Christian Nunnery
February 10, 2018
Principles of Accounting II
The name Bernie Madoff is synonymous with a variety of terms: fraud, Ponzi Scheme, and even, although unlikely, successful investor. Madoff pulled off one of the largest cases of fraud in history. His Ponzi Scheme resulted in at least $50 billion in losses. Considered to be “out of proportions” by Andrew M. Calamari, who was the SEC’s Associate Director of Enforcement at the time of Madoff’s arrest. So, how did he go on so long without being caught? How did he get people to keep coming back? Who knew about this, and how deep were they really involved? This infamous scheme has been probed by tons of media outlets, and most (if not all) of these questions have been answered.
First and foremost, who was Bernard L. Madoff? Madoff was born on April 29, 1938, in Queens, NY. Madoff obtained his bachelor’s degree in Political Science from Hofstra University in 1960. Madoff founded his investment firm in 1960 with $5,000 he had saved from his job as a lifeguard. In the beginning of his career, Madoff specialized in penny stocks that were traded over the counter. Madoff began to cultivate friendships with influential business men of Florida and New York. He used these friendships to get them to buy into him. By doing so, he garnered many more investors due to the status of the beginning businessmen. These men provided some validity in Madoff’s investment form. He exploited this and becoming a Madoff investor soon became prestigious. Even early in his career, he was suspected to be running an investment scheme. It was later concluded that Madoff’s pyramid ways began in the 1980’s. By garnering many new investors, he was able to make the payouts he initially promised. Although Madoff was suspected from very early stage in his career, he wasn’t caught until well into the 2000s.
Investors were skeptical of Madoff’s investment returns (which promised 10% return annually) and questioned why his audits weren’t larger scale. His integrity was questioned as early as 2001, when Barron’s magazine published an article that casted an abundance of doubt on Madoff’s integrity. His actions were also analyzed by Harry Markopolos, who repeatedly reported Madoff to the SEC with the case that “The World’s Largest Hedge Fund is a Fraud”. The SEC still argued that there was not enough sufficient evidence, and large accounting firms never reported irregularities with Madoff. In fact, JPMorgan Chase blatantly ignored signs of money laundering in Madoff’s account. The balance seemed to be in the multi-millions but was put off as normal for an investor of Madoff’s status. The Chase account was used as a transfer account, to make investors believe that trades were being made in the British and other European markets. Since Madoff’s firm was broker-dealer, it was permitted to book its own trades. However, Madoff’s employ...
