Madoff Case Study

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Case 1: Bernard Madoff’s Ponzi scheme 1. Introduction and brief of the case Bernard Madoff’s Ponzi scheme that occured in the end of 2008 is one of the largest financial fraud in history. Bernard Madoff operated a major Ponzi scheme through this wealth management company. He pleaded guilty to 11 counts of financial fraud and theft in March 2009 and three month later was sentenced to 150 years in prison. This fraud was thought to have cost clients more than $10 billion. Like other Ponzi scheme models, Madoff attracted investors with a promise of high returns, which initial paid out from subsequent investments rather than from legitimate profits made from initial investment. Because of these fact, the scheme can last only as long as the perpetrator is able to attract an increasing number of investors, all of whom expects very high returns. Madoff lived a wealthy lifestyle by skimming money from the significant cash flow generated by the fraud. Another aspect of this case involved the role of government regulations. Starting as early as 1992, the Securities Exchange Commission (SEC) had receive complaints and tips about Madoff’s company but the SEC either didn’t investigate or fail to follow through on a cursory investigation. It is another reminder of the limitations of legal regulations in providing sufficient oversight to unethical business practices. 2. Stakeholders * Madoff’s clients: many investors loss their investment when Madoff arrested. It is often relatively large amount of money, may be their saving money. Many of Madoff’s victim were prominent people, many were personal friends, and several charitable organizations lost significant money in the fraud * The fraud also involved Madoff’s family: his wife, two sons, and brother were all implicated in the case. * The Securities Exchange Commission (SEC) lost its reputation after this

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