This paper "Outline of Financial Fraud by Bernie Madoff" focuses on the cases of financial fraud that have been there since time immemorial. People have always looked for alternative ways of doubling their income. By so doing, they have engaged in various activities some of which have resulted in huge losses of money…
The fraud crime committed by Bernie Madoff remains the biggest fraud crime ever committed by anyone. It was beyond anybody’s imagination that a single person could trick so many intelligent and smart investors. Mr Madoff’s Ponzi scheme involved fraud of $65 billion, making a huge impact on the areas of the financial services industry. This was an example of a Ponzi scheme. A Ponzi scheme refers to the idea of using the new money to pay off old investors (Brigham & Ehrhardt 2013, p.265). Even though Mr Madoff was later on arrested in 2008 and is currently serving his 150-year imprisonment sentence, investors are still afraid of a recurrence of such a fraudulent scheme. Questions without answers continue streaming onto how even his close family members like his wife and two sons were unable to detect his fraudulent means. Madoff claimed that he carried out the fraud by himself, but there was a total of five others who had pleaded guilty to criminal charges by December 2011 (Giles 2012, p.10).
The Ponzi scheme like the one by Bernie Madoff was perpetrated based on the theory of rational expectations, mainly built on trust. His massive investment fraud was as a result of the trust investors had on him, built on his success in the Wall Street. It is common for general to rely on the judgements of others when making their investment decisions. Madoff would, for instance, use the word of mouth to popularise his investment ventures. For years, he had been a well-respected figure in the investment community. The success of his fraud could, therefore, be attributed to trust many people had on him. He used the many people who trusted him, so as to gain the trust of others. A small amount of initial trust grew into a large amount of trust, even though most of the trust was based on the little first-hand information. Instead of scrutinizing the primary source materials behind his venture, the investors tended to rely on the identities and the reputations of those who already trusted Madoff. ...
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This is a long-term investment where I will be able to benefit from insurance company’s profits and it is the company’s responsibility to also manage my policy. Here, the policy value has to increase overtime, as my money is invested and bonuses are awarded by the company.
Many lessons can be learnt from the Madoff story. Madoff ran a Ponzi scheme, named after Charles Ponzi, an early twentieth-century investor who used a postage stamp swap scheme to make money but found that the only way to continually make money was to bring in new investors.
Prior to 2008, life seemed to be humming along for most Americans. We were living in a rather robust economy where the majority of us were gainfully employed; our houses were worth more than we owed on them; and our investment portfolios were spilling over dividends and other interest payments on our accumulated assets.
The author states that Bernard Madoff never revealed his financial statements and kept back them under his safe custody. Further, it has been noted that Madoff has also been one of the active members of the NASDAQ Stock Market related board of governors as well as the member of NASDAQ’s executive committee.
The first type of illegal behavior was fraud. Fraud is considered a violation of existing laws in the United States. The fraudulent activity of the company violated the Securities Act of 1933. The second type of illegal behavior was deception as the company was selling an investment product that did not exist since the company did not actually invest the money in the stock or money market and instead it simply paid out dividends and principal from the money that it was receiving from new investors.
Thirdly the above condition ran from 1990 to 2008 after which the case of subprime crisis hit the investors resulting in the doldrums. Fourthly, Bernie Madoff in the light of gaining investments from institutional investors in times of recession reflected to them a picture that their returns would be met.
The author states that the motivating factors for the management’s engagement in revenue recognition fraud may be due to a weak season where the organization predicts unimpressive financial prospects. In addition, unscrupulous management systems could get involved in outright revenue recognition fraud.
The use of business safeguards such may have prevented some of the negative impacts of Madoff’s business practices; and use of good business and investment practices may have prevented much of the losses experienced by private investors. Under criminal and
Of course this step aided the rise of the entrepreneurial spirit and the house prices faced a massive increase. After that however, this inflation led to highly unstable timesin the economy. Now, the difference between the rental and first year cost in mortgages is hard
According to the research findings, it can, therefore, be said that the Bernie Madoff Scandal was discovered in 2008 with estimated client losses of up to US$65 billion. Madoff took advantage of the growing hedge-fund industry in which approximately 20 percent of all endowments and foundations in the United States relied on hedge funds.
6 Pages(1500 words)Case Study
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