The Madoff Affair

Answer the following questions while watching the video, then answer the opinion questions

after we are done.

1. What is a Ponzi scheme?

A scam that involves the current investor investing while the other person exchanges the

money while pocketing some money. In reality, the investor is not making any

money/investments.

2. What is a feeder fund?

A small fund that contributes to a larger fund.

3. How did Fairfield Greenwich make its money?

Kept the fees, eventually, the fees added up to around hundreds of millions of dollars a year.

4. Is it customary for a feeder fund to be able to keep all client fees?

No

5. What effect did this fee arrangement with Madoff Securities have on other fund

managers around the world?

The fee arrangement attracted fund managers from everywhere, not only in America.

6. How did the Fairfield Greenwich fund “take Madoff global”?

Fairfield Greenwich funded “take Madoff global” through exclusive methods of fees payment.

7. What was the condition Mr. Madoff imposed on people marketing his investments?

Why do you think he did this?

Since Madoff was not registered with the SEC, they were not allowed to list Madoff himself in

any marketing materials. Madoff did this to keep himself and his whole scheme under the

radar.

8. When investors received their statements, what responsibility did they have to review

and understand them? What signs could they have picked up on to alert them to

potential problems?
You should have electronic and paper confirmations. Bernie Madoff never sent an electronic

confirmation.

9. What kind of “due diligence” did the feeder funds, such as Fairfield Greenwich, do?

What didn’t they do? Why are they being sued by their clients?

Due diligence surpassed

- No details provided

- No one questioned madoff was a one man team/small accounting firm

10. Starting in 2001, whistleblower Harry Markopolos alerted the SEC three times to the

likelihood that Bernard Madoff was running a Ponzi scheme. Why do you think the SEC

didn’t act on this information until 2006?

It was because Harry wasn't an employee of Madoff's, and she therefore didn't consider

Markopolos an insider.

11. After the SEC cleared Bernard Madoff in its 2006 investigation, Harry Markopolos took

his evidence to The Wall Street Journal, which did not publish it. What reasons can you

think of as to why?

Maybe because he was reluctant to share everything to the public and media.

YOUR OPINION:

12. To what extent do you think the SEC did or did not do its job?

The SEC didn't do their job properly because they had failed to catch Madoff even though

Harry had come with evidence, however due to the lack of communication among SEC officials

in various cities and repeated failures to act on legitimate complaints from outside the agency.

They had failed to catch Madoff and didn't launch an investigation until 2006.

13. Ultimately, who do you think was responsible for the losses incurred by investors?

Madoff

14. Do you think the U.S. government should offset the losses incurred by investors with

Madoff? Explain.
 15. What actions should the U.S. government take to minimize chances of other Ponzi

schemes taking place?

The government should inform the public about warning signs and have better

communication following up suspicious activities instead of waiting.