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Berniemadoff 13437529758382-phpapp01-120731114413-phpapp01

  1. 1. Bernard L. Madoff Investment Securities LLC Ethics Assignment By: David Ball
  2. 2. Fonzi Scheme
  3. 3. Fraudulent investment schemes occur because of the lack of regulation andinadequate oversight of certain financial intermediaries and opportunistic behavior.The following paper will view the problems and issues related to this topic as seenthrough the recent Ponzi Scheme conducted by Bernard Madoff from 1960-2008.The financial regulatory scheme in the United States needs to be restructured inorder to become effective at preventing fraudulent investment schemes.
  4. 4. •1857 Little Dorie by Charles Dickens•1920s Charles Ponzi•1960 Madoff Securities founded•1992 SEC Investigation•1999 Frank Casey & Harry Markopolos•2000 SEC Investigation•2001 SEC Investigation•2002 SEC Investigation•2005 SEC Investigation•2006 SEC Investigation•2007 SEC Investigation•2008 Madoff Securities is largest market maker on Wall Street•December 10th, 2008 Madoff confesses to his sons•December 11, 2008 Madoff is arrested by FBI officers•December 23, 2008 Thierry de Villehuchet commits suicide•June 29th, 2009 Madoff sentenced to 150 years in prison•December 11th, 2009 Madoff’s son commits suicide
  5. 5. •Secrecy and exclusion•Split-strike conversion •Part I Basket or Grouping •Part II Call Options •Part III Put Options•Feeder Funds, Funds of Funds, Hedge •Income •Stock Price AppreciationFunds •Stock Dividends •Marketing Firms raising capital •Income from Selling Call versus Hedge Funds Options •Loss•17th floor vs. 19th floor of the Lipstick •Stock basket or groupingBuilding declines •Purchase of put options•Keep your friends close and your enemies (which protect your stockcloser? basket from market price declines)
  6. 6. View Real Client Statement
  7. 7. Congressional Hearing-Markopolos
  8. 8. •SEC •FSOC (Sec. 112 Council Authority) •Good because links various financial regulatory bodies in the United States together •Cross-Pollination of Tips •FSOC should promote sharing information, tips, information, and evidence to protect the United States financial industry against fraudulent investment schemes•Employees of the SEC •Comparable Salaries to draw more qualified employees •Results Bonuses based upon successful and meritorious investigations •Qualifying Test in order to become an employee (i.e. CPA exam, Patent Bar exam) •More Economic/Financial Backgrounds versus Over-Lawyering the Commission •Fraternization, Continuing Education, and Piercing the Financial Industry •Evaluation/Review of employees •Turnover/Revolving Door •Pink Slips to employees who do not perform consistently•Investment/Financial Advisors •Current registration requirements need to be changed (all persons that purport to be investment advisors or financial advisors need certification, qualification standards, and registration requirements in their State of practice and Nationally through the SEC pursuant to Investment Advisors Act of 1940) •Examples of Associations: •National Association of Personal Financial Advisers •Financial Planning Association •Certified Financial Board of Standards •American Institute of Certified Public Accountants•Funding (need more of it; average around $1 billion annually from Congress, but there arestatutory maximums under the Dodd-Frank Act) •Funding comes from Congress approved budget and from activities internal to the SEC (i.e., Similar to the DEA) •Company registration (investment firms and other entities have SEC fees) which go to the General Treasury when they should go to the SEC •3 times the penalty and goes straight to SEC versus IRS coffers •Impoundment of assets
  9. 9. •Why are Ponzi schemessuccessful? •Opportunistic Behavior and Greed •Trust •Over-optimism (i.e., Due Diligence diminished because naïve and over-optimistic) •Procrastination (i.e., Inadequate monitoring and sitting idly by) •Bounded Rationality due to complexity (i.e., Split Strike Conversion strategy)
  10. 10. Not a Ponzi SchemePBS-The Madoff AffairScam of the Century