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Bernie Madoff Scandal: The Kind of Ponzi Schemes - Case Study Example

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Bernie Madoff Scandal: "The Kind of Ponzi Schemes" Facts in the Bernie Madoff Scandal Firstly the Ponzi scheme carried on by Bernie Madoff made the investors counter a loss of around $65 billion. The second fact reflects that the returns gained by the initial investors of around 1 percent were rendered to them from the consecutive investments gained from other investors and not from returns…
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Bernie Madoff Scandal: The Kind of Ponzi Schemes
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Download file to see previous pages Fifthly, Bernie Madoff stated that the amount gained from investors would be employed to procure stocks pertaining to government securities and funds and would be traded effectively to gain. Sixthly, Bernie Madoff reveals to his family on December 9 and 10, 2009 that the Ponzi scheme was a complete fraud. Madoff also stated that he desired to distribute $200 to $300 million left among friends, family members and employees. Seventhly, Harry Markopolos an older employee of Madoff reflected that in spite of knowing the concern he failed to highlight such owing to fear of losing employment and trust of government bodies. Eighthly, the Securities and Exchange Commission (SEC) in United States failed to render an adequate probe into the matter. Finally, on March 12, 2009 Madoff finally appears before the court and admits all the fraudulent charges laid on him by SEC during December 11, 2008 (Brooks and Dunn, 2009, p.119). Inferences Drawn from the Facts Firstly, Bernie Madoff is a fraud for whom large number of investors had to suffer from huge financial losses. Secondly, though the security trading authority of United States had knowledge about the financial scam yet they failed to launch an adequate probe into the matter. ...
Returns at the rate of 1 percent were rendered based on investments gained from new investors which countered a fall in the emergence of sub-prime crisis. Secondly, Harry Markopolos an employee of Madoff reflected the fear of being a whistleblower owing to lack of employment security and anticipation of fall in trust from government agencies. Thirdly, lack of an effective investigative team in SEC led to the failure of conducting a proper probe into the matter. The Cause-Effect Relationship Firstly the concept of Ponzi scheme reflects that it was initiated by Charles Ponzi who used to pay returns to the initial investors through the money gained from the investment made by other consecutive parties. The initial investors owing to gaining considerable returns acclaimed that Charles Ponzi was a genius. This fact attracted other people to render more investments thereby helping Ponzi to run away with the funds. Thus any investment activity carried out by an individual promising high returns in short time came to be known as Ponzi scheme which in here was carried out by Bernie Madoff (Wang, 2006). The same can be reflected through the following flow chart. The flow chart reflects that how the fund gained from new investors NI1 and NI2 were used to render interest to investors I1 and I2 by Bernie Madoff. Secondly, the employees working in a Ponzi company are found to suffer from certain relative fears that deter them turn whistleblowers to the scam. The employees fear that being part of the scam operation they would also be prosecuted by the law of the region. They also fear of being ostracized by the social community and also being turned out of ...Download file to see next pagesRead More
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