Effects of Corporate Restructuring - Assignment Example

 Introduction Bernard Lawrence commonly referred to, as “Bernie Madoff is a popular former securities broker and an investment guru (Kirtzman, 2010). His recognition came from being the initiator of what is termed as one of the worst fraud in the American history. By that time, Mr. Bernard was the chairperson of the NASDAQ stock market and took advantage of his position to fraud people off their money in a scheme that came to be referred as Ponzi scheme. As a result of this fraud, Madoff is termed as one of the most unethical person who has ever conned the public the highest sums of money. He had two businesses that were situated in different floors with one of them was being a legitimate stock trading business, while the other one was an illegal investments management business (Lewis, 2012). This paper is going to critically analyze Ponzi scheme primarily focusing on the violation of business ethics, lack accountability, possible measures that could have prevented the fraud and the legal actions that were supposed to be taken in order to punish the perpetrator and prevent occurrence of another similar scandal. The company was committing a fraud by paying returns to the investors out of the money invested by their fellow investors rather than from the profit that the company was making. The scheme is estimated to have fraud the public more than $65 billion, making it the biggest fraud to have ever been experienced in America (Arvedlund, 2010). His scheme crashed down during the 2008 USA economic crisis after the number of new investors drastically decreased making the firm to lack money to pay the existing investors. The firm’s executives were solely Madoff’s family members who were not involved in the running of the business organization. Ethics Madoff completely violated the societal values in a number of ways. First, it is totally unacceptable, unprofessional and against the values of the society to engage in a fraud. He established the business with a bad motive and all his unethical actions were all deliberate. Madoff was enticing people to invest in this scheme by paying them high returns only that they did not know that he was paying them using other people’s principals. This means that his illegitimate venture could only last as long as there were new investors joining the scheme. Madoff is in this case portrayed as an untrustworthy person who has no any sense of empathy. He deceived his family, his employees, and most sadly thousands of investors whom lost millions of money with others their life savings. The family members and the employees thought that they were carrying out a legal and profitable business only to realize later the harm they had causing to the society. These actions were completely immoral and despicable (Lewis, 2012). Madoff used various strategies in bad motive to deceive and con people their money. Accountability Madoff was supposed to be accountable to all the organization’s stakeholders (Arvedlund, 2010). Stakeholders in this case are referring to the investors, the employees, family members as well as to the government. Madoff completely failed the investors who had so much confidence in his promising venture. Instead of working hard while still upholding to business ethics, Madoff used his position to deceive people and in the process fraud them money. He was also supposed to be accountable to the government by running a legitimate business that had met all the requirements particularly that set by SEC. Moreover, he was also accountable to his family members who in this case were the firm’s senior executives. He should have been involving the executives while making crucial decisions as well as in the general running of the organization. Prevention Various measures could have been applied in order to curb this fraud before it could get to such extremes. Some of the approaches that could have really helped include application of basic risk management strategies. The authority as well as the general public was supposed to question the credibility of the scheme (Arvedlund, 2010). Questions were supposed to be raised concerning the profitability of the firm to a point of giving very high returns within a short period of time. However, the authority failed the public since there were claims that Mr. Harry Markopolos had reported to the authorities in advance even before the scheme was exposed. The authorities were supposed to take swift actions to investigate the company and by so doing, it could have prevented Madoff from causing much harm to the public. Separation of duties could have also played a role in preventing the fraud. This would have ensured that Madoff was in charge of handling all the money. It would have also ensured that Madoff was using an independent overseer to be in charge of the firm’s assets. His duty would have been recruiting new members while on the other hand the custodian would be in charge of ensuring that the money was being invested as required. Other strategies such as timely follow up on Madoff’s firm could have also played a significant role in reducing the damage that the firm caused. Bodies such as the Securities Exchange Commission, a body that is mandated to investigate and ensure that investors get relevant information such as financial reports as well as information regarding securities offered for public sale. SEC could have easily noticed the fraud in advance especially because Madoff’s firm was not complying with the Sarbanes-Oxley Act (Kirtzman, 2010). The investors could have protected themselves from becoming an easy prey for Madoff by researching Madoff’s claims about the source of the returns. It is always advisable to question whenever making a large investment as well as ask for the financial statements of the company before investing. In addition, the level of the harm could not have been big if the investors were regularly checking their investments. They should have been asking for financial statements just to confirm the progress of their ventures. Other methods could have been insuring their ventures, question the unrealistic returns among others (Kirtzman, 2010). Legal framework Mr. Madoff could be accused of breaking the law of tort, which is under civil law. He was intentionally deceiving investors by promising them high returns hence making them to invest whole-heartedly and in good faith. This means that Madoff was liable for this civil wrong and was supposed to be sued for negligence as well as for criminal activities (Sarna & Malik, 2010). He committed several crimes such as wire fraud, mail fraud as well as securities fraud (Sarna & Malik, 2010). Mr. Madoff was accused of several charges of which he pleaded guilty of eleven charges, which made him to be jailed for 150 years. Along the jail sentence, Mr. Madoff’s property was also frozen in attempt to compensate those who had lost their monies out of his deceiving actions (Henriques, 2012; Nardo, 2011). The property could not have been enough to recover all the damages that Madoff had caused, but it helped just little bit since SEC tried compensating people as much as possible. However, I personally believe that the punishment was not yet worth the damage that Madoff had caused in main people’s social and economic lives. In conclusion, Madoff committed both civil and criminal felonies that made him to be jailed for 150 years. The court found him guilty of deliberately engaging in frauds that made the public to lose billions of US dollars. Application of several measures could have prevented the scandal if at all they would have been adopted in advance. The scandal got to extreme levels as a result of failure by the authority as well as all the stakeholders in general. References Arvedlund, E. (2010). Too good to be true: The rise and fall of Bernie Madoff. New York: Penguin Group. Henriques, D. B. (2012). The wizard of lies: Bernie Madoff and the death of trust. New York: St. Martin's Griffin. Kirtzman, A. (2010). Betrayal: The life and lies of Bernie Madoff. New York: Harper. Lewis, L. S. (2012). Con game: Bernard Madoff and his victims. New Brunswick, N.J: Transaction Publishers. (Lewis, 2012) Nardo, D. (2011). Bernie Madoff. Detroit: Lucent Books. Sarna, D. E. Y., & Malik, A. (2010). History of Greed: Financial Fraud from Tulip Mania to Bernie Madoff. Hoboken: John Wiley & Sons. Read More