Madoff Case Study
Introduction Honesty is one of the basic principles for ethical business conduct. Gaining the trust of customers and investors is paramount in ensuring continued long term success and profits. For over ten years, Bernard Madoff created and grew one of the world’s largest Ponzi schemes known to date. He gained the trust of wealthy friends and prominent charity organizations, served on the chair of NASDAQ, and lived a lavish lifestyle all while keeping a dark secret from those who were the closest to him. Madoff’s deceit was worldwide.
Being a man of power, Madoff lured in Ponzi scheme investors all over the globe with the guise and promise of being part of an exclusive club. Regulators are now increasing testing of and instructions to financial intuitions in an effort to protect consumers from another billion dollar scheme. Issues Raised As our test book states, “When an individual engages in deceptive practices to advance his or her own interests over those of his or her organization or some other group, he is committing fraud… Fraud is any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression. (Ferrell pg. 78) There is no doubt that Madoff actively breached the trust of the companies involved in the Ponzi scheme. After his family gained awareness of his actions, Madoff admitted to his dealings and was tried and sentenced to 150 years in jail. One of the questions raised by his scheme, is did he work alone? There is proof that an accountant friend assisted, but who else looked the other way while he was pulling the wool over the eyes of millions? Who knew something was wrong, but still participated thinking they too could gain from being at the top of the scheme?
This is the promise of such schemes; those at the top get all the benefits. The estimate of losses totals over $50 billion. In order to manage that large of a sum, there would need to be a lot of paperwork somewhere, let alone, accountants and workers to control it. He couldn’t have done it without the cooperation and assistance of someone well informed who could process trades, report them and create monthly statements. Others had to help him falsify all those reports, conduct mail fraud and create multiple sets of books, while he was at country clubs attracting more investors to be at the bottom of the ladder.
However, he still claims to be the only perpetrator. Even with regulators and the SEC on the case, no one will ever know with for sure how many people actually worked for Madoff or how many investors he had or how much money he actually managed. Analysis of Regulation Since the Madoff case came into public view, a spotlight is now shining on the governing bodies of regulation. The investment world is painfully aware of what is possible when auditing regulations are negligent. Shortly after Madoff’s arrest and trial, the SEC took quick measures to ensure the safety and confidence of financial investing.
Many of the new SEC’s regulation guidelines include: Revitalizing it’s Enforcement Division, Revamping the handling of complaints and tips, Encouraging greater cooperation by ‘insiders’, Enhancing safeguards for investors’ assets, Improving risk assessment capabilities, Conducting risk-based examinations of financial firms, Improving fraud detection procedures for examiners, Recruiting staff with specialized experience, Expanding and targeting training, Improving internal controls, Advocating for a whistleblower program, Integrating broker-dealer and investment adviser examinations, Enhancing the licensing, education and oversight regime for ‘back-office’ personnel. I think one of the best things the regulating bodies can do is provide education to investors and encourage both investors and financial intuitions to demand higher standards of ethics. The SEC, and other regulators, need to stop the wait and see technique and become more proactive in their regulation tactics. I like the idea of having a better whistleblower program for anonymous complaints as well as sporadic audits and training.
Bottom line, the more people talk to and about financial practices the better. Conclusion Fraud is the opposite of being honest. As the world adapts to technology and people build relationships with their money and financial institutions, ethical problems are sure to erupt. Fraud was easy during the birth and growth period of technology and the internet, since it’s full capabilities where unknown. Bernard Madoff is not the first to use his position of power to gain the trust of the wealthy or hard working. Many still believe business is a game or war and they think each man is for himself, or no rules apply in the quest for profits and a lavish lifestyle.
Because of Madoff and his far reaching, billion dollar scheme, the times have changed and the SEC and regulating bodies are more aware than ever, of how people with knowledge can take advantage and lie to those who don’t have it. The mystery of who knew about and participated in Madoff’s scheme may never be solved, but one thing is for certain, the doors of communication must stay open between business, regulators, and consumers everywhere so we can look out for each other and hold each other accountable for unethical actions. Reference •Ferrell, O. C. , J. Fraedrich, and L. Ferrell. Business Ethics: Ethical Decision Making and Cases. 9th. ed. Mason, OH: South-Western Cengage Learning, 2011. Print.