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Read the ethics case, Bernie Madoff Scandal--The King of Ponzi Schemes, on pp. 127-136 in your textbook. Then read the Forbes article, “Why the SEC Missed Madoff,” located at:
http://www.forbes.com/2008/12/17/madoff-sec-cox-business-wallst-cx_em_bw_1217ponzi.html
Finally, read the SEC article, “The Securities and Exchange Commission Post-Madoff Reforms,” located at:
http://www.sec.gov/spotlight/secpostmadoffreforms.htm
Write a 3-5 page paper summarizing the case and its implications on corporate and accounting governance. Make sure you thoroughly summarize the case, highlight key players and their role in the fraud, and discuss the impact on accounting governance, including references to reforms undertaken by the SEC and the efficacy of self-regulation in the form of FINRA.
Brooks, L. J., & Dunn, P. (2018). Business and professional ethics for directors, executives & accountants (8th ed.). Cengage Learning.
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Bernie Madoff Scandal Case Study
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Bernie Madoff Scandal Case Study
Bernie Madoff established and was the manager of Madoff Investment Securities
LLC. The investors in the business were promised and received 1% returns on their
investments per month (Brooks & Dunn, 2018). However, in the 1990s, the 1% returns
payments were sourced from capital from new investors and not from the invested funds.
Madoff’s Ponzi scheme activities went on unknowingly until 2008, when his business ran out
of funds to pay the returns and redemptions, consequently unraveling the scheme to the
public. The investors whose funds got lost from the Ponzi scheme include; Fairfield
Greenwich Advisors, Escort partners, Banco Santander, Banc Medici Austria, Yeshiva
University, Zsa, Zsa Gabor, among others (Brooks & Dunn, 2018). Madoff successfully
operated the Ponzi scheme using the following tricks; he promised his clients that their
money would be invested in popular security corporations and shares of common stock and
that they would get their money with profit wherever they wanted them back. However, he
never invested the funds in the securities but deposited them in Chase Manhattan Bank.
The other activities that Madoff was involved in include investment broking and as an
investment advisor. As an investment broker, he used to pay for order flow to buy stock for
his account and sold them at an inflated account later. It is through the inv...
