Case Study: Bernie Madoff
Organizational Behavior – OL 500
Bernie Madoff was one of the top dogs on Wall Street for over 20 years. He managed tens of billions of dollars in client’s funds. His firm was one of the most consistent with profitable returns. When most others were reporting losses during the recession, his firm was consistently reporting net gains. Many celebrities even entrusted their money with Madoff because he was such a reputable name on Wall Street, being the former head of NASDQ.
In December of 2008, Madoff turned himself into the authorities because his operation was just a giant Ponzi Scheme. His investors were scared of ...view middle of the document...
Many people entrusted their money with Madoff and lost their fortunes. For many years, his firm was one of the top money makers on Wall Street. On a December night, in 2008, Bernie met with his brother and sons who were managers in the firm. The topic of discussion was thought to be about annual bonuses for partners in the firm, but when Bernie started to become nervous, his brother knew something was wrong. It didn’t take long before Bernie broke down and confessed that his hedge fund was just a giant Ponzi scheme. Most of his family members, including his brothers and sons, were heavily invested with Bernie. They were all left with nothing. Bernie claimed that the scheme started with just a few false statements to a few of his prized clients. He was a little embarrassed that he promised them consistent returns and wasn’t able to produce. Bernie soon realized that his scheme was impossible to fix in the short term and that it was inevitably going to get worse. Afterwards, he made a statement that he knew he was eventually going to end up prison.
Obviously we cannot change the past, but what we can do is learn from it and plan for the future. The research that was conducted subsequently concludes that as awful as Madoff’s actions were, others were also at fault because this tragedy could have been prevented. So the question remains how to we prevent another financial scandal like this in the future?
In 2008, Bernie Madoff turned himself in to the authorities because his firm was going under. He ran out of money and was no longer able to support his clients’ cash withdrawals. Madoff would take money upfront from new customers in order to pay for his existing clients, but when the market crashed and everyone wanted to cash out, his firm went belly-up. Once the courts started to compile evidence, it was realized that the legality of his firm was questioned as early as 1999 when financial analyst Harry Markopoulos started to look into Madoffs numbers. “He informed the SEC that it was legally and mathematically impossible to achieve the gains and returns he claimed to deliver” (Markopoulos, 2010)
Looking back through the years, there were many warning signs that should have tipped the authorities. Madoff was such an established and respectable name on Wall Street that no one thought that he would need to perform such an elaborate scheme. Everyone should be treated with the same caution.
Since 1993, his firm was the only one to never report a down month. His returns were not always the highest, but they were way too consistent. They were usually somewhere between 10 & 16 percent. The problem is the market fluctuates much more than that. The market has highs of 25% and lows of below 0. That is just the way the market works. Madoffs numbers were too consistent for it to still be legal. According to Harry Markopoulos, “The fact that there was something strange going on with Bernie Madoff’s operation was not a secret. People had been...