Madoff “Bernie” Lawrence’s Case
1. Describe three types of illegal business behavior alleged against Mr. Madoff and for each type of behavior, explain how the behavior is illegal or unethical in the conduct of business.
Bernard Lawrence Madoff committed several counts of illegal business behavior. These included; Fraud, forgery and money laundering.
a. Madoff committed several counts of Fraud & Embezzlement. Fraud refers to an act of deception committed with the intention of damage or making personal gain. Madoff committed fraud by collecting investors fund with the pretence that he was going to invest on their behalf but only used the funds for his own benefits without the investors’ knowledge (Henriques, 2008). Madoff used his registered company Madoff Investment Advisory Services to cover up his fraud scheme. Many investors felled victim to Madoff’s fraudulent act including pension funds, trusts, country clubs individuals and charities. Madoff tapped an equivalent of $ 13.2 billion from investors around the world (Epstien, 2009). Madoff act also amount to embezzlement. Embezzlement refers to act of diverting funds entrusted to you into use that will result in personal gains. The investors entrusted their funds in Madoff with the hope that Madoff is going to invest them and earn returns on their behalf. Madoff instead direct these funds into personal use. Fraud and Embezzlement is an illegal and unethical conduct in business context because it leads to unfair losses by genuine investors. Fraud may also lead to increased economic pressures as a result of loss of funds or reduced investor confidence.
b. Madoff also committed an act of forgery. Forgery is an act of reproducing of documents, signatures or other tools with the aim of misrepresenting information. In order to cover up his crime Madoff forded various documents and presented them to his client. Madoff also used forged document to misrepresent information about his company and the potential he has of giving his investors returns so that he could entice them to commit their funds to him. In the Ponzi Scheme Madoff created an imaginary $ 50 billion profit for his company through the act of forgery in order to defraud investor real money that summed up to $ 13.7 billion (Epstien, 2009). Madoff also generated false daily and monthly customer statement for each investor in order to provide the impression to his victims that everything is going on as expected. All these documents being processed were fictional (Epstien, 2009). Fraud is also an illegal and ethical behavior that has serious implication to investors and the economy.
c. Madoff was also accused of committing money laundering. Money laundering is an act of disguising money that has been obtained illegally to prevent people from discovering the illegality of the money. Many analysts argued that Madoff must have relied on money laundering to make the fraud plan to go for to long before being discovered. Madoff has been accused of laundering money for person engaged in illegal trade such as drug cartels and tax evaders. Madoff’s alleged 10% return attracted various kinds of investors including the illegal traders. Proponent of this idea support their theory using the fact that there are victims of Madoff who never disclosed themselves even after it came into the open that Madoff’s investment company was a fraud. Analyst argues that these undisclosed investors must have obtained their wealth illegally and hence their fear to come up in the open. Many laundering is an illegal and unethical practice because it encourages the prevalence of illegal trade and acts of fraud.
2. Name three types of parties who were impacted by the actions of Mr. Madoff and describe how they were impacted.
Mr. Madoff actions affected various parties. These include; the investors, the public and other financial service providers. The first victims to suffer from the Madoff fraudulent act were the investors who trusted his company and committed their finances to him. These investors suffered huge loss as Madoff was unable to raise the required funds to compensate those investors (Ceatus Media, 2009). Some investors declared bankruptcy after the realization that their funds were lost. These investors also suffered losses associated with the opportunity cost of investing their funds with Madoff. If the investors would have invested their money elsewhere they would have earned some returns which are now not forth coming.
Members of the public also suffered as a result of Madoff”s actions. Madoff acts of fraud diverted huge financial resources from getting to genuine investments projects that would have derived benefits to various members of the public (Ceatus Media, 2009). The $ 13.7 billion that is estimated to have been lost through the fraud, may have created employment opportunities to hundreds or may have been committed to useful projects such as infrastructure development. The public also suffered from a slowed down economy as result of reduced investor confidence after the discovery of Madoff’s incidence.
Genuine financial service providers also suffered from the Ponzi Schemes. The Ponzi scheme had negative impact on the financial sectors including genuine business such as banks, stock brokerage firms and financial advisers and consultants. This scheme lowered the reputation of the sector thereby reducing people’s confidence in the same sectors. This must have translated to reduce business for enterprises in the sector and consequently translating to lower returns.
3. Describe three business safeguards (risk management) that may have prevented the harm caused by Mr. Madoff. Describe three ways private investors might have better protected themselves from risk.
There are various strategies that the investors would have used to safeguard themselves from the act of fraud by Madoff. These include; reviewing risks, having contingency plans and monitoring risk (Lamm, 2009). The investors with have conducted an analysis that would have helped to review and understand the risk associated with the investment they are about to make. The risk reviews would have involved strategies such as a background check, extrapolating the past and forecasting. If an investor would have conducted a serious background check on Madoff’s company before making the investment, they would have identified certain anomalies that would have given them an idea to the fraud. The investors would have researched the history of the company and trading record before investing.
The investors should have had a contingency plan to safe guard them from the fraud (Lamm, 2009). The investors would have considered the possibilities of the losing their investments and make a plan on how they would recover their money. A good contingency plan is going to a financial advisory company that has a good asset and liquidity base. This would guarantee investors of being able to recover their money incase of losses.
The investors should have also considered implementing an efficient risk monitoring strategies. This would have given then an early alarm that their investments are at risk forcing them to take early action (Lamm, 2009). A good example of a monitoring strategy is performing regular check up and audit on your investment. If the investors were serious about this, they would have noticed the problem sooner.
4. Describe three legal actions that possibly may be brought against Mr. Madoff under criminal or civil law.
The victims of Madoff crime and the government may take various legal actions against Madoff. The most common would be; to have him banned from ever participating in the financial trade, seizing his property to cover losses or at least part of the losses incurred by the investors and imprisonment for committing criminal offense 9Ceatus Media, 2009).
1. Madoff had broken various laws and regulations governing the conduct of businesses that provide financial services. The government should therefore have his license to operate cancelled and he be barred for participating in any financial trading. (2) The investors who had fallen victim to this act of fraud should also seek to have the properties of Madoff confiscated in order to cover part of the losses they had incurred. This move is supported by law and may be instrument in reducing the impact of the crime on the investors. (3) The aggrieved parties may also push to have Madoff pay for the action he has committed. Fraud is a crime under the country’s laws and Madoff should be punished according to what the laws stipulates in order to deter such behaviors.
References
Ceatus Media (2009). Bernard Madoff’s $ 50 Billion “Ponzi Scheme”. Retrieved from http://www.yourlegalguide.com/bernard-madoff/
Epstien E. (2009). Did Madoff Act Alone. May 28, 2011. Retrieved from http://www.edwardjayepstein.com/Loneswindler.htm
Francis D. (2009). Madoff: More Money Laundering than Ponzi. Huff Post Business. Retrieved from http://www.huffingtonpost.com/diane-francis/madoff-more-money-launder_b_222509.html
Henriques D. (2008). Madoff Fraud Rippled Around the World. The New York Times. Retrieved from http://www.nytimes.com/2008/12/21/business/worldbusiness/21iht-madoff.4.18852346.html?pagewanted=5
Lamm R. (2009). Economic Foundation and Risk Analysis in Investment Management. May 28, 2011. Retrieved from http://www.nabe.com/am99/lamm.pdf
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