Bernie Madoff is well-known for being the orchestrator of the largest Ponzi scheme yet. His fraudulent machination crossed continents and was only able to be felled by something larger than his scheme, – an economic depression in 2008. It's essential to know what a Ponzi scheme is before being able to understand how Madoff was so successful. Essentially, a Ponzi scheme promises investors a large return on their investment. Unlike a valid investment strategy, the way a Ponzi scheme pays its investors is by recruiting new investors so that the principal they pay can be used to pay older investors. Much of Madoff's scheme is unclear and poorly documented because it stretches several decades. Most of the information that is known about Madoff comes from reports and word of mouth. What can be guessed is that Madoff started off small. He gathered money from local establishments like country clubs and charity events. Investors would be present at these gatherings and they would question Madoff for advice, as he was already a well-known “investor” who was able to make seemingly magic returns. From there, these investors would entrust him with his savings, which only fueled the principal that Madoff needed to make his Ponzi scheme continue to work. By 1992, the Untied States Securities and Exchange Commission caught up with one of the companies Madoff was using to feed his massive Ponzi empire, Avellino & Bienes. Since 1962, the firm, which had formerly been known as Alpern, Avellino and Bienes, funneled funds to Madoff by recommending that clients invest in a highly success but anonymous man who was able to generate high returns. The interesting part comes at the point when the allegations of SEC shut down the firm. Instead of liquidating all the assets related to Avellino & Bienes, they were transferred to Bernard L. Madoff Securities LLC, a company owned by Madoff. The chief reason that this happened was because Madoff claimed he had no knowledge that the firm was operating illegally and that Madoff had a reportedly legitimate investment returns portfolio for the prior 10 years. Between 1999 and 2006, the SEC investigated Madoff's company several times. In the first two investigations performed by the SEC in 1999 and 2000, there were reportedly no fraudulent practices in Madoff's business. In 2004, articles began to appear in popular business journals alleging that Madoff's business was a fraud. One article went so far as to say that Madoff's hedge fund was the “biggest fraud in the world.” Unfortunately for the investors involved, this was dead on. In 2005, the SEC investigated Madoff's business again. This time, they found that he was in violation of doing business as an asset manager while he was registered as an investment adviser. While no serious fines were brought up against Madoff, he was forced to register as an asset manager. The rest of the SEC's findings were kept secret. In 2005, Madoff's company was investigated as being an alleged Ponzi scheme. The SEC ruled that they found no evidence and no legal action was taken. It seemed like Madoff had everything set in his favor until 2006 rolled around. The amount of principal that was being introduced to Madoff's Ponzi scheme wasn't enough to cover the returns previous investors were promised. This, along with the fact that investors were moving to begin withdrawing their funds from Madoff's care, caused parts of Madoff's scheme to collapse. It wasn't until 2007 when the Financial Industry Regulatory Authority reported that parts of Madoff's business didn't add up. The problem was that parts of Madoff's firm had no customers, which is what finally caused the SEC to arrest Madoff. Originally, Madoff stated that his company had liabilities that topped out at US$50 billion. Prosecutors of his case, however, stated that the size of his scheme's fraud was around $64.8 billion and that it affected over 4,800 of Madoff's clients. This makes the Bernie Madoff scandal the largest case of international fraud yet.

What are the facts regarding the Madoff scandal?

How could such a scheme occur?

Has justice been served in this case? Explain.

Should white-collar crimes be prosecuted as aggressively as common crimes?

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Solution Facts Bernie Madoff ran a Ponzi scheme that defrauded thousands of investors out of billions of dollars The scheme promised high returns to i... View the full answer