The Bernie Madoff Scandal - Case Study Example

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The underlying purpose of this discussion is to provide the reader with a more informed understanding of the Bernie Madoff scandal that is considered the largest Ponzi scheme to have occurred in history which has since damaged the reputation of the hedge-fund industry…
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The Bernie Madoff Scandal
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Download file to see previous pages This paper illustrates that the Bernie Madoff Scandal was discovered by one of the Modoffs’ son when Madoff decided to pay up to $7 billion redemptions or bonuses upfront after showing the inability to pay investors. The sons demanded to know the source of the funds and father admitted that his asset management arm of his firm was actually being operated as a Ponzi scheme in which new investments covered returns from the existing or earlier investments and personal wealth. Upon discovering the fraud, the son did what the unexpected and took up the matter with the federal authorities leading to the arrest of Madoff. Madoff revealed that he had run the scheme for approximately 20 years since the early 1990s. It was discovered that over the years Mr. Madoff was actually using money from new investors to pay returns to old investors creating a pyramid resembling a previous scheme named after Charles Ponzi. Although Mr. Madoff was operating within hedge fund industry, his fund was not a hedge fund, but endowments and foundations after the hedge funds invested heavily with his company. Madoff’s strategy to pay old investors with funds obtained from new investors enables his firm to satisfy the high returns promised to investors despite failure by the old investments to generate any returns. Investors expected that their funds were invested elsewhere by the company to generate returns, but Madoff deposited all the funds in his business account at Chase Manhattan Bank. In order to hide the reality in his company, he creatively came up with false transactions involving falsified SEC filing with the Securities and Exchange Commission and foreign transfers year after year. Modoff’s fraud dealings also most surfaced in 1999 when Harry Markopolos, a financial analyst-whistleblower alerted the securities and commission that his gains were impractical in the financial situation. ...Download file to see next pagesRead More
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