Bernard_Madoff

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. Answer: Bernard Madoff, founder and owner the of the Wall Street firm Bernard L. Madoff Investment Securities LLC, had a laundry list of charges brought up against him for his involvement in the Ponzi scheme. It was estimated that his firm was worth more than $65 billion dollars; however, this multi-billion dollars firm was built on lies and deception. Bernard Madoff’s unethical business behaviors consist of fraud, theft, and false pretense (Haruni, 2008). Constance E. Bagley in Managers and the Legal Environment defines fraud as any intentional deception that has the purpose of inducing another in reliance upon the deception to part with some property or money (Bagley, 2010). Madoff intentionally took millions of dollars from several of investors and businesses with no intention of returning their investment using the Ponzi scam. On the Wikipedia website, it refers to the Ponzi scheme as a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually 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 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. Bernard Madoff fraudulent behavior caused many investors and organizations to lose millions of dollars and he knew that there was no guarantee investment return using the Ponzi scam. Also, Mr. Madoff presented illegal behavior of theft. In criminal law, theft is the illegal taking of another person's property without that person's freely-given consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting, fraud and sometimes criminal conversion. In some jurisdictions, theft is considered to be synonymous with larceny; in others, theft has replaced larceny (Efrati, 2008). Even though Madoff did not take money or funds against the investor will, he was to represent his clients’ investment into a security, but actually took the money for his own personal gain causing him to steal funds from his clients. The Wall Street Journal quoted Madoff of admitting that he has not traded since the mid-1990 and used other people investments as his own personal gain (2008). In addition, Bernard Madoff utilized this scam to create a false pretense behavior. Wikipedia refers false pretense when a person or persons obtains property by lying about a past or existing fact. In English law, these were deception offences defined in the Theft Act 1968 and Theft Act 1978, although they have now been repealed by the Fraud Act 2006 which has replaced them with different offences. Bernard Madoff bluntly lied to his client and deceived them of billions using the Ponzi scam. He deliberately took his clients money under false pretense because the money was never meant for investments but was for the Madoff Empire (2008). 2. Name three types of parties who were impacted by the actions of Mr. Madoff and describe how they were impacted. Answer: Business Insider website listed HSBC as one of Bernard Madoff’s victims. The website states that HSBC has emerged as one the largest victims of Bernard Madoffs alleged fraud with potential exposure of about $1bn. HSBC’s exposure stemmed from loans it provided to institutional clients, mainly hedge funds, which wanted to invest with Mr. Madoff. HSBC’s direct exposure is believed to be about $1bn in loans provided to clients who invested some $500m of their own funds in Mr. Madoff’s venture. Under the typical terms of these deals, if the US authorities recover any funds from Mr Madoff, HSBC will be paid first, with its clients suffering the first tranche of losses (Blodget, 2008). One would think that a company of such vast earnings and credibility would be able to protect itself from such fraudulent activities. This is a true indication that all companies should have better safe guard methods for their investments. Lawrence Velvel, dean of the Massachusetts School of Law, said he and a friend may have lost millions of dollars between them. “This is a major disaster for a lot of people," Velvel said in a telephone interview from his Andover, Mass., office. "You work all your life, you finally manage to save up something, and somebody who's entrusted with it, it turns out suddenly he's a crook. Lots of people are getting fully or partially wiped out." Velvel said he wants to know where government regulators, as well as accountants and others at Madoff's company, were when the money was being lost." However, seeing that the Ponzi scheme was a stumbling block for even a Fortune 500 company, it would have been difficult for individuals to protect themselves (Blodget, 2008). Wunderkinder Foundation, a Steven Spielberg charity, invested a significant portion of its assets with Mr. Madoff, based on regulatory filings. In 2006, the Madoff firm accounted for roughly 70% of the foundation's interest and dividend income, according to regulatory filings. A representative of Mr. Spielberg confirmed that the foundation has suffered losses on its investments with the Madoff firm. He said he didn't know the size of the losses and couldn't comment further, including on whether Mr. Spielberg had any of his own money invested with the Madoff firm." It must have been very disappointing for the charity to figure out that hey had been cheated out of their money (Blodget, 2008).