Essay about Bernie Madoff Case Study

4730 Words Apr 28th, 2013 19 Pages
The Fraud of the Century:
The Case of Bernard Madoff

The fraud perpetrated by Bernard Madoff which was discovered in December, 2008 is based upon a Ponzi scheme. Madoff took money from new investors to pay earnings for existing customers. The greater the payout to retiring and withdrawing customer, the more revenue or clients he would need to start and “investment relationship” with Madoff. The Ponzi scheme was named after Charles Ponzi who in the early 20th Century, saw a way to profit from international reply coupons. International reply coupons were a guarantee of return postage in response to an international letter. Charles Ponzi determined that he could make money, legally, by swapping out these coupons for more expensive
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Bernard L. Madoff Investment Securities LLC: ‘All in the Family’ Bernie Madoff started in the investment business by legally buying and selling stocks not listed on the New York Stock Exchange (NYSE). Started in 1960 as a sole proprietorship, he served as a ‘wholesaler’ between institutional investors. In the early days, working with investment firms such as A.G. Edwards, Charles Schwab and others he made his money based on the variance between the offer price and sales price of stocks. In the 1990s, Madoff Securities was trading up to 10% of the NASDAQ shares on certain days. Early success and competitive advantage came from Bernie working with his brother, Peter (the first of several family members to join his firm) who after graduating from law school joined Madoff’s company and developed superior technology for trading buying and selling at the best prices. Madoff did not operate a hedge fund, which charges a fee for services and holds the money at a custodial bank. Madoff controlled the funds in house and made his money, in this division, from commissions on sales and profits and as far as has been revealed, the profits were not based on fraud. As Madoff became more successful, he moved the company’s headquarters from Wall Street to Third Avenue to the red granite “Lipstick Building” built by famed architect Philip Johnson. Not unlike Ken Lay and his lobbying efforts to deregulate the energy

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