Bernie Madoff

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There were many red flags that should have triggered suspicion of his actions. They were overlooked by several people for many reasons. Julie Creswell stated, “One of the reasons Madoff was able to perpetrate his fraud for so long was his preference for marketing his investment business by word of mouth. Until the scam's later years, people heard about it from friends. It was a private club, one that, famously, became only more desirable because of Madoff's seeming reluctance to admit new investors. One of the tacit conditions, as we know now, was an understanding that information about Madoff investments -- including their existence -- was to be held closely. Most investors complied. Who would want to anger Madoff and risk losing their privileges?

Still, despite his best efforts, every so often Madoff's secret investment business would emerge publicly. Each time Madoff would spring into action, showing a characteristic mix of reactions. He would take direct control, responding personally. And he would employ his self-deprecating charm.

In 1992, for example, Madoff's name surfaced in a major SEC investigation involving one of his feeder funds. Avellino & Bienes was accused of running an unregistered securities operation, issuing $441 million of notes that promised returns of 13.5% to 20%. SEC officials feared it was a Ponzi scheme. They raced into court, won an injunction to shut the firm down -- and discovered that all the investors' money was safely in the hands of one Bernard L. Madoff. According to court records, Madoff was able to return all the money to Avellino & Bienes in a matter of eight days.”

What eventually exposed his investment company was a series of financial events. The only way the fraud would work is to have additional investments when he needed. He always had a steady list of people ready and willing to invest, so if any of his clients needed money, he could open up to new investors and pay them off. The problem came when the stock market fell 40% in 2008. Bernie, because of his pride as being the golden investor, posted a 4.8% gain. Naturally, people turned to the only investment they had that was performing. For some, it was the only money they had. Several investors asked for their money back but since Bernie had been living his opulent lifestyle, could only come up with a few million. That plus the fact that nobody wanted to invest what little money they had left exposed the scheme for what it was. In essence, all that invested with him lost all that they had invested. ("How Bernie Did It", 2013).

The result of his scheme was first to send Bernie, and all that were involved, to prison. After a long trial, eventually he was sentenced to 150 years in prison. The problem after that was to ensure that something like this wouldn’t happen again. What congress did was pass thirteen different laws that provided more protection for insiders and whistle-blowers, greater oversight to protect investors’ assets, and gave investigators more power to search for possible illegal action.

Though some investors got part of their money back, most lost their life savings and everything that they had invested. A man that was raised by dishonest people and, throughout his life emulated their example was brought to a form a justice; however, the damage that he caused to the people he stole money from and the reputation of investment representatives won’t be easily repaired. “The weight of this sad time we must obey; speak what we feel, not what we ought to say. The oldest hath borne most: we that are young shall never see so much, nor live so long…We were as poor naked wretches that bide the pelting of this pitiless storm. How shall your houseless heads and unfed sides, your looped and windowed raggedness, defend you from seasons such as these?" ("Important Quotes from King Lear", 2012). There are people in every industry that seek to prey on the unsuspecting public. The only protection from these crooked people is a vigilant effort to identify and act upon the signs of dishonesty.

References

From Prison, Madoff Says Banks ‘Had to Know’ of Fraud. (2011). Retrieved from

http://www.nytimes.com/2011/02/16/business/madoff-prison-interview.html?pagewanted

How Bernie did it. (2013). Retrieved from http://money.cnn.com/2009/04/24/news/newsmakers/madoff.fortune/

Important Quotes from King Lear. (2012). Retrieved from

http://www.brighthubeducation.com/homework-help-literature/63836-analysis

John Bartlett (1820–1905). Familiar Quotations, 10th ed. 1919.. (2013). Retrieved from

http://www.bartleby.com/100/338.12.html

The Talented Mr. Madoff. (2009). Retrieved from

http://www.nytimes.com/2009/01/25/business/25bernie.html?pagewanted=all