Professional Documents
Culture Documents
MADOFF SCANDAL
Bernard Madoff was recognized once as an investing wizard since every single dollar that
investors gave to him would always return to them, sometimes even more. This sounds familiar because
it is. Bernie Madoff pulled off one of the well-known and widespread form of scams to grace mankind,
the Ponzi Scheme. Although it is relatively popular, there are some who still manage to get away with it.
Madoff is one of those people, since he appeared to be a very successful businessman, his persona
helped give him the charisma he needs to fool investors into getting in with his schemes. Coupled with
that, he purported an investment strategy that seemed foolproof, a strategy that consisted of
purchasing blue-chip stocks and taking options contracts on them, sometimes called a split-strike
conversion or a collar. One of the red flags of a Ponzi scheme is when a business proposition seemed to
good to be true, specifically when it offers high rewards with little to no risk. But still, this led to people
giving him their money and since it was all a scheme, the returns gained by the investors were
surprisingly consistent. And this is another tell-tale sign of such a scheme, when the flow of returns are
very consistent regardless of market conditions. When the SEC were eventually called into investigations
after an accountant reported the strange financial anomaly but they were fooled and thought that this
was too big to be a scam so they decided to drop the investigation. As this was nothing more than a get
rich quick scheme, the entire operation collapsed. The 64 billion dollars that investors thought that they
were worth never actually existed.