BERNARD MADOFF

Bernard Madoff

Bernard Madoff

Introduction

Bernard Madoff was the biggest financial fraud in the history of the US affecting a large number of investors. Industry experts blamed the regulators and investors for neglecting the warning signals which enabled Madoff to carry on with the fraud for decades. The case ends with a discussion about the impact of the scam on the already strained US economy. This repost examines the 'Ponzi Scheme' operated by Bernard Madoff (Madoff), a prominent Wall Street trader and former Chairman of NASDAQ, through the investment management and advisory division of his firm, Bernard L. Madoff Investment Securities LLC (BLMIS). During the investigation, it was revealed that Madoff operated the 'Ponzi Scheme' since the 1980s. Though Madoff was supposed to invest the clients' money in securities market, he deposited the entire amount in a bank account in Chase Manhattan Bank. He fulfilled redemption requests of his clients using this money. This fraud that amounted to US$ 50 billion became public with Madoff's confession on December 10, 2008.

Discussion

The fraud

Bernard Lawrence Madoff was born on the 29th April 1938 in New York City. He attended the Far Rockaway High School and then graduated from Hofstra University in 1960 with a degree in political science. He is married to his high school girlfriend Ruth Madoff and has two sons, Mark and Andrew, who went to work at their father's firm. Madoff started his investment firm, Madoff Securities, in 1960 with a $5000 investment which he earned whilst working as a lifeguard and other odd jobs(Efrati 2010).

The company soon turned into a successful trading firm which was known for its reliable returns of over 10% each year. He was also the Chairman of the NASDAQ stock exchange. By the 1980s the company was one of the largest trading firms and by 2000 it had around $300 million in assets. He was a member of the exclusive Palm Beach Country Club. He owned homes in Europe and New York. On 11 December 2008, federal agents arrested Madoff at his Manhattan apartment and charged him on one count of securities fraud(Efrati 2010).

Concerns about Madoff's business surfaced as early as 1999, when financial analyst-whistleblower Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) that he believed it was legally and mathematically impossible to achieve the gains Madoff claimed to deliver. He was ignored by the Boston SEC in 2000 and 2001, as well as by Meaghan Cheung at the New York SEC in 2005 and 2007 when he presented further evidence. He has since published a book, No One Would Listen, about the frustrating efforts he and his team made over a ten-year period to alert the government, the industry, and the press about the Madoff fraud(Arvedlund 2001).

Others also contended it was inconceivable that the growing volume of Madoff accounts could be competently and legitimately serviced by his documented accounting/auditing firm, a three-person firm with only one active accountant(Safer 2009).

The Federal Bureau of Investigation complaint says that during the first week of ...