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Corporate/banking scandel - Essay Example

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Xiaolin Lu Finance and Accounting November 2012 A Corporate/banking Scandal: The Bernard Maddoff’s Ponzi scam Perhaps, the Maddoff’s Ponzi scam is one of the biggest financial scandals, and a neat one too, that ever happened in the financial community…
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Corporate/banking scandel
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Download file to see previous pages But there are doubts if all his investors could ever fully recover their investments. Explanations why the scandal happened: how it is related to separation of ownership and management. The discovery of Maddoffs’s scheme was only accidental, as Harry Markopolis, a portfolio manager for an equity derivatives asset firm in Boston was asked to analyze Maddoff’s money making methods. Thereupon, he discovered Maddoff was using a Ponzi scheme. Markopolis, in an interview by Dick Carozza (May 2009) said that he had tried to convince and submitted evidences of the fraud to the SEC for 9 years, but to no avail because SEC would not listen. They are convinced that Maddoff was clean because he is such a respectable person in the financial community and that Maddoff strategy was doubtful. His scam was finally uncovered in 2008, when the stock market crumbled, and as the investors rushed in to redeem their investments, Madoff ran out of cash and turned himself in. After pleading guilty on March 12, he was sentenced to 150 years of imprisonment with losses estimated from $10 billion to $65 billion. How he was able to fool numerous people that includes high ranking bank officials, i.e. UBC, HSBC, is mind-boggling up to this time. Normally, a Ponzi scheme operates on a promise of higher interest for an investment, but Maddoff has no promise of that nature. He kept his interests low, but made regular payments that conservative investors are convinced on keeping their money on him. Added to that is the SEC’s confirmation of the truthfulness of Maddoff’s transactions. Even the banks where he kept his transactions such as the Chase Manhattan Bank, did not raise concerns even if they noticed billions of dollars going in and out of the bank , said Maddoff (Gelles, David and Tett, Gillian. April 8, 2011). This scam went undetected for a number of years so he was able to lure a number of wealthy investors abroad. Wealthy investors invested for tax shield purposes, four of his wealthiest client invented due ethnicity of being Jewish, while others needed an investment to park their wealth on(Gelles and Tett). The separation of ownership and management. Maddoff’s company is registered as Bernard L. Maddoff Investment Securities LLC., with main business as a broker dealer. He acts as Chairman of his company. His managers in the firm were all of his relatives. His brother, Peter, was a senior managing director. Both of Madoff’s sons, Mark and Andrew, joined the team after finishing their education. Charles Weiner, a son of Mr. Madoff’s sister, also joined the firm, and Peter Maddoff’s daughter, Shana, took a job with the company as a lawyer (Metapedia). He operates singly in perpetrating his scam, and his sons were found to be unaware of his activities. But prior to his arrests, or only five days earlier, he admitted to his staff that he is operating a big Poinzi scheme. (Metapedia). This is an implied admission that ownership and management is done only by Bernard Maddof. Strategies to prevent such scandals Maddof’s case is an example of a white collar crime that is done by someone who is knowledgeable to the company information and a person well respected in the business community, so it is difficult to discern a fraud. However there are strategies to prevent such scandals. Here, audit plays an important role, and transparency in each transaction is suggested. A fraudster can easily be spotted according to his ...Download file to see next pagesRead More
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