The Bernard Madoff’s Fraud Essay Example for Free

The Bernard Madturneds hoax EssayMadoffs scheme to de tommyrot his clients at Bernard Lawrence Madoff Investment Securities began as early as 1980 and lasted until its motion picture in 2008. Bernard carried out this scheme by soliciting billions of dollars under false pretenses, failing to embellish investors funds as promised, and misappropriating and converting investors funds to benefit Madoff, himself, and other(a)s without the k without delay leadge or authority of the investors.To execute the scheme, Madoff solicited and caused others to solicit potential clients to open duty accounts with Bernard Lawrence Madoff Investment Securities (BLMIS) on the basis of a promise from him. He promised to use investor funds to purchase sh ares of parking lot stock, options and other securities of large, well-known corporations, and representations that he would accomplish high rates of return for client, with limited risk. United states of, 2009) Among other things, Mandoff mar keted to clients and prospective clients an enthronization strategy referred to as a split strike conversion strategy.Clients were promised that Bernard Lawrence Madoff Investment Securities (BLMIS) would invest their funds in a basket of approximately 35-50 common stocks within the Standard Poors 100 index finger (the SP l00), a collection of the 100 largest publicly traded companies in terms of their market capitalization. Mandoff claimed that he would select a basket of stocks that would closely mimic the price movements of the SP 100.Mandoff further claimed that he would opportunistically time those purchases, and would be out of the market intermittently, investing clients funds in these periods in United States Government issued securities such as United States exchequer bills. Madoff also claimed that he would hedge the investment fundss that he made in the basket of common stocks by victimization investor funds to buy and sell option contracts related to those stocks, t hereby limiting potential losses caused by unpredictable changes in stock prices. United states of, 2009) Madoffs Illegal Business Behaviors Exposure Federal prosecutors filed a total of el purge charges against Bernard Madoff. The starting of those charges was for securities fraud. The crime of securities fraud involves false claims of investment security holdings, and misinformation regarding stocks and brokerage advice. sensory insider information is also considered a comp peerlessnt of this criminal activity. other major(ip) charge involved trio counts of money laundering, both domestically and through international accounts.Money laundering is the funneling of r raseue acquired bannedly into bracing monetary arrangements, with the intent of concealing this revenues original origins. Plus, in connection with both his securities and investment adviser businesses, prosecutors also charged Madoff with mail and wire fraud. These offenses involve initiating schemes using either the United States postal Service or telephone systems toward obtaining money and/or property in a false or unlawful manner. (Tomaszewshi, 2010).Perpetrators Involved in Bernard Madoffs twaddle Its certainly not uncommon for ones son or daughter to enter into an identical business relationship as a successful family member such as a parent. However, in Bernie Madoffs case this approach was interpreted to extreme levels of nepotism. Peter Madoff entered his brothers firm in 1967, and as business prospered he began to aggregate several executive titles Senior Managing Director, Head of Trading, and even Chief conformation Officer for both the broker-dealer and more(prenominal) secretive investment advisor business models.Bernies sons Mark and Andrew joined the firm in the mid-to-late 1980s, and last were made co-directors of Madoff Securities International in London, England. Bernies nephew Charles joined up in 1978, and became the Director of Administration for the investment fi rm. And Peters daughter Shana was hired on in 1995, and served as in-house Legal Counsel and Rules Compliance attorney for the broker-dealer business. Other parties greatly impacted by Bernie Madoffs activities were his business associates and their many clients over the decades.For example, domestic dog Avellino and Michael Bienes themselves funneled over three thousand clients to Madoffs investment advisory business. Madoff had consistently advised the pair to bear unregistered in their relations. But when the SEC accused the duo of wrongly selling securities, Madoff pretended ignorance of their activities, even though he had secretly instructed them all along. For their trouble, Avellino and Bienes were forced to pay a fine of three atomic routine 6 and fifty thousand dollars and shut their business down.Other notable business partners eventually left in the lurch by Madoffs growing fraud would go on to include Jeffrey Tucker and Walter Noel of Fairfield Greenwich Group. Non -related wad who had worked under Bernie Madoff also became tainted from the association following his arrest. This employee group includes those who may surrender had indirect dealings through Madoff subsidiaries like Cohmad Securities Corporation. However, the idea also applies to those employed directly, such as former executive assistants Elaine Solomon and Eleanor Squillari.Jeffry Picower was in industrialist and philanthropist who seemed to be a favored Madoff beneficiary, and made outlandish profits from his investments with Madoff. From 1996-2007 there were 14 instances of greater than 100% yearly returns and 25 of greater than 50%. From 1996-1999 his regular trading account made from 120-550% a year. Some evidence of backdating trades, instituted by Picower, has been presented by trustee Irving Picard. In December, 2010, his estate returned $7. 2 billion in profits to the government. Picower died before the settlement. Tomaszewshi, 2010)Motives of the Perpetrators The no n-homogeneous perpetrators who were involved in Bernard Madoffs ponzi scheme had different kinds of motives that were completely against the pabulum evident in federal laws. Jeffry Picower had over twenty four different accounts with Investment Securities L of Jeffry Picower and his wife in Investment Securities LLC was to benefit from the cash windfall generated from devious deals according to reports his investment into Madoffs union was once worth over one billion dollars. Kirchner, 2010) Annette Bongiorno was a senior employee at Bernard Madoffs illegal company and among her roles at the firm she was to brief investors concerning their returns which were all fictitious.Ezra Merkin was an investment expert who assisted Bernard Madoff to drain off extraordinary amounts of money from clients accounts and it later emerged that he had a conflict of interest in the Madoff company. With its headquarters in Connecticut, Fairfield Greenwich Company misled investors into buying stakes at Madoffs illegal firm and in return, the company received huge amounts of cash from Bernard Madoff. NBC, 2009) Frank DiPascali was also another essential figure in Bernard Madoffs illegal investment scheme. oneness of the frauds committed by Frank is that he engaged in countless number of international money laundering activities to benefit Madoffs scheme. In addition to this, DiPascali also gave Mr. Madoff expert advice on how to go about his illegal businesses without being caught or detected by the federal authorities. (Arvedlund, 2010) (Bernard Madoff fraud, 2012) Controls That Could Have Deterred the Fraud from OccurringDespite the fact that Bernard Madoffs investment fraud was one of the largest to ever rock the United States of America, there are various strategies thatLC and he operated them closely with Barbara who was also his wife. The motive might have prevented or deterred the fraud from occurring. To begin with, the United States Securities and Exchange Commission (SEC) should have without delay acted on the numerous signals that it received from different quarters. As the main regulatory authority of American investment activities, it would have been voiced to identify weaknesses in Bernard Madoffs shady deals.A major loophole in the federal laws of the United States of America also had a significant input towards enabling Bernard Madoffs illegal activities to spread at a precise fast rate for instance, there is a provision that stipulates private companies in the United States should only pay 5% of their annual revenues. (NBC, 2009) (Bernard Madoff fraud, 2012) Implementations That Investors Should Have Used to Protect Themselves While some investors may yet believe they were tricked into accept Bernie Madoffs elaborate confidence game, it is also arguable that there were means to protect themselves at their disposal.One method would be to practice due exertion whenever one is presented with new financial opportunities. Many investors were led astray on the poor advice of their won friends and family, which isnt a fiscally sound means of verification. item-by-item research needs to be done on the workings of any financial organization, even those that are supposedly reputable on the surface. One should investigate third-party custodial relationships at investment firms, and review their auditing practices. (Tomaszewski, 2010) Another way to avoid fraud is to actively request documentation.Hand written notes from intermediaries are highly untrusting evidence that revenue is being transacted in a professional manner. Getting activity in composition must be joined to verifiable account numbers for auditing. Finally, a forceful amount of incredulity will often prevent one from falling into schemes which seem on the surface to be easy money generators. For instance, one should never believe the speculators on television. An unlicensed financial consultant is about as reliable an agent as allowing unreformed gambl ing addict free access to ones personal treasury.Investors should not assume that overseers are actually doing their jobs, as even they might be in on the take. (Tomaszewski, 2010). The United States Securities and Exchange Commission (SEC) Involvement Critics and popular journalists from prominent media houses in the United States of America have called into question the manner in which the Securities and Exchange Commission handled the fraud case involving Bernard Madoff. This is due to the fact that even the instruction itself has acknowledged that it should have detected Madoffs illegal activities as soon as they began.The freshman major mandate or responsibility of the Securities and Exchange Commission is to interpret the laws pertaining to federal securities such as, the commission should have detected the fundamental flaws in Bernard Madoffs investment activities at an earlier stage. The second major responsibility of the Securities How Madoffs Fraud was Discovered and Ide ntifiable Red Flags His business came to be under the doubts of various financial analysts as early as 1999. They believed that the returns claimed by the company were only theoretically impossible.But organizations such as the Securities and Exchange Commission (SEC) completely ignored the doubts and Madoff continued with his overtures for almost another 10 years. He finally got caught in December 2008. He was trapped after he confessed about his dishonesty to his very own sons. He confessed to his sons of his investment business being nothing but a big Ponzi scheme. His sons now reported his fathers fraud to the Federal Bureau of Investigation. Though Bernie confessed to have had started his Ponzi scheme in the 1990s, investigators think otherwise.They believe the Ponzi scheme and defrauding of investors had begun in the 1980s itself. Now what actually happened was that in the very first week of December 2008, Bernie Madoff discussed his dilemma over having to pay his clients an a mount of almost $7 billion as he didnt have that much funds. Now within the very next two years Bernie told his sons that he made a huge profit and had decided to give away an early bonus, amounting up to $173 million. This confused the sons and they called for an explanation from their father.This is when their father confessed that his whole company worked through a giant Ponzi scheme. On December 11th 2008, Bernie Madoff was taken into house arrest. Had the stock market not had been in a sharply decline in 2008, who knows how much longer the fraud could have continued. (Degrace, 2011) After writing that Madoff offers the biggest due diligence lesson for investors, some argued that the red flags are only obvious in hindsight and wouldnt have been so pull if one had to make the decision before Bernards admission of running a Ponzi scheme.