The Bernard Madoff’s Fraud Essay Example for Free

The Bernard Madoffs Fraud EssayMadoffs system to defraud his clients at Bernard Lawrence Madoff investment Securities began as early as 1980 and lasted until its exposure in 2008. Bernard carried divulge this scheme by philandering billions of dollars under false pretenses, failing to invest investors funds as promised, and misappropriating and converting investors funds to benefit Madoff, himself, and others without the knowledge or authority of the investors.To execute the scheme, Madoff solicited and caused others to solicit potential clients to open trading accounts with Bernard Lawrence Madoff Investment Securities (BLMIS) on the basis of a promise from him. He promised to use investor funds to purchase shares of common stock, options and other securities of large, long-familiar corporations, and representations that he would accomplish high rates of return for client, with limited risk. join states of, 2009) Among other things, Mandoff marketed to clients and prospect ive clients an investment strategy referred to as a split rush conversion strategy.Clients were promised that Bernard Lawrence Madoff Investment Securities (BLMIS) would invest their funds in a basket of approximately 35-50 common stocks within the Standard Poors 100 Index (the SP l00), a allurement of the 100 largest publicly traded companies in terms of their market capitalization. Mandoff claimed that he would select a basket of stocks that would closely mimic the price movements of the SP 100.Mandoff further claimed that he would opportunistically condemnation those purchases, and would be out of the market intermittently, investing clients funds in these periods in United States Government issued securities such as United States Treasury bills. Madoff also claimed that he would hedge the investments that he made in the basket of common stocks by employ investor funds to buy and sell option contracts related to those stocks, in that respectby restrain potential losses cau sed by unpredictable changes in stock prices. United states of, 2009) Madoffs Illegal Business Behaviors Exposure Federal prosecutors filed a total of xi charges against Bernard Madoff. The first of those charges was for securities fraud. The crime of securities fraud involves false claims of investment security holdings, and misinformation regarding stocks and brokerage advice. Sensational insider information is also considered a component of this criminal activity. Another major(ip) charge involved terzetto counts of money laundering, both domestically and through international accounts.Money laundering is the funneling of revenue acquired illegitimately into new monetary arrangements, with the liveliness of concealing this revenues original origins. Plus, in connection with both his securities and investment adviser line of descentes, prosecutors also charged Madoff with mail and wire fraud. These offenses involve initiating schemes using either the United States Postal Serv ice or telephone systems toward obtaining money and/or property in a false or unlawful means. (Tomaszewshi, 2010).Perpetrators winding in Bernard Madoffs Fraud Its certainly not uncommon for ones son or daughter to enter into an identical dividing line relationship as a successful family member such as a parent. However, in Bernie Madoffs case this approach was taken to extreme levels of nepotism. peckerwood Madoff entered his brothers potent in 1967, and as business prospered he began to accumulate several executive titles Senior Managing Director, Head of Trading, and even Chief conformism Officer for both the broker-dealer and more secretive investment advisor business models.Bernies sons Mark and Andrew joined the firm in the mid-to-late 1980s, and eventually were made co-directors of Madoff Securities global in London, England. Bernies nephew Charles joined up in 1978, and became the Director of Administration for the investment firm. And Peters daughter Shana was hired on in 1995, and served as in-house Legal Counsel and Rules Compliance attorney for the broker-dealer business. Other parties greatly impacted by Bernie Madoffs activities were his business associates and their many clients over the decades.For example, Frank Avellino and Michael Bienes themselves funneled over three cubic yard clients to Madoffs investment advisory business. Madoff had consistently advised the pair to re chief(prenominal) unregistered in their dealings. But when the SEC accused the duo of illegally selling securities, Madoff pretended ignorance of their activities, even though he had secretly instructed them all along. For their trouble, Avellino and Bienes were forced to pay a fine of three hundred and fifty thousand dollars and shut their business down.Other notable business partners eventually left in the lurch by Madoffs growing fraud would go on to include Jeffrey Tucker and Walter Noel of Fairfield Greenwich Group. Non-related people who had worked under Bern ie Madoff also became tainted from the association following his arrest. This employee group includes those who may have had indirect dealings through Madoff subsidiaries worry Cohmad Securities Corporation. However, the idea also applies to those employed directly, such as former executive assistants Elaine Solomon and Eleanor Squillari.Jeffry Picower was in industrialist and philanthropist who seemed to be a favored Madoff beneficiary, and made outlandish simoleons from his investments with Madoff. From 1996-2007 there were 14 instances of greater than 100% yearly returns and 25 of greater than 50%. From 1996-1999 his regular trading account made from 120-550% a year. Some march of backdating trades, instituted by Picower, has been presented by trustee Irving Picard. In December, 2010, his estate returned $7. 2 billion in profits to the government. Picower died before the settlement. Tomaszewshi, 2010)Motives of the Perpetrators The various perpetrators who were involved in Be rnard Madoffs ponzi scheme had different kinds of motives that were completely against the provisions evident in federal laws. Jeffry Picower had over twenty four different accounts with Investment Securities L of Jeffry Picower and his wife in Investment Securities LLC was to benefit from the cash windfall generated from devious deals according to reports his investment into Madoffs company was once worth over one billion dollars. Kirchner, 2010) Annette Bongiorno was a major(postnominal) employee at Bernard Madoffs illegal company and among her roles at the firm she was to brief investors concerning their returns which were all fictitious.Ezra Merkin was an investment expert who assisted Bernard Madoff to drain off extraordinary amounts of money from clients accounts and it later emerged that he had a conflict of interest in the Madoff company. With its headquarters in Connecticut, Fairfield Greenwich Company misled investors into buying stakes at Madoffs illegal firm and in retu rn, the company received huge amounts of cash from Bernard Madoff. NBC, 2009) Frank DiPascali was also another essential figure in Bernard Madoffs illegal investment scheme. mavin of the frauds committed by Frank is that he engaged in countless number of international money laundering activities to benefit Madoffs scheme. In entree to this, DiPascali also gave Mr. Madoff expert advice on how to go about his illegal businesses without being caught or detect by the federal authorities. (Arvedlund, 2010) (Bernard Madoff fraud, 2012) Controls That Could Have Deterred the Fraud from OccurringDespite the position that Bernard Madoffs investment fraud was one of the largest to ever rock the United States of America, there are various strategies thatLC and he operated them closely with Barbara who was also his wife. The motive powerfulness have prevented or deterred the fraud from occurring. To begin with, the United States Securities and metamorphose Commission (SEC) should have witho ut delay acted on the numerous signals that it received from different quarters. As the main regulatory authority of American investment activities, it would have been easy to identify weaknesses in Bernard Madoffs shady deals.A major loophole in the federal laws of the United States of America also had a significant input towards enabling Bernard Madoffs illegal activities to spread at a very rapid rate for instance, there is a provision that stipulates private companies in the United States should only pay 5% of their annual revenues. (NBC, 2009) (Bernard Madoff fraud, 2012) Implementations That Investors Should Have Used to Protect Themselves While some investors may yet believe they were tricked into believing Bernie Madoffs elaborate confidence game, it is also arguable that there were means to protect themselves at their disposal.One method would be to practice due diligence whenever one is presented with new financial opportunities. Many investors were led astray on the poor advice of their won friends and family, which isnt a fiscally sound means of verification. Independent research needs to be done on the workings of any financial organization, even those that are supposedly good on the surface. One should investigate third-party custodial relationships at investment firms, and review their auditing practices. (Tomaszewski, 2010) Another way to avoid fraud is to actively request documentation.Hand scripted notes from intermediaries are highly suspicious evidence that revenue is being transacted in a professional manner. Getting activity in writing must be joined to verifiable account numbers for auditing. Finally, a forceful amount of skepticism will often prevent one from falling into schemes which seem on the surface to be easy money generators. For instance, one should never believe the speculators on television. An unlicensed financial consultant is about as reliable an doer as allowing unreformed gambling addict free access to ones personal t reasury.Investors should not assume that overseers are really doing their jobs, as even they great power be in on the take. (Tomaszewski, 2010). The United States Securities and Exchange Commission (SEC) Involvement Critics and popular journalists from prominent media houses in the United States of America have called into question the manner in which the Securities and Exchange Commission handled the fraud case involving Bernard Madoff. This is due to the fact that even the commission itself has acknowledged that it should have detected Madoffs illegal activities as soon as they began.The first major mandate or responsibility of the Securities and Exchange Commission is to interpret the laws pertaining to federal securities such as, the commission should have detected the fundamental flaws in Bernard Madoffs investment activities at an earlier stage. The second major responsibility of the Securities How Madoffs Fraud was Discovered and Identifiable Red Flags His business came to be under the doubts of various financial analysts as early as 1999. They believed that the returns claimed by the company were only theoretically impossible.But organizations such as the Securities and Exchange Commission (SEC) completely ignored the doubts and Madoff continued with his overtures for almost another 10 years. He finally got caught in December 2008. He was trapped after he confessed about his dishonesty to his very own sons. He confessed to his sons of his investment business being nothing but a big Ponzi scheme. His sons now reported his sky pilots fraud to the Federal Bureau of Investigation. Though Bernie confessed to have had started his Ponzi scheme in the 1990s, investigators think otherwise.They believe the Ponzi scheme and defrauding of investors had begun in the 1980s itself. Now what actually happened was that in the very first week of December 2008, Bernie Madoff discussed his dilemma over having to pay his clients an amount of almost $7 billion as he didn t have that much funds. Now within the very next two days Bernie told his sons that he made a huge profit and had decided to pee away an early bonus, amounting up to $173 million. This confused the sons and they called for an explanation from their father.This is when their father confessed that his whole company worked through a giant Ponzi scheme. On December eleventh 2008, Bernie Madoff was taken into house arrest. Had the stock market not had been in a sharp decline in 2008, who knows how much longer the fraud could have continued. (Degrace, 2011) by and by writing that Madoff offers the biggest due diligence lesson for investors, some argued that the red flags are only obvious in hindsight and wouldnt have been so clear if one had to list the decision before Bernards admission of running a Ponzi scheme.