After reading the case study: “Bernard L. Madoff Investment Securities” on pages
ID: 465532 • Letter: A
Question
After reading the case study: “Bernard L. Madoff Investment Securities” on pages 31-39 of Weiss, please answer the case Questions on page 39. from the book Business Ethics : A Stakeholder and Issues Management Approach
1. What did Madoff do that was illegal and unethical?
2. Identify some of the main reasons that Madoff was able to start and sustain such an enormous Ponzi scheme for as long as he did?
3. Who were/are the major stakeholders involved and affected by Madoff’s scheme and scandal?
4. Did Madoff have accomplices in starting and sustaining his scheme or was he able to do it alone? Explain.
5. How was he caught?
6. What lessons can be learned from Madoff’s scandal?
Explanation / Answer
Ans 1 - Madoff was illegal in committing an investment fraud, money laundering, and falsification of SEC filings with his asset management division of the firm. He was unethical in deceiving the public that their investment were growing when the reality was they were getting the returns from the newer investor's money.
Ans 2 - The main reason was that the investors were always getting some returns as there were always some new investments in the Ponzi scheme. Even the employees involved were paid well for their silence in matters.
Ans 3 - Major stakeholders were - Investors - losing their faith in investment management companies or firms, government - losing the control over the regulations that govern the industries and individual firms in it, and lastly the securities industry as a whole - losing investors' confidence.
Ans 4 - Bernie Madoff, his brother Peter and several other employees were involved in running this Ponzi scheme. The reason Bernie could not have pulled this alone is that everyone involved had their own area of expertise and were able to handle different situations.
Ans 5 - The FBI arrested Bernie Madoff on December 11, 2008 for charges of securities fraud. The scheme reached an end when the market had a downturn in 2008 and new investors were difficult to find to continues the scheme.
Ans 6 - Thorough research and diversification of investments are two most important lessons learned from the Madoff's scandal. Thorough research includes checking of the financials of the investment company and also verifying whether the statements of financial position is true and fair. Diversification of investment leads to reducing of risks in investments.