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Bernard L. Madoff: The Fraud of the Century
Bernard L. Madoff: The Fraud of the Century
Introduction of the madoff scandal
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In 2008, Irving Picard was assigned as the Securities Investor Protection Act (SIPA) Trustee for the liquidation of Bernard Madoff Investment Securities LLC (BLMIS) (Ferrell, J, Ferrell, O, and Fraedrich, 2015, p. 421). The Appeals court threw out Picard's suits against the banks due to lack of evidence proving the banks participated in the Madoff fraud. The ruling included that bankruptcy trustees have no authority to sue third parties on behalf of the estate's creditors. In turn, Picard petitioned the Supreme Court October 9, 2013, to reverse the decision and allow him to sue the banks for their participation in the scheme with Madoff. The petition insisted that the court misunderstood the SIPA. The SIPA was created to protect investors from
This case is based on Mrs. Jennifer Sharkey, who sued J.P. Morgan & Co. (JCMC), Mr. Kenny, Mr. Green, and Mrs. Lassiter, alleging breach of contract and violations of the SOX anti-retaliation statute. The facts started when Mrs. Sharkey was assigned to a Suspect Client 's account where members of JPMC expressed to her their concern regarding to this account because they suspected that the Suspect Client was involved in illegal activities. After Mrs. Sharkey’s investigation, she claimed that she informed her conclusions to superiors Mr. Kenny, Mr. Green, and Mrs. Lassiter, of the Suspect Client 's potential unlawful activities, such as: money laundering, mail fraud, bank engaged in fraud, and violations of federal securities laws. After
In September 2008, Federal agents swarmed the offices of Tom Petters uncovering a billion dollar Ponzi scheme. A similar case in dimension and scale of the well-known Bernie Madoff case is Tom Petters; the mastermind of a 3.7 billion, fourteen-year long deceit, the second largest Ponzi scheme in the United States. Similarly, Robert Allen Stanford, whose scheme emerged in February 2009 and is thought to have lasted ten years, involving the enormous sum of $8 billion, as well as S. Rothstein, who admitted to managing an approximate 1.2 billion dollars Ponzi scheme at the end of 2009. According to Maglich (2014) Ponzi schemes continue to thrive and leave a trail of financial destruction. “In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses” asserts Maglich (2014). Even though Ponzi schemes eventually collapse, Ponzi schemes remain
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.
Money and fair play are two words that do not normally go together when it comes to how it is received. Scamming is always present, in many different forms and carried out in many different ways. One of these ways is called "insider trading". This method of cheating the system is commonly found in the world of stocks, which is a huge factor in the economy. Using information one acquires from their status in society, in benefit towards themselves, without the outside world knowing is considered not only illegal but unethical by many.
It took for the losing in the case with two Bear Stearns hedge fund managers for the government to realize that there was a problem within their justice system. If they couldn’t take down two people accused of deceiving investors, how did they assume that they would be able to take down numerous high-end executives within Wall Street? So in fall 2009, over a year after the initial hit of the financial crisis, Obama introduced the Financial Fraud Enforcement Task to oversee prosecution for fraud and financial crime a week before the hearing to discuss ’08 financial crisis prosecution. With such a department now put in place, the government believed they could go back and review the “fraud” that took place within Wall Street years before and place a blame somewhere, revealing another flaw of the US government and justice system. The government wasn’t taking the cases as serious as they should have. They weren’t finding ways to filter through Due Diligence underwriters and they weren’t calling forth whistleblowers. They were losing the case before it could even
Lies were the beginning of the end. Neither Madoff or his partners were licensed to be financial advisors for the number of clients they represented and they knew this. The client regulations stated that if you were not licensed then you could have no more than 15 clients and Madoff had 3,200 clients. This one simple violation could have shut down the entire operation if it had been enforced from the start.
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
In late 2008, the world economy seemingly grinded to a halt. Wall Street, unable to reconcile the liquidity crisis and financial losses that stemmed from its bad bets on mortgage backed securities, turned to the United States government for help. What resulted was the $700 billion Troubled Asset Relief Program (“TARP”), the largest government bailout in the history of the United States. After the dust settled and Wall Street, with hundreds of billions of taxpayer dollars, managed to avert a global financial meltdown, Congress put pen to paper to ensure that the same crisis would never happen again. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), a nearly 900-page behemoth of financial reform, was signed into law. The Dodd-Frank Act was meant to reform that the unsavory and opaque practices that led to the 2008 crisis – it does so by introducing a stricter financial regulatory regime in which Wall Street must operate.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
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.
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.
According to the facts in this case, Walkovszky was hit by a cab four years ago in New York and the cab was negligently operated by defendant Marches. The defendant Carlton, who is being sued, owned and ran the cab company in which he set up ten corporations, including Seon. Each of the corporations had two cabs registered in its name. The minimum automobile liability insurance required by the law was $10,000. According to the opinion of the court the plaintiff asserted that he is also ?entitled to hold their stock holder personally liable for damages, because multiple corporate structures constitutes an unlawful attempt to defraud the general member of the public.?
One of the major unintended impacts of the Dodd-Frank Act has been on credit unions and community banks. These banks weathered the credit crisis and lost only 6% of their share of banking assets between 2006 and mid-2010. A recent Harvard study indicates that this decline accelerated to 12% since the passage of the Dodd-Frank in July 2010. [a] While the community banks’ earnings increased by 12% to $5.3 billion by mid 2015 the number of these banks had declined according to Federal Deposit Insurance Corporation. The number of banks with assets under $1 billion has declined from around 7500 in 2010 to less than 6000 since Dodd-Frank came into effect. [b] Increased compliance costs due hiring of new personnel to interpret the new regulations compelled these banks to cut down on customer service amongst other things. The law hurt them disproportionately and forced them to consolidate. Regulatory economies of scale drive the process of consolidation. A larger bank is often more equipped at handling increased regulatory burdens
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...
In 1934 the Securities Exchange Act created the SEC (Securities and Exchange Commission) in response to the stock market crash of 1929 and the Great Depression of the 1930s. It was created to protect U.S. investors against malpractice in securities and financial markets. The purpose of the SEC was and still is to carry out the mandates of the Securities Act of 1933: To protect investors and maintain the integrity of the securities market by amending the current laws, creating new laws and seeing to it that those laws are enforced.