Bernie Madoff Ethical Standards Essay

1208 Words Apr 15th, 2016 5 Pages
A Ponzi scheme is an investment fraud in which the investor uses the investments from new investors to make promised payments to prior investors. A Ponzi scheme typically has little or no legitimate investments that are actually occurring. A scheme falls usually apart when the main operator decides not to continue with the operations or when new investors cannot be found. Many red flags of a ponzi scheme can be recognized. A main concern for this scam is the promise for high, consistent, and guaranteed returns that have little or no risk. The returns are consistent, even when the economy is experiencing a recession. Typically, the investor is not registered with the Securities and Exchange Commission (SEC) or other regulatory bodies. The …show more content…
Pleading guilty of charges in United States District Court and District of Massachusetts, Ponzi was sentenced to 5 years in prison. After being released from prison 3 years later, he was charged with multiple counts of larceny in Massachusetts and was found guilty. He was deported back to Italy as an undesirable alien (14). The Securities and Exchange Commission (SEC) and Federal Trade Commission are the two main enforcers that target a Ponzi scheme. Federal law allows these agents to act on investment complaints that relate to the scheme and investigate (2). Often, a ponzi scheme case is interpreted in bankruptcy law and a trustee is appointed to oversee and administer the assets. “Under 11 U.S.C. § 548(a)(1)(B)’s constructive fraud provision, the receiver may recover profits and principal with a showing of bad faith on the investor’s part” (3). If actual fraud is proved with a Ponzi scheme, the investor in good faith may recover their investment from a trustee. A court will look at “factors relevant to the analysis are the defendant’s experience as an investor, whether the debtor promised rates of return greatly exceeding market rates, whether the debtor provided implausible explanations as to how it could pay those extremely high rates, and factors that would indicate insolvency. Law takes profits away from all the investors in a Ponzi scheme (subject to a statute of limitations) and

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