Bernie Madoff Case Study
Bernie Madoff Case Study
Tanya Seyfried
GFN61090033-ACFA12
January 19, 2013 Bernie Madoff was a successful gentleman whose financial career spanned almost 50 years. Some of his achievements include serving as the chairman of the board of the NASDAQ stock exchange; a member of the Board of Directors on the Security Industry Association; and a former National Treasurer of the American Jewish Congress. (Hirt, Block, Danielsen 2011) His greatest achievement was starting and being the chairman of Bernard L. Madoff Investment Securities LLC in 1960. His investment group gave him wealth and notoriety among the financial elite of New York City and around the entire country. Many trusted him and accepted his financial advice for their investments. By the early 1990s, Madoff decided to use his knowledge, charisma, and power to build a ponzi scheme. Madoff’s ponzi scheme involved taking initial investments with the claim that he could get 15%-20% annual returns (even in a volatile market) for the investor. (Hirt, Block, Danielsen 2011) Word spread quickly about Madoff’s investment plan, encouraging the participation of a second round of investors. This worked to Madoff’s advantage for the first round of investors who were looking for their investment returns. He would simply use the money he had collected from the second round of participants and pay off the initial investors. As years went on, the sequence of events continued through the third and subsequent rounds of investors. In 1999, questions started to surface about Madoff’s investment practices. Financial analyst and Fraud Investigator Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) about the unorthodox practices Madoff was employing within his investment firm. (Wikipedia 2013) He (Markopolos) was skeptical about the legality and felt is was mathematically impossible to achieve the gains Madoff claimed to deliver. (Wikipedia 2013)
Tanya Seyfried
GFN61090033-ACFA12
January 19, 2013 Bernie Madoff was a successful gentleman whose financial career spanned almost 50 years. Some of his achievements include serving as the chairman of the board of the NASDAQ stock exchange; a member of the Board of Directors on the Security Industry Association; and a former National Treasurer of the American Jewish Congress. (Hirt, Block, Danielsen 2011) His greatest achievement was starting and being the chairman of Bernard L. Madoff Investment Securities LLC in 1960. His investment group gave him wealth and notoriety among the financial elite of New York City and around the entire country. Many trusted him and accepted his financial advice for their investments. By the early 1990s, Madoff decided to use his knowledge, charisma, and power to build a ponzi scheme. Madoff’s ponzi scheme involved taking initial investments with the claim that he could get 15%-20% annual returns (even in a volatile market) for the investor. (Hirt, Block, Danielsen 2011) Word spread quickly about Madoff’s investment plan, encouraging the participation of a second round of investors. This worked to Madoff’s advantage for the first round of investors who were looking for their investment returns. He would simply use the money he had collected from the second round of participants and pay off the initial investors. As years went on, the sequence of events continued through the third and subsequent rounds of investors. In 1999, questions started to surface about Madoff’s investment practices. Financial analyst and Fraud Investigator Harry Markopolos informed the U.S. Securities and Exchange Commission (SEC) about the unorthodox practices Madoff was employing within his investment firm. (Wikipedia 2013) He (Markopolos) was skeptical about the legality and felt is was mathematically impossible to achieve the gains Madoff claimed to deliver. (Wikipedia 2013)
References: Block, Stanley B., Geoffrey A. Hirt, and Bartley R. Danielsen. Foundations of Financial Management. 14th ed. New York: McGraw-Hill Irwin, 2011. Print. Lynch, Sarah N., and Matthew Goldstein. "SEC Modernizing Handling Of Tips, Complaints After Madoff Mistakes." Huffington Post. Huffington Post, 27 July 2011. Web. 18 Jan. 2013. . N.A. "Bernard Madoff." Wikipedia. Wikipedia, 2013. Web. 18 Jan. 2013. . N.A. "The Madoff Case: A Timeline." The Wall Street Journal. The Wall Street Journal, 9 Mar. 2009. Web. 18 Jan. 2013.