Ac 572 Research Project

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Date Submitted: 08/30/2011 03:34 PM

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Peggy Kistner

Research Project

Week 7


How the fraud was executed;

The fraud Bernard Madoff pulled off was a classic Ponzi scheme. A Ponzi scheme is a fraudulent investment operation where investors get return from new investors rather than from an actual profit. The investors are often offered unusually high returns. Bernard Madoff offered a return between 10 and 20 % each year which compared to other schemes is rather low. These figures can be compared to the Costa Rica Crooks who promised a monthly interest of 3% and Ponzi himself who promised a return of 50% in only 45 days. What Madoff instead offered his clients was safe and consistent return year after year. The scheme is named after a man named Charles Ponzi and he become famous through all of the United States due to his frequent use of the technique now carrying his name.

No one really knows when the scheme began. Maybe he was involved in some kind of fraud ever since he started his company in 1960. Madoff himself claims things started to get messy when his company rapidly grew in the 90’s. However this seems hard to believe.

The fraud was conducted at the 17th floor in the so called lip stick building in Manhattan, the home of Bernard L. Madoff Investment Securities LLC. Very few employees were allowed in here.

For over 15 years, Defendants 0 'Hara and Perez helped Bernard L. Madoff conduct a massive securities and advisory fraud at Bernard L. Madoff. There were very few investors here and according to his sons Bernard was always cryptic about the operations at the 17th floor.

A Ponzi scheme is bound by nature to fail due to its basic conditions. It is based on a never ending stream of new investors continuously putting money into the organization. This means the sums he needed was ever-increasing which in the long run of course is impossible.

When the great financial crisis began to spread in 2008 people got cold feet and eventually wanted their money out of...