This website uses cookies to ensure you have the best experience. Learn more

Madoff Scandal Essay

1844 words - 8 pages

The Madoff Scandal: 50 billion questions and few answers

Table of Contents
Abstract …………………………………………………………………………………3
Description of Events …………………………………………………………………..4
Analysis of Scenario ……………………………………………………………………4
Questions about Madoff ………………………………………………………………..5
Solutions and Alternatives ……………………………………………………………..7
Conclusion ……………………………………………………………………………...8
References ………………………………………………………………………………10

Abstract
Bernie Madoff ran the biggest in the history of the world. The details surrounding the case and the events that were kept secret are the stuff in movies. With all of the regulations, rules, laws, checks and balances the Madoff scam inflated to massive proportions ...view middle of the document...

Either way he was able to brush off the notion he was committing a mammoth fraud for a very long time and defraud investors of billions.

Analysis of scenario of events

Harry Markopoulos begged the SEC in 2000 and 2001 to investigate Mr. Madoff (Anson, 2009 p. 295). Markopoulos was assigned the duty of investigating Madoff’s investment strategy so his firm could replicate the impressive performance for their clients. His research uncovered that there was no conceivable way that Madoff could produce the results using the strategy he claimed. Madoff claimed he did not operate a hedge fund; in fact the only entrance to Madoff was through an approved feeder fund, Madoff paid the funds for order flow into his operation (Ionescu, 2011, p. 248).
Markopoulos promoted his theory and the SEC failed to uncover the Fraud despite the facts he had given them. Others in the industry also doubted Madoff’s performance but few had studied it as Markopoulos did. Articles were written in respected publications like Barron’s and began to call into question Madoff’s investment strategy, which Markopoulos said had unrealistic returns given there was little to no volatility of principal and excess returns given the strategy claimed. The options strategy Madoff claimed to employ was called a split-strike conversion; this strategy had limited risk and provided limited rewards. The strategy requires a long position in a basket of approximately 30–35 large capitalization stocks highly correlated to the broader market, a short position of out-of-the-money index call options, and a long position on out-of-the-money index put options (Rhee, 2009, p. 39), but Madoff’s performance numbers didn’t correlate with the strategy. He had claimed 16% plus returns year after year, always beating the market by a wide margin (Rhee, 2009, p.368).
Markopoulos had attempted to mimic the strategy and could not replicate the returns under any scenario. In 2005, he submitted a 21 page report to the SEC detailing why he believed Madoff’s fund was the “largest Ponzi scheme in history”(Anson, 2009, p. 295).

Questions about Madoff

Things Markopoulos questioned about Bernie’s business model made little sense. Madoff securities didn’t provide full service brokerage to its clients. He said they provided execution only services to select clients applying a technologically enhanced approach to a traditional trading strategy known as a split strike forward conversion. This made no sense to anyone since Madoff passed up standard hedge fund fees to feeder fund managers while simultaneously earning only execution commissions on his proprietary trading strategy. Why would anyone with Madoff‘s performance history of earning 16% plus returns with virtually no risk accept execution commissions when he could of run a hedge fund himself and earn the 1% a year and 20% of the profits?
Given the size of Madoff‘s assets under management, the exchange traded option market could not have...

Other Papers Like Madoff Scandal

Hedge Fund Essay

1596 words - 7 pages Characteristic Line of a Stock Portfolio with Written Options aptly illustrate this problem. Both are provided in the PPT. The $50 Billion Madoff Scandal Bernard Madoff pleaded guilty to operating a $50 billion Ponzi scheme. In a Ponzi scheme the con artist (Madoff) promises and initially pays high returns to investors. The large returns are generated by paying out to old clients some of the money paid in by new clients. The con also skims some of the

Whit Collar Crime Essay

1064 words - 5 pages Running Head: EXPLAINING WHITE COLLAR CRIME White Collar Crime Explanation Kaplan University Deborah Llamas CJ501P-01N Professor Tom DiPaola August 14, 2013 Bernard Madoff, appeared to be a cordial man with an alluring personality, however, despite his friendly demeanor Madoff had another side to him that was not as friendly and compassionate, he was considered to be withdrawn, cold, and unfriendly

Audit Scandal

2065 words - 9 pages QUESTION: Compare/discuss the Enron, Worldcom and Madoff scandal. What need to be done by the Government and also your suggestion as to how to avoid the above scandal? ENRON Enron is an energy company based in Houston,Texas that deals with the energy trade on an international and domestic basis. It was formed in 1985 when Houstan Natural Gas merged with InterNorth. Originally Enron was an operator of interstate gas pipeline, by 1989 Enron

Accounting Regulations

2587 words - 11 pages Corporate Scandals And Regulations February 18, 2014 Introduction In recent years there has been many different regulations that have been put into effect to avoid any more accounting scandals. Some scandals that has gotten worldwide attention would be scandals such as WorldCom, Enron and Avon. These regulations have been put in place to help investors and to prevent companies from being put in situations where a scandal could

Business Regulation Case Study #2

3688 words - 15 pages of the Sarbanes - Oxley Act on earnings management. Advances in Management, May2011, 4(5), Retrieved from http://web.ebscohost.com.lib.kaplan.edu/ehost Orin, R. (2008). Ethical guidance and constraint under. Journal of Accounting, Auditing & Finance, 23(1), Retrieved from http://web.ebscohost.com.lib.kaplan.edu/ehost Panzner, M. (2008, December 12). Madoff scandal: 'biggest story of the year’. Retrieved from http

Accounting

548 words - 3 pages Accounting Practices Name: XXXXXXXX oooo Accounting I-ACC100 Professor XXXXXXXXX Date: XXXXXXXXX Accounting Practices The year is 2011, and this country has been nearly crippled financially with the corporate accounting scandals. One of the most famous is the scandal of Enron, Waste Management, WorldCom, Qwest Communications, Health South Corporation, and then the infamous Bernard L. Madoff Investment scandal. The Medoff Ponzi

Corporate Social Responsebility

2245 words - 9 pages Act, the report talk about the five acts can possibly prevented Leeson to destroy the company. And also discuss why the SOX act is not effective which lead to the Madoff investment scandal and could not prevent the 2008-2009 financial melt down using the ethical decision making process. \ Introduction Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one

Blue Collar vs White Collar Crimes

583 words - 3 pages the white collar crimes are drastically different as well, often incurring probation or community service in conjunction with high monetary fines instead of focusing solely on incarceration, as is the case with many blue collar crimes. However, with the Bernie Madoff scandal as well as the other recent wall street crimes, more and more white collar criminals are facing stiff criminal penalties that include long periods of

The Future of Social Security

908 words - 4 pages security. The Bernie Madoff hedge fund scandal was a very prominent unethical scandal that is fresh in the back of every individuals mind. Bernie was running an elaborate Ponzi scheme. This scandal involved thousands of investors that paid into a hedge fund that was not able to collect on their investment because it was paid out to earlier investors. Bernie promised 13% returns on investments, this return lured billions of dollars of investments

The Enron Scandal

2316 words - 10 pages Bernard Madoff, accused by federal authorities of running a $65 billion Ponzi scheme, the Enron scandal still seems fresh in the mind of many. If the investing public is going to participate, it must see a fair and transparent system. Conflicts of interest in companies need to be examined closely and stricter oversight to avoid variance. It is essential in large corporations to bring to light dishonesty and condemned responsible people for their

Enron Case

1656 words - 7 pages report release date. SAS no 96 puts an emphasis on the fact that the auditor owns the audit documentation. This standard does not specify a specific retention period but mandates that the auditor adopts a reasonable procedure for he or she to gain access to the documentation throughout the desired period.     5) Identify five recommendations made to strengthen the independent audit function following the Enron scandal. For each of these

Related Essays

Bernie Madoff Case Study

4814 words - 20 pages funds and now operates a charity helping women and children who are poor or abused. None of his charities funds were invested with Madoff at the time the scandal broke. Swiss Bank Union Bancaire Privee (UBP) placed $700 million of wealthy client’s money in Madoff’s Ponzi scheme. Top management received warnings from the bank’s research department that Madoff’s fund should be eliminated from a list of approved funds. The bank’s senior

Ethical Behavior In Business Essay

896 words - 4 pages Russell Bettinger BUS-340 – Ethical and Legal Issues in Business 26 October 2014 Esther Lahargoue Analyzing Ethical Behavior Bernard Madoff was a renowned stockbroker, financial adviser, and served as the chairman of NASDAQ. Bernie Madoff is also solely responsible for the largest accounting fraud in all of American history. In December 2008, Madoff admitted to the federal authorities that the wealth management branch of his business

Bernie Madoff Case Study

3468 words - 14 pages that they also contribute to unethical decisions (Crews 2). Prior to the scandal surfacing, Madoff was revered as an astute, influential man of special status serving as the NASDAQ chairman and even sitting in on industry panels (Abkowitz et al.). While disregard of the due diligence process was the primary reason why investors lost their money, it was the initial breach of trust and unethical decision making by Bernie Madoff that perpetuated it

Business Law Essay

1744 words - 7 pages Rosetta Foster Strayer University 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