Business Law I – LEG 100
Dr. Dorothy A. Sliben
November 22, 2010
Bernard L. Madoff
The $50 billion hedge fund scandal involving Bernard Lawrence “Bernie” Madoff is the largest fraudulent scam in U.S. history, to date. This giant financial Ponzi scheme created and implemented by Madoff targeted members of the Jewish community. Moreover, Madoff’s Ponzi scheme impacted upon people from all walks of life. The people involved entrusted him implicitly with large sums of money. The funds fraudulently absconded, regardless of age, whether family, friends, celebrities, or investors encompassed life savings, pensions, institutional endowments; charities, ...view middle of the document...
S. government can bring fraud claims, as in the Madoff case. Madoff, undeniably violated Rule 10b-5 which clearly states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange,
(1) to employ any device, scheme, or artifice to defraud,
(2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements true, in the light of the circumstances under which they were made, not misleading, or
(3) to engage in any act, practice, or course of business this operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
It should further be noted that:
Although, similar in scope to Section 10(b) of the 1934 Act, which prohibits fraud in both the sale and purchase of securities, Section 17(a) of the 1933 Act prohibits fraud in connection with the sale of securities. Unlike Section 10(b), Section 17(a) does not require proof of scienter―a mental state embracing the intent to deceive, manipulate, or defraud (Bagley & Savage, 2010, p. 557).
Further, Madoff committed wire fraud, a violation of interstate commerce in that he employed the use of a telephone wired for interstate calls, even if no interstate calls were actually made. In addition, he compounded his criminal activity by committing another violation, mail fraud. By definition, pursuant to Title 18 U.S.C. §1341, mail fraud is a Federal crime or offense for anyone to use the United States mails in carrying out a scheme to defraud. According to this law, a person can be found guilty of that offense only if all of the following facts are proved:
First: That the person knowingly and willfully devised a scheme to defraud, or for obtaining money or property by means of false pretenses, representations or promises; and
Second: That the person used the United States Postal Service by mailing, or by causing to be mailed, some matter or thing for the purpose of executing the scheme to defraud.
Madoff, without a doubt committed this crime. He expeditiously engaged the act of mail fraud, both domestically and internationally, whereby the use of mails includes sending a letter within a state because the mail is an instrumentality of interstate commerce. Use of a national securities exchange includes use of any facility of such an exchange (Bagley & Savage, 2010).
2. Name three types of parties who were impacted by the actions of Mr. Madoff and describe how they were impacted.
This scheme hit individual investors like Senator Frank Lautenberg, owners of the NY Mets, the Philadelphia Eagles, as well as major markets throughout the world. For instance, actor Kevin Bacon and his wife, Kyra Sedgwick lost their investments in Madoff’s massive Ponzi scheme. Institutions affected by this scheme included: Yeshiva...