Question

Explain how the unethical behavior and actions of Bernie Madoff and his associates lead to the bilking investors out of billions of dollars.

Who do you hold accountable for the Bernie Madoff affair? Please explain your answer.

How could business and regulatory practices be modified to prevent another tragic Ponzi scheme similar to the Madoff affair?

Explain your viewpoints on how the Security Exchange Commission managed the investigations in Bernie Madoff’s investment company.

Provide your thoughts and opinions on Bernie Madoff’s jail sentence of 150 years.

Answer 1

1. On March 12, 2009, Bernie Madoff pled guilty to the largest Ponzi scheme in history. He successfully swindled investors out of $65 billion. Ponzi schemes rely on a single person or group to coordinate every aspect of the fraud. To keep the scam going, the masterminds behind the plan convince numerous victims that they’re investing in a legitimate fund that promises great returns. Madoff set up his portfolios to look like he was matching the returns of the S&P 500. This strategy prevented him from needing to pay too much to existing investors, but it still made his purported holdings appeal to new targets. And he remained under the radar by doing everything he could to keep his scheme low key. He targeted specific, elite groups of investors, keeping his victims close and the SEC off his back. He also stayed off the grid by keeping his paperwork up to date and consistent. While most other Ponzi schemes operate by giving out large returns and then collapsing, Madoff was able to tread water with his smaller returns and keep his scam going for years.

2. Stanley Chais, a philanthropist who invested heavily with Mr. Madoff, and Carl J. Shapiro, one of the money manager's oldest friends, were among at least eight Madoff investors and associates being scrutinized by the U.S. attorney's office in Manhattan. Others include: Frank Avellino, a Florida accountant who ran an investment fund that invested client money; Noel Levine, a real-estate investor who works out of a two-room office on the 17th floor, next door to Madoff's fraudulent investment operation, and Palm Beach investor Robert Jaffe, a son-in-law of Mr. Shapiro who referred potential investors to Madoff.

3. It is very important to regulate a ponzi scheme so that there are no frauds going ahead, both the government and individuals need to consider the below:

a. Know what the risk of investment is and there should be no fraudulent activities.

b. All the investments need to be following all the rules and regulations laid down, if there is any deviation a scrutiny should be undertaken.

c. If there are any whistle blowers this needs to be taken very seriously by the regulators.

4. The alleged fraud went undetected for decades despite numerous warnings, red flags and a general sense behind closed doors on Wall Street that something wasn't quite right. A whistle-blower alerted the Securities and Exchange Commission but this was ignored as well, Madoff's firm wasn't even registered as an investment advisor until 2006. The SEC never examined it as an investment advisor, despite the fact that with $50 billion it would have been among the biggest hedge funds. Finra also failed to come up with the fraud, despite regular exams of Madoff's broker dealer.

5. The guilty charge of 150 years was prompt and apt considering the fraud and the money investors lost due to this ponzi scheme, It will also lead to fear in the mindset of the other people who may be even thinking of committing such a fraud.