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787197068-Group 1 Week 10 Lee Mei Ying
787197068-Group 1 Week 10 Lee Mei Ying
787197068-Group 1 Week 10 Lee Mei Ying
American history
The Madoff Scandal
Investor requests
Investor requests
to buy shares
to buy shares
from company Y
from company X
($1000 deposited)
($1000 deposited) The Schemer
Investor 1 Madoff & his investment Investor 2
firm
The $1000
$2000 is kept
in an account and
Investor requests not invested
withdrawal of
money and profit
($2000 paid to
investor 1)
How a Ponzi scheme works
Named after Charles Ponzi, an Italian swindler.
Investor requests
to buy shares
Investor requests
from company X
withdrawal of
($1000 deposited)
Use
Investorlater
4 investors money to pay earlier investors.
money and profit
($2000 paid to
Stealing from PeterMadoff toThe
pay Paul
Schemer tactic.
investor 2)
& his investment Investor 2
No real investment is involved. firm
from company Z
($1000 deposited)
Timeline of events
Madoffs early life and career-start up
Sylvia Ralph
Munter Madoff
Bernard L. Madoff
Works here too
Investment Securities LLC
Sondra
Weiner Bernard
Madoff
Peter
Madoff
created!! (1960s)
Earned money from being a
$ lifeguard and installing sprinklers
+ loan from father-in-law
$
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http://egov.eletsonline.com/wp-content/uploads/2012/02/nasdaq.jpg
Madoffs Fame
Bernard Madoffs positions (financial):
Chairman of NASDAQ, National Association of Securities Dealers (NASD) &
Securities Industry and Financial Markets Association (SIFMA) trading
committee.
Founding board member of International Securities Clearing Corporation.
http://1.bp.blogspot.com/-zIxJpvb98SI/Ulbw3onPQNI/AAAAAAAABVM/PmuFPLygZ-4/s1600/Untitled.png
Source: Rhee, 2009.
Any person with some background in statistics should have noticed this inconsistency in data
Fraud Exposed- Madoffs confession
2008 stock market crash lead to waves of people demanding withdrawal of
their investment funds.
Recall:
Ponzi Scheme destined to collapse when there is not enough investors.
Madoffs scheme had more withdrawals than investors not enough money http://members.bonnerandpartners.com/wp-
content/uploads/2014/06/title-final-300x268.png
to pay everyone.
Madoff knew he cant take the rest of the money and run.
He decided to confess to his sons about the Ponzi scheme his sons informed
the authorities.
Madoff claimed to have started the Ponzi scheme in the 1990s but no one
knew for sure.
Aftermath of the fraud
Aftermath
Madoffs reputation Madoffs family SECs reputation
Sentenced to 150 years in jail. Madoffs son, Mark, committed People lost faith in the SEC.
Treated like a Mafia boss in suicide.
prison. SEC deemed as incompetent
Madoffs other son, Andrew, and needs fixing.
died of lymphoma.
Sparked discussions about the
Peter, Madoffs brother, need to educate SEC staff and
sentenced to 10 years in jail. lawyers about finance,
economics and statistics.
Had the SEC staff and lawyers been well trained in finance, economics
and statistics, the inconsistent data in Madoffs investments would
have been detected and the fraud exposed earlier.
References
http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?
_r=1...
http://en.wikipedia.org/wiki/Bernard_Madoff
http://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1500&cont
ext=facultypub
http://www.fraud-magazine.com/article.aspx?id=313