|Type of paper:||Research paper|
The Bernie Madoff Ponzi scheme is a major corporate scandal that shook the whole world for its magnitude and impacts it had in the financial sector. Bernie Madoff uses a Ponzi scheme to attract investors by assuring them of good returns on their monies. A Ponzi scheme was a plan pioneered by Charles Ponzi, in which he used to guarantee investors profits of up to 50 percent on their investments for a very short period. Normally, these schemes are managed by a central operator who takes the money from the new investors in using to pay off the initial investors. This, in turn, creates a cycle in which new money is given to the old investors and thereby making it lucrative when there is no profit that's actually being made. All of these also look legitimate. The brains behind the scheme benefit by pocketing the extra cash or using it as a resource for expansion of the organization. The catch in these Ponzi schemes is getting the investors not to take back their profits and invest in the organization. When this is well executed the Ponzi scheme will live to see another day.
The administrators of the Ponzi scheme often use various strategies in order to meet this objective. They may tell their investors the profits they are making without actually providing actual information on their returns. The way Ponzi schemes are structured they will eventually collapse. Their reasons for the collapse are usually the administrator running away with people's monies, failure of the organization to attract new investors and the current investors starting pulling their returns (Lewis, 2018). In Bernie Madoff Ponzi scheme the organization came tumbling down when his customers asked for 7 billion dollars for their returns and he only had about 200 million dollars in the bank account.
Bernie Madoff managed to dupe the authorities because of how he was well versed in the dealings of the financial industry. Bernie Madoff established his own stock company in the year 1960 and also helped in the launch of the NASDAQ market. He was a member of the National Association of Securities Dealers and he served in an advisory capacity to the Securities and Exchange Commission on trading securities. All these positions held by Bernie Madoff in the industry created confidence among industry players that Bernie Madoff dealings were all legitimate. He used this opportunity in attracting investors into his funds. The cookie came crumbling when some few skeptics questioned his 10 percent return on investments as not being credible (Lewis, 2018). Later on, a financial analyst Harry Markopolos presented the Securities and Exchange Commission with evidence that Madoff is running a fraud. The SEC did not take any actions because major auditing firms like Price water house Coopers and KPMG did not report of any irregularities with the organization.
In addition, the chase bank ignored signs of money laundering that was going on in Madoff's bank account. The long life of the Ponzi scheme was made possible by management fund investors pouring their monies into Madoff's scheme. These monies generated millions of dollars and individual investors were not aware that their monies were invested in Madoff's funds. The Madoff organization came down during the 2008 global financial crisis. Madoff allegedly revealed to some members of his family of the whole Ponzi scheme. The fund invested by the management of funds firm all collapsed and this was reported in various countries by different news outlets. In 2009 Bernie Madoff was officially charged and pleaded guilty to charges of fraud, money laundering, and other crimes.
This scandal could have been prevented if investors did research on their investments and the stock company. Bernie Madoff succeeds because the investors were easily duped into investing in a complex thing they do not easily understand. Investors should also realize that in business when a business is offering oddly huge returns it is often an underlying issue with the company. This is because the returns are no sensible or logical like Madoff's company's returns (Dimmock & Gerken, 2011). In such a scenario the thing to do is not to put your money in such an enterprise because a chance of fraud is very high. The investors should realize that opportunities which offer high returns also have high risks and these risks should be explained in detail. This corporate scandal could also have been avoided if the independent audit firms could be investigated. The auditor of the firm should be investigated, the custodians or other service providers that have been tasked with looking after the interests of investors. It is important to note that you should not wholly depend on the SEC to protect the investors. The SEC is helpful when it comes to disclosure of information about firms that have not met the regulatory requirements
In business, ethics is perceived as applying the principles of fairness and honesty to clients and employees. A business which has good ethical standards benefits by creating customer loyalty. A firm which takes advantage of their clients will push customers away from the business. A company with a good reputation in because of its ethical dealings will definitely attract new customers into the business and retain the old customers. Another benefit of ethical business practices is that the company will avoid legal problems that often crop up when the firm is dealing unethically (Freeman, Stewart & Moriarty, 2009). Companies at times may decide to use shortcuts in their pursuit of high returns for the business. These can be not complying with environmental standards, or using substandard material in their products or even not providing for the safety of their own workers. The consequences of being guilty of these offenses are usually severe and range from the fines from the government and the legal fees.
Companies should educate their employees on the highest ethical standards in business so that they can be aware of the conduct expected of them. Another benefit of ethical business practices is that it creates a positive work environment. It is an obligation of employees to be ethical straight from the moment they had the job interview. Employees should be honest about their strengths and weakness in the job. An ethical employee is considered to be a team player and not people who care about tier own stomachs only. These types of people help in the creation of a positive attitude among tier colleagues. Supervisors of ethical employees often do not have a hard time with them. This is because they can keep private information a secret and as a result, more autonomy is given to them. Employees who steal from the business and their clients can severely damage the business or cause it to collapse. This is seen in the rise and fall of Bernie Madoff's enterprise.
Dimmock, S., & Gerken, W. (2011). Finding Bernie Madoff: Detecting Fraud by Investment Managers. SSRN Electronic Journal. Doi: 10.2139/ssrn.1471631
Freeman, R., Stewart, L., & Moriarty, B. (2009). Teaching Business Ethics in the Age of Madoff. Change: The Magazine of Higher Learning, 41(6), 37-42. Doi: 10.1080/00091380903316905
Freshman, A. (2012). Financial Disaster as a Risk Factor for Posttraumatic Stress Disorder: Internet Survey of Trauma in Victims of the Madoff Ponzi scheme. Health & Social Work, 37(1), 39-48. Doi: 10.1093/hsw/hls002
Lewis, L. (2018). Bernie Madoff and the Crisis: The Public Trial of Capitalism. Contemporary Sociology: A Journal of Reviews, 47(6), 702-704. Doi: 10.1177/0094306118805422m
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