Madoff Affair

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The Bernie Madoff documentary was one of the more interesting videos I have ever seen, and I actually have seen it previously on Netflix. While the Madoff controversy was a highly public topic, this documentary helped fill in this infamous story from the start. At the start of Bernie Madoff career, he had a very successful market making business. He originally would pay large institutions for their orders, or “flow”. After initial success, he then went on to manage some investment funds. His returns were outrageously high and people could only speculate as to why. Since he had his market making business, people assumed he must have been illegally “front-running”. Front-running is when he gets a very large order for a stock transaction, and jumps in front of the transaction with personal money. This allows the person front-running to be basically using insider information, since they know a large transaction is about to occur. One person, Harry Markopolos, discovered something was wrong. When he finally discovered the scheme, he went to the SEC. Originally, they took no action. A year later, Markopolos submitted another more detailed report. He basically led the SEC “with a map and a flashlight” and they still couldn’t discover the fraud. When the scheme was finally discovered, there were many government meetings to figure out why the SEC didn’t find it. At first, they dodged the questions stating it would interfere with ongoing investigations. Later, they admit that the SEC has been extremely understaffed and under budgeted. Greed played a large role in the affair as well. Considering people were receiving high returns, they were all afraid to question how. Unwilling to risk being removed from Madoff historically successful investments, clients were cornered to just accept it as is. Unfortunately there were many red flags that could have prevented this Ponzi scheme from growing into such a massive affair. One of the major signals was when the SEC shut down the...
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