Bernie Madoff Final Paper

Nikola Velickovic

Legal and Ethical Environment for Business

February 25, 2015

The Madoff Scandal

The 2009 convicting and sentencing of American investment adviser Bernard Madoff to 150 years in prison for 11 federal crimes involving a $65 billion Ponzi scheme has increased public, investor, and financial industry awareness of this type of investment and securities fraud. This research paper will analyze causes and effects of this brutal crime and portray what could have been done to prevent a recurrence. Also I will try to establish ho this event affected our financial thinking and reasoning.

For someone to understand this whole mess I need to start with basics. What is a Ponzi scheme? By Federal Bureau of Investigation, “Ponzi scheme is essentially an investment fraud where the operator promises high financial returns or dividends that are not available through traditional investments. Instead of investing victim’s funds, the operator pays "dividends" to initial investors using the principle amounts "invested" by subsequent investors” (Common Fraud Schemes). Usually Ponzi schemes are not big but Bernard Madoff succeeded in running the biggest stock fraud in the history of investing. The fact that this scheme was so big doesn’t amaze me as much as how long it lasted.

“After graduating Hofstra College in 1960 and marrying his high school sweetheart, Bernard Madoff got a job at his wife’s father’s accounting firm in mid-town Manhattan. He launched his career as being a market maker, matching buyers of stocks and sellers on Wall Street. He started his stock trade business and slowly built it up. What wasn’t known on Wall Street was that Bernard had a side job, as an investor advisor and operated under the radar. It begun small with his friends and associates and later spread to whole families investing their money into his business. He offered them fifteen to eighteen percent return on their investments annually which was very hard to find on the market....