Name: Zheyuan Xiong Date:01/28/2011

The Case of Bernard Madoff

Introduction: 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. 2. Madoff receives higher education that he can handle most sophisticated financial instrument. 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 risks


2. 1. people still want to get what they earned which is just from other investor s account. 4. however. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out. the schemes require a consistent flow of money from new investors to continue. Accountant and Auditor have opportunity to check his original account record Investors accuse his firm no matter what the reason it is. From this case. 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. he admit that he afraid of SEC s investigation. 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. What are the ethical issues involved in the Madoff case? Madoff s case is very complex. With little or no legitimate earnings. Madoff s business will down. when scandal happened. I want to ask a question: greed is good or not? This question was asked in Wall Street for thousands times. 2. SEC and other regulator will investigate Madoff s firm Economic climate will affect market confidence that if people withdraw their money. that means Madoff require a amount of new investors. SEC investigator and relevant regulation is not strict enough that Madoff have chance to collect money illegally. when his Ponzi scheme go to the right track and nobody control this situation. there is no ethical dilemma happened among . ethical issues turn to legal issue. 3. Threats: 1. if everybody allocate the rest of money properly. What Madoff do is absolutely illegal that his action will be penalized one day Opportunities: 1. it is the ethical issues at beginning. this case is a typical White-collar criminal.Name: Zheyuan Xiong Date:01/28/2011 1. Madoff and his family scarifies public interest to meet their own interest.

services. many none profit organization and education institution lose a lot in this case.Name: Zheyuan Xiong Date:01/28/2011 investors. SEC. positive returns regardless of overall market conditions. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Many Ponzi schemes share common characteristics. Do you believe that Bernard Madoff worked alone. he cannot do these alone. the conflict is between personal interest and public interest. Every investment carries some degree of risk. 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. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Most Ponzi schemes involve unlicensed individuals or unregistered firms. y Overly consistent returns. Registration is important because it provides investors with access to key information about the company s management. relevant regulator and public accountant should pay more attention on the financial report and other record. The conflict of interest exists. Investments tend to go up and down over time. High investment returns with little or no risk. 2. 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. From external control. For investors. and finances. 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. those losses are the public loss for every tax payer. Be suspect of an investment that continues to generate regular. I should mention that. Be highly suspicious of any guaranteed investment opportunity. The motivation of Madoff to set Ponze scheme is very pure which only for money. y . public interest gets hurt. 3. and investments yielding higher returns typically involve more risk. especially those seeking high returns. y Unregistered investments. y Unlicensed sellers. products. Ponzi scheme require team work. Madoff and his family enjoys their luxury life style by cheating. Look for these warning signs.

Be suspicious if you don t receive a payment or have difficulty cashing out your investment. Avoiding investments you don t understand or for which you can t get complete information is a good rule of thumb. Keep in mind that Ponzi scheme promoters sometimes encourage participants to roll over promised payments by offering even higher investment returns.Name: Zheyuan Xiong Date:01/28/2011 y Secretive and/or complex strategies. Ignore excuses regarding why you can t review information about an investment in writing. Also. account statement errors may be a sign that funds are not being invested as promised. y Issues with paperwork. y Difficulty receiving payments. and always read an investment s prospectus or disclosure statement carefully before you invest. .

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