Bernie Madoff Essay

Bernard “Bernie” Madoff was a business man who misused and took advantage of the trust of his clients in order to be personally benefited with money that would satisfy his greed.

Bernard Lawrence Madoff better known as “Bernie” was born in Queens, New York on April 29, 1938. He comes from Polish, Romanian and Austrian ancestry. He grew up shortly after the great depression, with his father being a plumber and his mother not working at the time they lived with financial problems. His parents Ralph and Sylvia, in attempts to better their financial situation became official broker-dealers and started a company from their home. Their company, Gibraltar Securities, was closed by the Securities and Exchange Commission and accused of using the business

as a front. During this time Bernie was a student at Far Rockaway Highschool. He was on the swim team and was dating his soon to be wife Ruth Alpern.

His swim coach gave him a job working as a life guard at the Silver Point Beach Club, he also had a side job installing sprinkler systems. Working these two jobs, he would make money and save it for later. In 1956 Bernie attended his first year of college at the University of Alabama but then transferred to Hofstra University where he would stay and graduate from with a degree in political science. A year before he got his degree he married his girlfriend from high school Ruth Alpern. After receiving his degree, he used 5000 dollars that he had saved up working as a life guard and at his side job to start an investment firm which he called Bernard L. Madoff Investment Securities. He could not have started it had it not been for his parents in law who loaned him 50,000 dollars. His father in law who was a Certified Public Accountant also helped him by recommending him to people. Bernie eventually became a trustworthy person that many people went to to get a good and reliable return at the end of the year. It was because of this reliability that

people confided in him and trusted him with their financial future, because of him being fueled by greed he took advantage of these people and ruined their life’s using a Ponzi scheme.
A Ponzi scheme is a financial con or type of fraud where people are lied to in order to invest into a fraudulent system started by a person or group of people.

What happens is people are told to invest large amounts of money and promised large amounts of return if they do end up going through with it. What really happens is that the originator of the scheme tells vast amounts of people of the “opportunity”, the early one’s who invest are given their money in return as well as extra money provided from some later investors who unknowingly join the scheme. After this, amazed by their return they recommend it to their friends and family who also invest and only add fuel to the Ponzi scheme. Unfortunately, only the beginning investors have a possibility of winning from the situation, the investors who came later lose all that they had, while the originator of the Ponzi scheme reaps all the reward. For some back story on the Ponzi scheme we must learn about the man whom it was named after, Charles Ponzi. Charles Ponzi noticed a flaw with postage stamps and international reply coupons. He could buy international reply coupons and return them in another country in exchange for postage and because of it being just after World War I, the exchange rate was beneficial towards Ponzi in that he would receive more money than he had paid for. He told his plan to many investors and promised them a large amount of return in a short amount of time, this is usually what is said during a Ponzi

scheme. These investors invested large amounts as well as told others. They never took their money out because they wanted to leave the money in the investment so that it could accrue interest. It took some time for the scheme to finally be discovered, but when it was, it was revealed that Ponzi had made 10 million dollars and only ever spent 60 dollars on the stamps. As his punishment for what he did he was sent to a federal prison for four years and then deported to Italy after his sentence. After news spread about what he had done some people took this model and used it themselves and because it worked the Ponzi scheme became a part of our everyday living, it is now something that you must look out for.
One of the reasons why Bernie Madoff was able to fool so many people is because he was a trusted investor. Bernie started his company off by selling penny stocks, he later was one of the first to use computers when investing which set him apart from the rest and gave him a lead in the changing industry, at one point he was even a chairman for the NASDAQ stock exchange. Bernie was known for his large contributions to charities and being a philanthropist, also for hiring a large amount of his family and as a result the firm seemed more trustworthy. After some time, Bernie was working for actors, musicians, sports team owners, senators, business men and many other kinds of wealthy people. People wanted to go to him with their money because of his good reputation. What Bernie did after working up his good reputation was what ended up getting him in trouble later as well as ruining the lives of thousands of people. In the 1980’s Bernie Madoff started his Ponzi scheme, by the time it was done he had gathered an astounding total of 65 billion dollars from thousands of investors. The investors kept coming so the Ponzi scheme was able to continue to grow for many years, but things changed on December 10, 2008. On that date Bernie had a business meeting with his sons who also worked at the company. They ended up asking their father why there was so much money and where it was coming from. Bernie revealed the truth to them and told them the details of the Ponzi scheme that he had been running for so long. Whether it be for fear that they would be believed to have been involved in the fraudulent scam or it be them having high moral integrity and ethics, the following day they reported their father to the proper authorities. Bernie Madoff was arrested and he plead guilty to 11 felony counts, he was sentenced to 150 years in a medium security prison. In the end, of the 65 million dollars that Bernie had made, 50 Billion had been lost. Thousands of people had lost everything they owned and had to file for bankruptcy, all because of Bernie Madoff.
One of the main questions is why would a successful business man who was already very wealthy and had a powerful position in the industry have the need or desire to run such risky scheme? A scheme that if discovered would have so many negative impacts that it would make the benefits seem all in vain. We can find out why thanks to the Financial Times, they went to the FCI Butner Medium I prison in North Carolina where Bernie is serving his sentence to directly ask him. According to Bernie Madoff it all started when four of his biggest clients invested a large amount of money and “caught the market at the right time.” However, they immediately ran into misfortune when the market crashed in 1987. Bernie told them to wait it out till the market improved and they would be happy with the end results. Around this time Bernie was finding a lot wealthier client who wanted to invest because of storied of high returns from the four main clients that he had. What he ended up doing is just what a Ponzi scheme is, he used the money from the new clients and gave it to the older clients to make it seem like they were receiving return. Bernie then stated that because his clients were greedy they left the money to defer the tax, so he was left with the money. He thought that he could get away with it till the market leveled out and then straighten everyone’s returns so that everyone would be happy. He was quoted as saying, “I thought I could do it. I did! I took the money – let’s say I had 1 billion dollars, by then – and I was convinced that when the market straightened out I would be able to cover things.” After a while he only remembers asking himself why he didn’t return the money but he never did, he just kept it going and hurting more people in the process. He only realized after the fact that the reason why he never returned the money to investors is because of his ego, he was being recognized by so many large banks and clients and he didn’t want to look like he messed up. He would store the cash in an offshore Swiss bank account. He stated that it wasn’t about the money but that is hard to believe seeing the lifestyle that he lived. We can only put so much trust in what Bernie says during this interview given his well-known history of lying. But there is one thing we know for certain, Bernie Madoff takes responsibility for what he did. He is quoted as saying “I have done a lot of soul-searching. I take responsibility. I do… I do.” I do believe that he was telling the truth at this moment because he could have dragged out his trial but he didn’t, he confessed to all 11 felony counts really early on and because of this he saw the inside of a jail cell only 3 months after he was arrested.
Going off business ethics, what Bernie Madoff did was not the right thing to do. We know this because he did not think about the impact his actions would have on all the people involved, he only thought about himself. In our textbook Beyond Integrity,
Donald Schmeltkopf stated,
“A virtuous individual is a person of good and right character, one who possesses the understanding and conviction to do what is right in the proper way, with the proper spirit, and with the proper end in view--- and one who does it faithfully, not just when it is convenient.”
This definition of a virtuous person does not match with Bernie Madoff’s character. Bernie understood what the right thing to do was but lacked the integrity to follow through and do it because he only thought about himself, his ego and how it would look to other people.
Jonathan Romo