Bernard Madoff Case Study

BERNARD MADOFF’S PONZI SCHEME

DCS 3301

BUSINESS ETHICS AND CORPORATE CITIZENSHIP

WHAT IS PONZI SCHEME?

• Investment fraud which is identical to “Pyramid Scheme”

• Promises high ROI (Return On Investment)

• Pays “dividend” by using investments from other investors

• Requires sufficient new investors to sustain the scheme OR;

• When the investors withdraw all of his investments


DCS 3301 BUSINESS ETHICS AND CORPORATE CITIZENSHIP

MAIN ETHICAL ISSUES

• The Power of Greed

• Negligence of the Securities and Exchange

Commission(SEC)

• Exploitation of trust gained from close members



ETHICAL DILEMMAS I

PUBLIC INTEREST VS FINANCIAL GOODS

Is it ethical for Madoff to cheat the public to fulfill his

desire of getting fast money or it is unethical to do so?

• Trick investors through his wealth management company

• Promising high ROI (Return On Investment)

• Unethical to earn money through illegitimate method

• Fraud amounted more than $10 Billion



ETHICAL DILEMMAS II

GREED VS TRUST

Is it ethical for Madoff to give up his title, generous

philanthropist (trust) to get what he is addicted in doing,

cheating investors’ (money)?

• Bernard Madoff – Well-known public figure Charity and Liberal Contributor

• Used Trust gained from his title to scam people into the scheme

• The Power of Greed caused others to lose their trust and faith in him.



ETHICAL DILEMMAS III

NEGLIGENCE OR DECEPTION

Securities and Exchange Commission (SEC) failed to

follow or did not want it to be found?

• SEC failed to properly investigate Madoff’s trading even though complaints have

been made.

• No necessary step executed to determine the legality of Madoff’s trading

• SEC might be deceiving the public to cover up facts that some SEC affiliates are

involved in the Scheme.

• Unrealistic investigation done by SEC



Investors should conduct a background research on

the company that they plan to invest in

• Research about the company details and the owner details

• Research on company licensure on investment trading

• Shared to public via mass media

RECOMMENDED ACTIONS

IN FACING THE ETHICAL ISSUES



RECOMMENDED ACTIONS


The government and their regulators should be thorough and strict on their investigation

• SEC exists to protect investors, uncover frauds that are happening in the market and protect the public interest

• SEC to set-up Customer Service Department to follow-up on complaints from investors

• SEC should be more professional in approaching complaints by executing detailed investigations

• SEC should send spies to the company in order to understand how the company runs and what actions are used to fraud on investors

• Increase punitive on people running fraud businesses.



Bernard Madoff should not have involved his family

members into his fraud

• Family members should stop him from going any further and cause

major damage to others

• Family members can choose not to be involved in the scheme by not

helping him

• Family members should not be overwhelmed by the Power of Greed

RECOMMENDED ACTIONS




Bernard Madoff should not have even committed the

fraud as it made him betray the trust of his peers

• Should not take advantage of the trust between him and his friends.

• Check the background of the scheme and not build trust based on Madoff’s

positive personality expressed.

• Should not trust schemes that guarantee high or over-consistent Return On

Investment

RECOMMENDED ACTIONS




REFERENCES

• Solution Inn, 2012, What are the ethical issues involved in the Madoff case? , Solution Inn, viewed 5 March 2013, <

http://www.solutioninn.com/business/organizational -behavior/business-ethics/what-are-the-ethical-issues-involved-

in-the-madoff-case>

• The FBI, n.d., Common Fraud Schemes, FBI.gov, viewed 13 March 2013, < http://www.fbi.gov/scams-

safety/fraud/fraud>

• DesJardins J, 2011, An Introduction to Business Ethics, pg 17, 4th Ed, Mc-Graw-Hill

• DesJardins J, 2011, An Introduction to Business Ethics, pg 2, 4th Ed, Mc-Graw-Hill

• Evans M, 2012, Ponzi schemes can be a threat to banks, American City Business Journals, viewed 13 March 2013,

< http://www.bizjournals.com/triad/print-edition/2012/08/31/ponzi-schemes-can-be-a-threat-to-banks.html?page=all>

• Collins D, n.d., Bernie Madoff’s Ponzi Scheme: Reliable Returns from a Trustworthy Financial Adviser , pg 447,

School of Business at Edgewood College in Madison, Wisconsin

• Jory S & Perry M, 2013, Ponzi Schemes: A Critical Analysis, FPA, viewed 13 March 2013, <

http://www.fpanet.org/journal/BetweentheIssues/LastMonth/Articles/PonziSchemes/>



DONE BY

TAN XIEN YI TEY YI YAN

MOCKEE KOH KISHEN MOHAN

AUDREY SAN HOR WAI YIN

Bernard Madoff Case Study

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