A Ponzi scheme is a scam that involves payment of returns to initial investors and the perpetrators of the scam from funds contributed by new investors (Parton, 1969). New investors are often solicited by the organizers of the Ponzi scheme with promises of high returns and little to no risk (U.S. Securities and Exchange Commission [USSEC], n.d.). The culprit in many Ponzi schemes center their attentions on attracting new money to make promised payments to initial investors and themselves, instead of engaging in any legitimate investment activity (USSEC, n.d.). What is recognized as the biggest Ponzi schemes in history can be attributed to fraudulent business activities of Bernard Lawrence ...view middle of the document...
Largely, securities fraud involves dishonest practices in the stock market, and occurs when investors are persuaded to invest their money based on fallacious statements. According to the FBI, securities fraud includes false information on a company's financial statement and SEC filings, lying to corporate auditors, insider trading, stock manipulation schemes, and embezzlement by stockbrokers (Perkins, 2009).
Money laundering, at its simplest, is the act of making money that comes from Project A look like it comes from Project B (Layton, n.d.). Money laundering is a criminal offense when used to cover up the sources of illegally obtained money, because the proceeds of a crime are made to appear legitimate. Laundering aids criminals in transferring dirty money into legitimate funds. Money laundering is a worldwide phenomenon. Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions and poses a significant policy concern for governments (Reuter & Truman, 2004). As a result, governments and international bodies have undertaken efforts to deter and apprehend money launderers. Financial institutions have also started efforts to prevent and detect transactions involving dirty money.
Perjury is the act of lying under oath, in a court of law, after being sworn in to tell the truth. Not only is perjury illegal, and a person can be condemned to serve up to five years in prison, but it is also unethical. The SEC was lied to and misled by Mr. Madoff during investigations. He lied about the amount of investors he had and also about the strategies used to invest his client’s money (Scannell, K., 2009). The law recognizes perjury more of an illegal offense, but personally I view perjury more of a moral dilemma. Mr. Madoff took an oath to tell the truth and swore under the name of “God”, and he lied.
Name three types of parties who were impacted by the actions of Mr. Madoff and describe how they were impacted.
Employees, banks, and clients are three parties who were impacted by the actions of Mr. Madoff. After the transgressions of Mr. Madoff were publicized his company ceased, leaving employees unemployed. Not only did they have to seek out new employment but their names were also tarnished after being associated with the biggest Ponzi scam ever committed. Banks lent Mr. Madoff money to back his investment company. Now they have to write off those loans because they will not be getting reimbursed. I believe the party impacted the most was the clients. Some clients were average people, like me, that invested their life’s savings. They put their trust and money into the hands Mr. Madoff and regrettably lost their money and it won’t be replaced.
Describe three business safeguards (risk management) that may have prevented the harm caused by Mr. Madoff.
An independent auditor could have been hired. Audits should have been performed from an outside source that was not affiliated with the...