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Madoff’s Ponzi Fraud

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Madoff was arrested for his involvement in a Ponzi scheme that had been going on for about 20 years. In 1960, Madoff started his own company called Bernard L. Madoff Securities, which was created to match up stock buyers and sellers who were looking to trade smaller stocks. The motivation one would have to research the topic on the Bernie Madoff Ponzi scheme would be a result of the scandal constantly being spoken about on the news. Thus once intrigued by the recent scandal, one may wish to seek more knowledge on the issue.

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Bernie Madoff is a former financier, stockbroker, and investment advisor who founded the firm named Madoff Investment Securities LLC in 1960. Madoff remained the chairman of the firm until he was arrested in 2008. Madoff’s firm was said to be the most market making firm as it did not involve the specialist firms in the process of stockbroking and it contacted the investors over the counter directly. Madoff’s sons informed the authorities in 2008 that the firm’s asset management business is actually a lie under which the firm carries out a massive Ponzi scheme which has been defrauding investors for years. It was later discovered that Madoff had been orchestrating the Ponzi scheme since early 1990s and according to some accounts, it has been said that the scheme had started in early 1980s. The firm used to produce a false paper trail which was sent to the clients to present a false impression of the financial position of the firm which led towards investment by the investors

Later, gains were fabricated and false financial performance reports were released.

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However, Ponzi schemes guarantee their customers consistent high returns. Investors should also be wary of investments whose strategies are complex to understand. An investor should understand how the investment brings returns. Investors should desist from investing in investments that they cannot understand. This is one of the most effective methods of detecting Ponzi schemes (Benson 5). Investors should also be wary of investment managers who want complete of their money. Ideally, a big broker- dealer firm that is regulated by the Financial Industry Regulation Authority should hold the investment funds (Arends para 4)

It is impossible for an investment manager to run a Ponzi scheme if a different party is in control of the funds. Following these measures would greatly reduce the probability of falling prey to Ponzi schemes.

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In the final analysis, in the case of Madoff’s financial fraud, which made a $65 billion dollar loss, there are many reasons why it happened. Reasons include; the irresponsibility of Madoff and his company, consumers’ greed for high return and their incautiousness and mainly because of the lack of regulation in the financial market, which is also the main reason for the financial crisis

To enhance the regulation, there are two main methods, one is the direct intervention from government and the other is the pressure from various communities and organizations.

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Roosevelt, T, n.d. The Economist, 2009. Management idea: Corporate social responsibility. The Economist 9th September.

Sloman, J 2009. Economics. 5th ed. FT Press

The Wall Street Journal,2009. Madoff Jailed After Admitting Epic Scam. The Wall Street Journal,13, March

Kovacich, Gerald L. Fighting fraud: How to establish and manage an anti-fraud program. Burlington, MA: Butterworth-Heinemann, 2007. Print.

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