Ponzi Scheme
Exercise 1: Bernard Madoff‘s Ponzi Scheme
(i) Background of man involved (concern) in the case:
Bernard Madoff was a former Chairman of the NASDAQ Stock Exchange, a Wall Street legend before his arrest.
(ii) Ethical issues:
In 2008, during the economic meltdown in the United States, Madoff could no longer honor his investor’s cash requests. When he admitted to this Ponzi scheme, it was a massive investment fraud that had affected many people including high profile investors. He pled guilty to defrauding investors in the amount of over $10 billion.
Madoff was very selfish. He set his own benefit higher than everybody else, even his family and friends. He defrauded investor by Ponzi Scheme and let them lose all their money, feel hopeless and also pain.
(iii) Analysis :
Basically, Madoff had such a good reputation in the financial community, he attracted investors by promising a large return (maybe 10 to 12 percent of profit) for their investment. Tricky part was that Bernard Madoff never invested any of his money in his investor funds. He use the money for private action and safe a little amount of their money for paying investor’s annually interest. He persuaded more and more investors participate in Ponzi Scheme and he use the money of new investors to pay previous investors. When he reaches a point where he cannot collect enough new money to pay off the old investors and at this point, the ponzi scheme collapses.
(iv) Solution / proposed module of decision:
The SEC exists to protect the investors. SEC does not get enough funds from the government to investigate cases before the damage have been made. The solution is SEC should use more funds from the government so that they get more power to do what they are supposed to do.
For investors, if someone guarantees a high profit return regardless of the changes of the stock market, do some careful research before investing. It is too good to be true. The safe way is “don't put all your eggs in one basket”.
(i) Background of man involved (concern) in the case:
Bernard Madoff was a former Chairman of the NASDAQ Stock Exchange, a Wall Street legend before his arrest.
(ii) Ethical issues:
In 2008, during the economic meltdown in the United States, Madoff could no longer honor his investor’s cash requests. When he admitted to this Ponzi scheme, it was a massive investment fraud that had affected many people including high profile investors. He pled guilty to defrauding investors in the amount of over $10 billion.
Madoff was very selfish. He set his own benefit higher than everybody else, even his family and friends. He defrauded investor by Ponzi Scheme and let them lose all their money, feel hopeless and also pain.
(iii) Analysis :
Basically, Madoff had such a good reputation in the financial community, he attracted investors by promising a large return (maybe 10 to 12 percent of profit) for their investment. Tricky part was that Bernard Madoff never invested any of his money in his investor funds. He use the money for private action and safe a little amount of their money for paying investor’s annually interest. He persuaded more and more investors participate in Ponzi Scheme and he use the money of new investors to pay previous investors. When he reaches a point where he cannot collect enough new money to pay off the old investors and at this point, the ponzi scheme collapses.
(iv) Solution / proposed module of decision:
The SEC exists to protect the investors. SEC does not get enough funds from the government to investigate cases before the damage have been made. The solution is SEC should use more funds from the government so that they get more power to do what they are supposed to do.
For investors, if someone guarantees a high profit return regardless of the changes of the stock market, do some careful research before investing. It is too good to be true. The safe way is “don't put all your eggs in one basket”.