Question

Do you Agree or Disagree to the discussion of the Bernie Madoff Accounting Scandal? Explain your thoughts and add any new findings”

Accounting Scandal: Bernie Madoff a wall street investment firm founded by Madoff and his accountant David Friehling and Frank Dipascalli. The company tricked investors out of $64.8 billion through the most extensive Ponzi scheme ever buy promising them above market, and steady returns that never existed. The most damage of the Madoff scheme seems to focus on the small world of Jewish philanthropy, where he was a leading figure. The North Shore-Long Island Jewish Health System said it was scheme out of $5 million. The Julian J. Levitt Foundation, based in Texas lost about $ 6 million and the Yeshiva University, a New York institution where Madoff served on the board lost $19 million. This scam ran for over five decades from early 1960 to late 1990. The crash caused several Madoff investors to lose everything forcing some of them to go homeless, live in their cars and RV’s.  

Illegal act/ Unethical act: The investors were paid returns out of their own money or that of other investors than profit, and by doing this the investors were not aware of the illegal activity taking place with their investments. The list of investors that Madoff scheme was not your average person, but prominent peoples such as Steven Spielberg, actor Kevin Bacon, and owners of the New York Mets. There were banks and pension funds that were also schemed by Madoff and his followers. The company made its trades and held the shares it bought and kept its illegal activities hidden from view. The thousands of investors and numerous organization that had invested with Madoff firm directly or indirectly spent the early part of 2009 assessing theirs loses.

Detection: The way that Bernie Madoff got caught he told his sons Mark and Andrew about his scheme months after the 2008 U.S. market collapse. Madoff sons reported him to the SEC. The SEC said that they would have to testify against their father if the investigation goes to trial.

Detection that could have found earlier: The SEC had been investigating Madoff and his securities firm on and off since 1999 a fact that did not go well with the investors that lost their life savings. They felt that if the SEC had warned them of Madoff illegal activities before his arrest and conviction, this would have prevented the scam from going on for so many years.

Penalties: Bernie Madoff pleaded guilty to defrauding his client out of their life-saving in one of the world most massive Ponzi scheme, and for his part, Madoff received 150 years in a maximum-security prison for his crime and had to pay $170 billion restitution and his co-conspirator Friehling and D received light prison time as well. The FBI continued to pursue suspects that may have a hand in the Madoff scheme, including some members of Madoff family. Madoff insisted that his sons had nothing to do with the Ponzi scheme.

Answer 1

Bernie Madoff scandal was the largest Ponzi scheme in world history and one of the biggest scandal in the US history. Madoff has defrauded the investors by paying returns from their own money or that of the other investors. The fraud was based on false trading reports and creating bogus basket of stocks. The fraud came in picture when the firm didn’t had enough money to pay to their clients, but still the firm declared heavy bonuses for their employees. This led the 2 sons to question about the decision to pay bonus. Bernie revealed about the fraud to his son’s, who further informed to the SEC about the same.

With such kind of financial frauds, investors would be unwilling to invest in the securities and the faith in the financial market would decline. Even the banks and pension funds were defrauded. The citizens suffered huge losses due to the scheme. To prevent such frauds, strict audit requirements as per the SOX act should be followed. Such act’s applicability should be compulsory for the financial viability of the firms.