Position Paper on Bernie Madoff

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FROZEN MONEY IN A BUSINESS SCHEME
Phil 112 Ethics in the Workplace
March 15, 2009
Individual Position Paper

Phil 112 Ethics in the Workplace
March 11, 2009
Individual Position Paper

FROZEN MONEY IN A BUSINESS SCHEME

I’m sure most anyone who watches the news or stays up with current events has heard of Bernard (Bernie) Madoff. He is an American businessman and former chairman of the NASDAQ stock exchange, who has admitted to operating the largest investor fraud ever committed by a single person. On March 12, 2009, Madoff pled guilty to an 11-count criminal complaint admitting to running a Ponzi scheme and defrauding many thousands of investors. Federal prosecutors estimated client losses which included fabricated gains of almost $65 billion. You might ask why this issue could be personally important to me. One of the main things that caught my eye when first hearing about Bernie was how did one single person get away with “stealing” so much money from the public? With myself majoring in Finance, I’m always interested in most anything that deals with finance or business, especially when it has a crazy twist. Another main reason is that my Aunt and Uncle actually had funds invested into his firm. That’s where this issue really strikes me on a more personal level. Not directly, but usually when you read or see things in the news like this you never expect to know somebody even somewhat involved, especially seeing as how Madoff’s firm is in New York. Most anyone can realize that a scheme like this is morally and ethically wrong in most any single way it’s looked at, but above all it’s illegal.

One of the main ethical questions I have about this case is: What about the investors who actually made money out of the billion dollar Ponzi scheme? According to the Associated Press, “Hundreds and maybe thousands of investors in Madoff's funds have been withdrawing money from their accounts for many years. In many cases, those investors have withdrawn far more than their principal investment”. To clear things up, the definition of a Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop or there just isn’t enough money to go around, which was bound to happen in time whether Madoff confessed or not. Not only does this scheme generate returns for older investors, it also creates mass amounts of money for the actual firm itself including Madoff. In terms of what should happen to the money which was collected by investors through this scheme, it’s hard to say. After reading numerous articles, the authorities or press doesn’t yet know who or if anybody else was part of this multi-billion dollar Ponzi scheme. Without this information, I conclude that individual investor’s should be able to keep money made through the scheme. Who’s to say they are at fault, it they don’t have the tools or knowledge to properly know what is fair in the investment deal. Evidentially, Madoff’s firm was highly rated and talked about leading people to believe he was legit. On the other end, companies are supplied with people who are knowledgeable about finance and safeguards for their investments. If there was no secret between Madoff and the companies then the companies themselves should be blamed for their disregard. Many big time companies including HSBC and Fairfield Greenwich Group lost between anywhere from 100 million to 7.5 billion. His investment Ponzi scheme slid past even these large companies with their own accounting department. According to Wikipedia online, “Other notable clients included former Salomon Brothers economist Henry Kaufman, Steven Spielberg, Jeffrey Katzenberg, actors Kevin Bacon, Kyra Sedgwick, John...
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