Madoff

Running head: MADOFF RESEARCH PROJECT

MADOFF RESEARCH PROJECT

Thea Zental

Keller Graduate School of Management

AC 572

Professor Samuel Hinton

June, 17th 2012

Introduction

There have been many corruption allegations and fraud cases since the turn of the century. Some of them included “the biggest accounting frauds ever recorded in the form of Enron, WorldCom and Tyco.” (Armstrong, 2008) In addition to this there was also one of the largest fraud cases of all times being the “Bernard Madoff Case.” According to Armstrong (2008), “for a number of years Madoff managed to lure billions of dollars away from huge charities, as well as wealthy individuals in both the United States and Europe by getting them to invest in his hedge fund. This he did by offering extraordinary returns to investors, until his scheme eventually reached a staggering $50 billion under “management.”

Bernard Madoff was born on April 29, 1938 and graduated from Far Rockaway High School in 1956. Later he went to Hofstra University Law School but did not graduate. After this in the 1960s, he created Bernard L. Madoff Investment Securities (BMIS) with an initial starting capital of $5,000, which he earned by lifeguarding during the summer and installing refrigeration systems. Gregoriou & Lhabitant (2009), described Madoff as, “a man that had an impeccable reputation on Wall Street. Investing with him was an exclusive privilege – a clear sign that one had made it socially. Bernard Madoff was a legend.”

However, as will be shown in detail later, Madoff was not this extraordinary as described by so many, and only ended up being a fraudster to everyone including friends. The Wall Street Journal stated that:

Rather than admit losses, he decided to pay out existing investors with money coming in from new ones. Things then got worse as redemptions increased and new investor money dried up…His house of cards finally collapsed on December 11, 2008, when news broke that the FBI had...