Bernie Madoff Scandal

The Bernard Madoff Scandal

Nestor Girardello

888 S. Douglas Road Apt. 114 Coral Gables, FL 33134

nestorgsells@yahoo.com - 305-496-1985

ACCT 572 Accounting Fraud Examination Concepts - Professor Cynthia Waddell

December 16, 2012

Ponzi scheme. When many people hear these words, they think of deception and fraud. The Ponzi scheme received its name from a famous swindle that occurred in the U.S. in 1919. Charles Ponzi, an Italian immigrant, began advertising that he could return large profits to investors because he had learned how to take advantage of the international currency and postage markets (Friedrichs, 2010). As word spread of rapid, dramatic profits returned to early Ponzi investors, millions of dollars began to pour in. Ponzi, however, was not investing the money; he was spending it on himself and paying off early investors with some part of the money pouring in from newer investors. Eventually, of course, the scheme was exposed, many people lost their money, and Ponzi went to prison. But the Ponzi scheme itself has proven to be remarkably durable and leads me to the case of Bernard Madoff.

Bernard Madoff’s story has by now been told many times, in newspapers, magazines, on television and in books. Madoff started off on Wall Street in the early 1960s, he built a successful broker-dealer firm and participated in a side business where he began managing money for other people. His results were good but not spectacular and most importantly, he never lost money. How could someone always generate a profit without ever sustaining a loss? Madoff claimed to be offsetting the downside risks of his stock purchases by selectively using options to hedge the portfolio and so the very secrecy of his financial planning added to his mystique. We forward the clock to March 2009 and after many years of successful investing techniques, the former non-executive chairman of the NASDAQ stock market, pleaded guilty to 11 federal felonies and admitted to turning...