt
considerably one of the largest fraudulent cases in the world that left thousands of investors
empty-handed. Before a discussion can be had about this, it is important to explore and analyze
Bernie Madoff's history as a financial connoisseur leading up to the famous ponzi scheme.
Madoff obtained his bachelor’s degree in political science from Hofstra in 1960. Upon
graduating, Madoff used $5,000 he had in savings and an additional $50,000 that he borrowed
from his in-laws to found an investment firm called Bernard L. Madoff Investment Securities,
LLC (“Bernard Madoff Biography,” 2016). The business, with the help of Madoff’s father-in-law
who was a retired CPA, attracted a large and extensive client list, including many celebrities such
as Kevin Bacon and Steven Spielberg. Madoff’s company grew quickly and well known for its
reliable annual returns of 10 percent or more. Towards the end of the 1980s, Madoff’s firm was
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easily controlling more than 5 percent of the trading volume on the New York Stock Exchange
(“Bernard Madoff Biography,” 2016). Madoff Investment Securities had much success for its
adaptability to the changing times, with the firm being one of the first to use computer
technology for trading, which then led to the founding of the National Association of Securities
Dealers Automated Quotations (NASDAQ) which Madoff later served as the chairman for three
years. As the company grew, Madoff’s younger brother, two sons and niece joined in on the
family business (“Bernard Madoff Biography,” 2016).
The Bernie Madoff ponzi scheme was able to continue for many decades due to his well-known
image and false promises. A ponzi scheme is an investment fraud that involves the payment of
purported returns to existing investors from funds contributed by new investors (Ponzi Schemes,
2013). Madoff was able to con his investors out of nearly $65 billion by encouraging his
investors to stay in the game longer with promises of higher returns. However, this scheme was
overturned when his investors requested a total of $7 billion back in returns. Madoff only had
around $200-300 million to give, and had to finally admit to his fraudulent ways. Madoff
admitted his ponzi scheme to his sons first, who then reported their father to the federal
authorities. Bernie Madoff pleaded guilty to 11 felony counts: securities fraud, investment
advisor fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury,
false filings with the United States Securities and Exchange Commission (SEC) and theft from
an employee benefit plan (“Bernard Madoff Biography,” 2016). He lost around $65 billion
dollars of investor’s money, leaving thousands of people empty handed. In June of 2009, Bernie
Madoff was sentenced to 150 years in prison, where he will continue to live the rest of his life
(“Bernie Madoff Fast Facts,” 2016). Now we will explore deeper into the Bernie Madoff case
and the various ethical issues that were involved in it. [Show Less]