Management 3301
Dr. Ahmed Sallam
“Corruption and Fraud”
By
Karim Abdel Galil,
ID: 900.101.576, Section 04
&
Hatem Othman
ID: 900.100.798, Section 03
Corruption and Fraud
The following is a case that has been recently called into court in 2008.
Bernard Lawrence "Bernie" Madoff is an American imprisoned of fraud and a former stockbroker, investment advisor and financier. He was the former non-executive Ponzi sheme chairman of the NASDAQ stock market along with and the admitted operator of a Ponzi scheme , which till now is the largest financial fraud in U.S. history. He used to pay returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. Madoff started the Wall Street firm Bernard L.Madoff investment Securities in 1960. He was its chairman until the day he got arrested on December 11; 2008.He is currently serving a life sentence of 150 years.
1. Introduction:
Ever since money has been created and been used , many different ways of fraud , fooling people and theft has been created to steal other peoples belongings. Stealing and fraud have become even easier ever since technology has been created and used to deal with money issues.
Examples:
Hacking a credit card, hacking a bank account, money laundering embezzled checks and of course Ponzi scheme, where a person returns to his investors from new capital paid to operators by new investors.
One of the recent biggest and most popular modern time frauds in the United States started in 1993 till 2008 when the owner Madoff was sentenced to jail. Mandoff was able to keep his hidden agenda running and gaining more and more money for over 15 years in the United States, which is one of the most o...
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...candal is the biggest of its kind in financial history, there is extensive information about the incident. We recommend watching the documentary film “Chasing Madoff”. Accompanying this, Markopolos’ 21-page-memo filed to the SEC in 2005 explains the fraud mechanisms three years before Madoff’s arrest.
In addition, the New York Times has a timeline online including the major dates of the Madoff’s Case.
Furthermore, for those who do not entirely grasp the concept of a Ponzi Scheme and disregarding the specific Madoff case, the popular culture show “Two and a half men” shows a simple fraud carried out by character “Alan” in the episode “That Darn Priest”. It is obviously blended in with situational comedy; however the episode does a good and humoristic job of illustrating the simplest technique for a Ponzi scheme by bankrolling “returns” with new investments.
In May 2002 the SIPC trustee filed a 255.3 million lawsuit against the Madoff family. Madoff company BLMIS ended on December 11 2008 when he was arrested for stealing his customer’s money. For more than 50 years Madoff s company money from people and on June 29th 2009 he pleaded guilty "to 11 counts Complaint and was sentenced as a hundred fifty years in prison"(Lewis, 2013
The case that was provided in the Stanwick textbook provided information on the Madoff Ponzi scheme which is said to be the largest of Ponzi schemes in the world. This case was a very interesting case. It showed how Bernard Madoffs massive falsehood created disaster for around 13,600 clients. The impact from Madoff did not end with his clients being impacted but also people far and in between. Madoffs Ponzi scheme was controlled through his company that consisted of his family being the head of the company, friends, and employees. This scheme was a result for the recession that hit in 2008. The two sons of Madoff that were top employees claimed to have no connections with the Ponzi scheme.
The Bernie Madoff Ponzi Scheme is a well-known case and is known as one of the biggest Ponzi scheme’s. In summary the scheme occurred for many reasons that I will some up into 3 points; A lack in competency by regulatory agencies, a lack of regulation, and finally a breach in ethics by Bernie Madoff himself. To explain further, the regulatory agencies like the lawyers and SEC are supposed to prevent schemes such as this one from happening but because they lacked the skills to correctly assess the situation, interpreting the number of tips they had received regarding scheme that had been filed, and to act on those in an efficient manner. One of the tips was made by Harry Markopolos in 2000, of who correctly predicted that Madoff was guilty of fraud. Even after this tip from Markopolos, Madoff was not arrested until 2009. Many family members were also a part of the fraud along with some non-family members such as Frank DiPascali and a team known as the 17th floor team, who helped Madoff carry out his fraud. The idea behind Madoff’s fraud was that he would produce false statements of their investments and when people wanted to pull out their investments, the money wasn’t actually there, which rightfully rose more than a few eyebrows and ultimately led to his arrest.
After having them signed as investors to his company, he would pay them very handsome returns and in gaining their trust, they would give him extremely positive feedback, which would eventually attract more investors. In addition, Madoff would capitalize on his business having this foresight of exclusivity. His promise to investors of a 10percent return annually was never openly questioned until 2001 and 2005. Articles and magazines were written, and the person in question was none other than Madoff himself. The SEC would request reports throughout the life cycle of his operation, but Madoff would escape their radar by instructing his employees to construct false trading records and monthly investor statements. Moreover, Madoff would also gain money from fees on investors through feeder funds, which are funds that combined money from other investors and were then transferred to a Madoff Securities account. Another reason Madoff escaped from the SEC is through his family. At some point in time, SEC boss Christopher Cox ran an internal investigation and found out that one of his own employees from the SEC, Eric Swanson, was in charge of monitoring Msdoff’s firm, who also happened to be married to Madoff’s niece. The last reason Madoff managed to hide his Ponzi scheme so well was due to his veteran
Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to invest billions of dollars into his hedge fund. And they did so because of the extremely high returns, which were promised by Madoff’s firm. If anyone would have looked deeply into the structure of his firm, it would have definitely shown that something is wrong. This is because nobody can make such big money in the market, especially if no one else could at the time. How could one person, Madoff, hold all of his clients’ assets, price them, and manage them? It is clearly a conflict of interest. His company was showing high profits year after year; despite most of the companies in the market having losses. In fact, Bernard Madoff’s case is absolutely stunning when you consider the range and number of investors who got caught up in it.
In modern times, society is still burdened by individuals seeking to get rich quick. Names such as Marty Frankel and Robert Rooney, with their modern form of the Ponzi scheme, have appeared in the news. Although modern con-artists may enjoy the short success Ponzi did, none may ever possess the charm, the demeanor, or the ability to touch the hearts of individuals intended to be swindled.
Bernie Madoff is one of the greatest conman in history. The Bernie Madoff scandal takes the gold as one of the top ponzi scheme in America. Madoff started the Wall Street firm, Bernard L. Madoff Investment Securities LLC, in 1960. Starting off as a penny stock trader with five thousand dollars, earned from his workings as a lifeguard and sprinkler installer, his firm began to grow with the support of his father-in-law, Saul Alpern, who helped by referred a group of close friends and family. Originally, his firm made markets by the National Quotations Bureau’s Pink Sheets. However, in order to compete with the bigger firms that were trading on the New York Stock Exchange floor, his firm started to use very intelligent computer software that help distributed their quotes in second’s rater then minutes. This software later became the NASDAQ that we know today. In December of 2008 Bernard Madoff confessed that he had embezzling billions of dollars from investors. It is estimated to have lasted nearly two decades, and stolen approximately $64.8 billion. On December 11, 2008 he was arreste...
Bernie Madoff, the man who created his own investment company Bernard L. Madoff Investment Securities LLC and also earned the notorious title of the man who ran one of the largest Ponzi scheme in United States history. Madoff’s scandal is arguably the largest in Wall Street history as well. One of the main reason he ended up getting caught was because the clients who were investing in his company wanted to redeem a solid chunk of 7 billion dollars worth of their investments when the stock market went under in 2008 which interfered and caused problems for his Ponzi scheme. Madoff ultimately was sentenced to 150 years in prison after he pleaded guilty to 11 felonies.
Bernard L. Madoff was the perpetrator of a Ponzi scheme, and he was finally arrested in December 2008. MLSMK Investment Company (MLSMK) is a Florida partnership, which invested $12.8 million in Madoff's investment company between October and December 2008. On April 23, 2009, MLSMK filed a complaint in the District Court asserting five claims against JP Morgan Chase & Co. (JPMC) and JP Morgan Chase Bank (Chase Bank). They were accused of conspiring with Madoff to trick the victims.
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm (A&E Networks Television). Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
Bernie Madoff was a Ponzi schemer that did not offer excessive returns, but promised duration and consistency and had a good reputation which resulted in him attracting many investors. Bernie Madoff was caught in December 2008. He was accused for money laundering and theft and sentenced to 150 years in prison. Madoff had the capability of getting away with this scheme for over a decade because of his reputation. He was considered an ‘expert’ when it came to investing and was a member of the “National Association of Securities and Dealers” while also being involved in the development of the NASDAQ stock market.
After his second jail sentence, Ponzi went to Boston, Massachusetts to conduct the scheme that would lead to all the schemes after that to be named after him. He told his clients that he would make a 50% profit in 45 days, and 100% profit in double that time. Ponzi told his clients that he was buying “discounted postal reply coupons in other countries and redeeming them at face value in the United States” (Petsko, 2009, p.1).This method is called arbitrage, and while it is not illegal, it can be seen as unethical and greedy to some
150 Ponzi schemes collapsed in 2009 alone, resulting in more than $16 billion in losses to tens of thousands of investors. These victims confront the challenge of calculating their losses for recovery claims as well as tax purposes. Ponzi scheme investigations currently account for approximately 21% of the Securities and Exchange Commission’s (SEC’s) enforcement workload — up from 17% in 2008 and 9% in 2005
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex, he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm. Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
theft and cheating. Identity theft is a very serious crime and due to the resources made available