Madoffs Fraud Case - Research Paper Example

 Madoff’s Fraud Case Fraud cases are not a rare spectacle in Wall Street courts. While some of these cases go un- noticed, cases involving big names such as Madoff, the cases raises eyebrows, and makes headlines. Madoff was a respected and renowned businessperson in the Wall Street, regarded as the founder of market making. He started his own firm 50 years ago, that was involved in the business of creating an avenue for buyers and sellers of stocks to interact while doing business. He said that he earned the capital he invested in the business from Far Rockaway as lifeguard earnings. His firm was a major contributor to the growth of Nasdaq and boasts of succeeding in creating a system where brokers who mostly had traded in the New York Stock Exchange could do more business with the Nasdaq. When news that the business executive had been defrauding the investors and that the firm was nothing but a scam went public, it became a shock for most people. The scheme was a well-organized plan by a number of people to convince the regulators, investors, and visitors in the firms’ office that trading was going on while in real since it was not. In fact, there was no trading in the company for most of its life, with Mr. DiPascali an employee, revealing that he discovered that the company was not trading at all since the late 1980s. In addition, the firm also used a program that generated numbers randomly to choose the people to award trading orders to, which happened in varying intervals and in different increments. In such a case, it is unlikely for the investors to face charges for being victims of injustice (Efrati, 2009). However, Efrati, (2009) explains that two of the biggest investors in the firm, who had invested and trusted the firm with billions of dollars, got involved in the case, and the prosecution dragged them individually as well as their foundations to court to face charges. Instead of winning sympathy from the prosecutors and the judge, they faced the charge of conspiring with the managers to defrauding other investors in the company. In a Manhattan court, Peter Madoff confessed among other crimes that he had faked documents and lied to regulators, which helped his elder brother Bernard Madoff to perpetuate the biggest of all investment frauds. The multi-billion dollar fraud scheme, known as the Ponzi scheme, defrauded investors of their invested capital during the collapse of Benard L. Madoff Investment Securities LLCthe investment firm owned by Bernard Madoff. According to his confession in the court, Peter said that the investment sham caught him in shock when his brother told him the truth in the December of 2008, but said that he helped to divert the firm’s remaining funds to friends and family of the Madoffs. The employees forged documents that created a wrong impression of the company as trading and lured them into getting into the contracts, and later lost their money. During his confession, Peter apologized for his irresponsible behavior, which is nothing, compared to the amount of losses that investors suffered under his watch. For Peter, pleading guilty for his actions did not let him walk free, after the judge sentenced him to 10 years imprisonment (Bray & Lauricella, 2009). The sentence also requires him to forfeit all his personal assets that include a Ferrari and more than 10 million dollars in cash. The sentence did not spare his wife and daughter, where he is required to forfeit their assets too. According to Peter, Bernard always acted the boss, without giving his younger brother a chance for dialog. Despite this, he had an option of choosing not to honor his brother’s commands and do the right thing. He contributed to losses estimated at 17 billion dollars, money owned by the company on behalf of the investors, of which he promised to recover 11 billion. The case had been going on for some time, and various arrests made in connection with the company, when Peter, the eighth person to plead guilty was arrested. Acting on behalf of Bernard, filed false forms that drastically underreported the number of customers who held accounts with the firm and the amount of money the company managed. He also revealed to have had used pens of different colors in order to conceal when the forms were created (Scannell, 2009). Fraud does not only have negative effects on the victim alone, as families too are affected. According to Peter Madoff in his confession, his family and friends were torn apart because of Bernards’ actions. He confessed that strangers and former friends reviled him with the assumption that he knew about the Ponzi scheme (Efrati, 2008). The public, articulate the mistakes to all persons involved in the firm, whether the employee committed the crime or not. Peter said during the hearing that he did not have knowledge of the scheme, and what can be seen as a repentance move, he agreed to review a list of friends and relatives to help trace where 300 million dollars had disappeared to before the public disclosure of the fraud. He further went ahead in confessing that he personally withdrew 200,000 dollars from the company’s accounts to make charitable contributions (Searcey & McLaughlin, 2009). The pressure mounted on Peter forced him to open up and reveal significant details regarding the scheme. Fraudsters have their ways of scheming unsuspecting people, and hope not be caught, thus they make away with the crime. In the Madoff’s case, Bernard rewarded his brother Peter with many handsome gifts. Apart from offering him with fringe benefits that included meals, travel, leased cars and household personnel and which were not considered personal income, he also gave his wife a “no-slow” job, allowing her to participate in the company’s 401(k) program. He also received millions of dollars from Bernard described as sham trades and fake loans, to avoid taxes on gifts. Peter’s brother, who was in wheelchair, received money to buy an apartment. He also requested his brother for an equal amount, which was given to his daughter who was an employee of the firm. Between the year 1998 and 2008, Peter, through his brother received a total of 40 million dollars from the firm (Williamson, 2008). From the judge’s ruling, Peter face up to 10 years imprisonment for taking part in a fraud scheme in consent and not notifying either the authorities. He stands a chance of losing all his wealth, in including impoundment of his daughter and son’s assets too. His daughter, Shana Madoff, is too not safe, for being a former compliance director at the firm, and she risks arrest and charged alongside her father, uncle, among others. Peter’s wife according to the judge is left to survive on 771,773 thousand dollars according to a separate forfeiture agreement (Frank & Levitz, 2009) The biggest question that always arise in the Madoff case is whether there was a means by which either typical investors or their consultants would have known that the various vehicles used by the Madoff were in fact not offering what the firm purported. A detailed analysis of the firms’ strategy, including an analysis of its audited accounts, and prime brokerage relationships could have revealed the state of the firm and helped the investors and their consultants from not investing in the firm (Schneeweis & Szado, 2010). However, most of the individuals and the consultants lack the financial resources and the skills required to carry out this analysis. References Bray, C., & Lauricella, T. (2009). The Madoff Fraud: 'All Fake': Key Madoff Executive Admits Guilt. Wall Street Journal. Efrati, A. (2008). The Madoff Fraud Case: Scope Of Alleged Fraud Is Still Being Assessed. Wall Street Journal. Efrati, A. (2009). Madoff Victims Investigated: Criminal Probe Expands To High-Profile Investors Who Say They Were Stung. Wall Street Journal. Frank, R., & Levitz, J. (2009). Madoff Wife Withdrew Funds, Says State. Wall Street Journal Scannell, K. (2009). The Madoff Fraud Case: Perjury Charges Being Considered: SEC Officials Believe Madoff Lied To Them During Past Examinations. Wall Street Journal. Schneeweis, T., & Szado, E. (2010). Madoff: A Returns-Based Analysis. The Journal Of Alternative Investments. Searcey, D., & McLaughlin, D. (2009). The Madoff Fraud Case: Madoff Took In Cash Near Arrest, Suit Says. Wall Street Journal. Williamson, E. (2008). The Madoff Fraud Case: Shana Madoff's Ties To Uncle Probed- Well-Regarded Industry Figure Called 'Devastated And Distraught'. Wall Street Journal. Read More