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The Illegal and Unethical Activities of Bernard Lawrence sample essay

Bernard Lawrence Madoff, a former chairman of the NASDAQ Stock Market and founder of Bernard L. Madoff Investment Securities, was one of the few NASDAQ market-makers who competed with the New York Stock Exchange, by trading stocks listed on the Big Board. Through the Cincinnati exchange, the Madoff was a pioneer in electronic trading and publicly spoke of the need to use technology to transform the inefficient and sometimes shady over-the-counter stock market (Monica Gagnier, 2008). But Madoff became famous for a very different reason on December 10, 2008 when Madoff’s sons told authorities that their father had confessed to them that the asset management unit of his firm was a massive Ponzi scheme. On March 12, 2009, Madoff pleaded guilty to 11 federal felonies, including securities fraud, wire fraud, mail fraud, money laundering, making false statements, perjury, theft from an employee benefit plan, and making false filings with the SEC.

1. Describe three types of illegal business behavior alleged against Mr. Madoff and for each type of behavior, explain how the behavior is illegal or unethical in the conduct of business. With all the felonies Madoff was charged with I believe that they are all illigal and unethical. First he was running one of the largest Ponzi schemes in history which entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going (Ponzi scheme, n.d.).

Second he was conducting securities fraud which includes outright theft from investors and misstatements on a public company’s financial reports (Securities Fraud, n.d.). Fraud is a violation of one’s trust and it deceives someone into willingly giving you something under false pretenses. Fraud is unethical and illegal because it takes advantage of innocent people that have put their trust in a person or in a company. Third Madoff committed money laundering by channeling at least $250m of fraudulent gains through the division of Madoff Securities International Limited (Andew Clark, 2009).

2. Name three types of parties who were impacted by the actions of Mr. Madoff and describe how they were impacted. The three types of parties who were impacted by the actions of Madoff were his investors, business partners, and his family. First his investors such as Fred Wilpon, owner of the NY Mets, Wunderkinder Foundation, Steven Spielberg’s charity foundation, Norman Braman, former owner of the Philadelphia Eagles (Wall Street Journal, 2009) and many other were impacted by his actions in that they lost their money. Madoff took their money on the promise of hefty returns – in some cases up to 46% and instead of investing the money; he simply used deposits from new clients to pay out false profits to existing investors (Andrew Clark, 2009).

Second his business partners were impacted by Madoffs actions in that they lost their jobs and some were even under investigation for their possible roles in Madoff’s Ponzi scheme. Third his family was impacted by his actions in that they were being investigated for their pssible roles in Madoff’s Ponzi scheme including his brother peter and his sons Mark and Andrew. Also impacted by his actions are other family member including his grandchildren who were sued by Irving Picard, a trustee, seeking a total of more than $30 billion in an avalanche of lawsuits intended to recover money for the fraudster’s victims (Wall Street Journal, 2010).

3. Describe three business safeguards (risk management) that may have prevented the harm caused by Mr. Madoff. Three business safeguards that may have prevented this are basic risk-management skills such as asking probing questions, searching for clear answers, and exercising timely follow ups with a financial risk manager. If the institutions and investors that contributed millions of dollars through his feeder funds or directly would have asked or researched where their money was going they could have found out that something just didn’t add up and possibly become a whistleblower of Madoff’s activities.

I know, I myself, if I was investing 5 million to Madoff who supposedly told me he could earn an unusually higher return on my money than other investors, I would want to know exactly how he was doing it. A financial risk manager might have been able to stop this from even happening. They might have seen that Madoff’s investment company was making substantial returns that were significantly higher than everyone else in the same market, and was doing it consistently year after year, then they might have saw that something just didn’t add up.

4. Describe three ways private investors might have better protected themselves from risk. It is an easy job to find thousands of financial agencies who are ready to serve clients high benefits on their investments, but it’s a tougher job to sort out the reputed and reliable ones among them. So before investing their hard earned money, they should survey the market first to know the agency’s reputation.

After doing their research they should better protect themselves by: 1.Using a Certified Financial Planner which have more training than others and must adhere to a strict Code of Ethics mandated by the Financial Planning Association. 2. Sticking with investments they can understand and making sure their advisor can explain and you can understand any performance that is inconsistent with benchmarks and 3. Don’t hesitate to ask their advisor questions about their investments.

5. Describe three legal actions that possibly may be brought against Mr. Madoff under criminal or civil law. Three legal actions that may be brought against Bernie Madoff are Securities Fraud, Falsifying Records of an Investment Adviser, and Making False Filings with the Securities and Exchange Commission. Securities fraud can carry both criminal and civil penalties, resulting in imprisonment and fines. Some common types of securities fraud include manipulating stock prices, lying on SEC filings, and committing accounting fraud (Securities Fraud, n.d.). Falsifying Records of an Investment Adviser, and Making False Filings with the Securities and Exchange Commission can also carry out both criminal and civil penalties, resulting in imprisonment and fines. With these charges and many others Bernard Madoff was sentenced to 150 years imprisonment and fined $17.179 billion (Bernard Madoff, n.d.).


Monica Gagnier, December 12, 2008. The Rise and Fall of Bernard L. Madoff. Retrieved from

Wikipedia, the Free Encyclopedia, n.d. Ponzi Scheme. Retrieved from

Wikipedia, The Free Encyclopedia, n.d. Securities fraud. Retrieved from

Andrew Clark, March 11, 2009. Bernard Madoff Faces Potential 150 Years in Prison After Lawyer Cconfirms he is Likely toPleadGuilty. Retrieved from

The Wall Street Journal, March 6, 2009. Madoff’s Victims. Retrieved from

The Wall Street Journal, December 8, 2010. Madoff Kin, Global Banks Sued for Funds. Retrieved from

Wikipedia, The Free Encyclopedia, n.d. Bernard Madoff. Retrieved from

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