Case Study #1- Bernard Madoff Ponzi Scheme PDF

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Case Study #1: How “One Big Lie” Can Destroy Thousands of Lives The story of Bernard Madoff is a legendary story that is known throughout the business world as the largest Ponzi scheme in history. When it comes to business, there are two things that are most important throughout its operations and the people involved and those two things are: trust and greed. Trust comes in, whether it’s between the employees and the employers or (in stock terms) the investor and the investees. Greed, the other trait, is like a weed that grows in probably almost every business, and starts to grow when the owner, or even the employees, starts putting making money over making a business that provides for its people. Both of these concepts were involved and correlated throughout Bernard Madoff’s legendary Ponzi scheme. The whole Ponzi scheme started because of Madoffs greed for more money and being wealthy, even if that meant lying to all of his clients, the people who bought into his business, and even his own family. Whenever the SEC, which is known as the Securities Exchange Commission, investigated him countless times, according to the article, they had found no problems with his business until he was dealing unregistered stock later on. Throughout all of the investigations he had lied and used some of these investigations to his advantage to deceive investors. Because of all these deceptions and his obsession with money, Madoff impacted and lost the trust of a lot of investors, charities and his family and friends. This being said, a Ponzi scheme was a scheme created by Charles Ponzi in the 1920s. It is when a business owner “promises above-average returns for their investment and then individuals appear willing to stand in line to give you their money”. (258) The problem with this, however, is the scheme makes no real investments besides paying back

previous investors. This creates a lot of “imaginary” money where really only the person performing the scheme is reaping the benefits. Throughout the past few years there have been several different Ponzi schemes, such as Tom Petters, who ran a $3.65 million Ponzi scheme where investors funded money into non-existent electronic goods, to sell to big box retailers who weren’t buying them, back in the early 2000s. Another recent Ponzi scheme was ran by Gary Gauthier, who ran a radio show and lured his victims by telling listeners to come meet with him at his office to invest in real estate where he promised a large percent return on the investment. This lasted from 2005-2010 before he was caught and charged with several charges. One of the major key factors in Bernard’s Ponzi scheme was that he had both family and friends working for his business for who knows how many years. The big question is, did they know about the scheme from the beginning? According to the article, Bernard told his sons that his whole business was run on this scheme, and that he basically built his business off of fraud the day before his arrest, but how do we know for certain that his family wasn’t in on the scheme? The plot did take place for 20 years and his children where in extremely high ranked positions to not catch on to the plot. It also states that his family was not present when he was sentenced because, according to his wife Ruth Madoff, they were “expressing grief for the victims of the fraud and that her reaction was of shock and betrayal when she “learned” about the fraud” (262); Likely story right? The Madoff family could have easily gotten out of the way before it started to get them involved in the investigation to save them from the sentence that their father and his friends, such as his accountant who was sentenced as well along with many others in the coming years, had received.

Now with his family involved in the business, lets say if it is true that they had an idea about the fraud, it shows that running a family-owned business can lead to ethical issues. With all his family in high ranked positions, it is understood at how he could have gotten away with this much fraud for such a long time. Bernard was the moneymaker, and as long as he provided the money then his children and friends would keep quiet and assist in the Ponzi scheme. This disrupts the integrity that is supposed to be held in a business, especially one where the family is involved. These issues are definitely present in Madoff’s firm. All his children were in major positions in his company and could have easily assisted him in performing this Ponzi scheme. All in all, a Ponzi scheme is a dangerous tactic that has been and probably is still being used in the world of business. The power of greed is strong in businessmen and women and can make them do things where only they gain from their actions. Bernard Madoff is the definition of this greed that people today should learn from and avoid. Having integrity and being an honest, hardworking business owner is the best way to avoid going to prison and gives the brilliant minds of today the power to provide services to the world, instead of trying to take away from the world.

Works Cited "10 Of The Biggest Ponzi Schemes In History." TheRichest. Amanda Lauren, 13 Aug. 2014. Web. 07 Feb. 2017. Stanwick, Peter Allen., and Sarah D. Stanwick. Understanding Business Ethics. Los

Angeles: Sage, 2014. Print....