3 madoff scandal

8/7/2019 3 Madoff Scandal

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The Man

Former American stock broker

Investment advisor

Non-executive chairman of the NASDAQ stock market

Admitted operator of the largest Ponzi scheme in history.

Founder and Chairman of the Wall Street firm Bernard L. MadoffInvestment Securities LLC in 1960.

Arrested on December 11, 2008.


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His Firm

Secured a loan of $50,000 from his father-in-law used to set up Bernard L. Madoff

Investment Securities LLC.

The firm made markets (quoted bid and ask prices) via the National QuotationBureau's Pink Sheets.

To beat competition, innovative computer information technology used to disseminate

its quotes

The technology the firm helped develop became the NASDAQ.

Functioned as a third-market provider, by directly executing orders over the

counter from retail brokers.

At one point, Madoff Securities was the largest market maker at the NASDAQ and in

2008, it was the sixth largest market maker on Wall Street.


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& The Scandal

Minority ownership in the

Cincinnati Stock Exchange and

appointments to the board ofdirectors of Jewish institutions

used to procure new investments.

Company divided into two:

Lucrative market-making unit Shadowy investment advisory

unit.

Typical Ponzi scheme


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& The Scandal

Madoff lied about results, claiming

12-13% return of investor capital.

Suspicions of annual results

produced.

SEC coerced into opening up an

investigation.

Rumors of market-making arm

indulging in illegally front-run

trades.


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The Panic

Prominent figures and institutions

affected

BNP Paribas

Royal Bank of Scotland

Swiss banks &HNIs

Investors requested $7 billion dollars

in withdrawals

Madoff came clean about the absence

of funds to high-ranking officials in

the company

Sons reported Madoff to the FBI


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March 10, 2009: Criminal complaint filed stating thatover the past 20 years, Madoff had defrauded his clients

of almost $65 billion

Madoff pleaded guilty to 11 federal offenses Securities Fraud

Mail Fraud

Wire Fraud

Money Laundering False Statements

Thefts

Insisted sole responsibility for the fraud Wife, sons, friends, employees never informed

The Sentence


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Aug 2009: Frank DiPascali pleaded guilty

Nov 2009: David Friehling, Madoff's

accounting front man pleaded guilty Securities fraud

Investment adviser fraud

Making false filings to the SEC

And obstructing the IRS

Plea allocution stated commence of Ponzischeme in 1991.

No legitimate investments made with clients'money deposited in personal business

account

The Sentence


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Committed to satisfying his clients' expectations ofhigh returns, despite an economic recession.

Admitted to false trading activities masked byforeign transfers and false SEC filings.

Proved "difficult, and ultimately impossible" toreconcile his client accounts.

June 2009, Court announced verdict Maximum sentence of 150 years in federal prison.

Recovery of $17 Billion

Taking control of all personal assets worth about$800 Million

The Sentence


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Ethical & Moral Issues


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InvestorInvestor

GreedGreed

AccountingAccounting

EthicsEthicsLegal EthicsLegal Ethics

ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Investors: Big companies, banks, MNCs and the superrich and sophisticated HNIs

No due diligence

Returns to investors always higher than average

market return

Lack of conducting business with completetransparency


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InvestorInvestor

GreedGreed



ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Violating basic ethical practices which all accountingfirms are supposed to follow

Manipulating the statements and tax returns of clients

Creating false balance sheets

Bogus firm to answer queries of investors regarding taxand the nature of returns


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InvestorInvestor

GreedGreed



ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Madoff confessed filing false and misleading certified

audit reports with the SEC

Sent the same to his clients

Concealed facts like his auditors were a firm he himself

owned

Cheated the entire market and Wall Street


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InvestorInvestor

GreedGreed



ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Cheated people of his country and religion

Roman Catholic priests and institutions linked to the Redemptorist society

Jewish charities, Carl and Ruth Shapiro Family Foundation, YeshivaUniversity in Manhattan and the Jewish Foundation of Los Angeles

Lost money used to fund scholarships for inner city children, care forelderly priests and other charitable causes

Depleted savings and endowments of the St. Mary and St. Patrick schools


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InvestorInvestor

GreedGreed



ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Madoff used his position as member of the board of

directors of Jewish religious institutions to get investors.

For attracting the American business clients, his agents

used his position as a former chairman at NASDAQ to create

an atmosphere of trust.

Exploited friendship networks and country club connections


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InvestorInvestor

GreedGreed



ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Presented himself as a conservative investor and

involved Jewish philanthropist living a respectable

family life.

Act of selfish ambition and abuse of good faith

Lacks any sense of good relationships with friends and

fellow Jews.


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InvestorInvestor

GreedGreed



ReligiousReligious

EthicsEthics

SocietalSocietal

EthicsEthics

FamilyFamily

MoralsMorals

Hid entire business wrong doings from friends, employees,sons and wife

Completely immoral act

Morality of family was completely shaken and consequenceswere disastrous

While authorities were investigating the role of his sons tofind clues and indict them, the elder son committed suicide


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Consequences Reasons

How it could beavoided Learning


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Consequences Bernard Madoff issued a prisonsentence till death.

Jewish communities in the UShelping needy children and

aged people with charities fromfellow Jewish businessmenbeing looked with caution

People have lost trust


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Greed of investors who investedwithout any due diligence at

any stageReasons

Callousness of regulators in notcross-checking audit reports

Lack of ethics and morality of

one individual who cheatedpeople


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Build ethical practices andimpart education on how to actmorally and ethically, under all

circumstances.

Strong punishments

to be put in place

How it could beavoided

Using such cases as example to

understand need for fairpractices


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Do all activities morally andethically, setting an example

for others

Always perform due diligenceof all business entities and

partners

Reward employees for acts likewhistle blowing Learning


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Akshat Vaid 91004

Ankur Sharma 91008Harshita Periwal 91024

Karan Khanna 91026

Nikhil Soni 91038

Sandeep Agarwal 91048

3 madoff scandal

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