NASDAQ

Introduction

Born on 29^th April 1938, Bernard Lawrence "Bernie" Madoff is a former non-executive chairman of the NASDAQ   stock market, stock broker, investment advisor and the admitted operator of the largest and most notorious Ponzi scheme in the history of the world. On March 2009, he pleaded guilty to 11 federal felonies and admitted to defrauding thousands of investors billions of dollars by turning his wealth management business into a massive Ponzi scheme. Two months after his 71^st birthday, on 29^th June 2009, Bernie was sentenced to the maximum allowed prison sentence of 150 years (Zambito & Smith, 2008).

A Ponzi is an investment fraud that promises returns to all investors not from actual profit earned by the organization but from their very own money or money paid by other investors. In such a swindle, old investors are paid off with money from new investors

The 11  felony charges to which Bernie pled guilty of were; "investment advisor fraud, mail fraud, wire fraud, securities fraud, perjury, false statements, theft from an employee benefit plan, false filings with the United States  Securities and Exchange Commission (SEC) as well as three counts of money laundering.

Although Mr. Madoff claims he started his fraudulent activities in the early 1990s, federal investigators have reason to believe that the fraud in the investment management sector and the advisory sector began as early as the 1970s. Mr. Madoff goes down in history as the first prominent practitioner who paid a middleman cum broker to execute a customer's order through his brokerage, and this gave him the reputation of the largest dealer in the New York Stock Exchange-listed stocks in the United States, trading over 15% transaction volume. His market-marker division traded up to 5% of the total volume racked up on the New York Stock Exchange.

Illegal Business Behavior Alleged Against Mr. Madoff

The three main illegal business behaviors alleged against Mr. Bernard Lawrence Madoff were fraud, theft, and false statements. When one is fraudulent, it involves a violation of one's trust, hence deceiving someone into willingly giving you something under false pretences. Bernard Lawrence madoff was alleged to have committed securities fraud, wire fraud, mail fraud and investment advisor fraud. It is unethical and illegal to take advantage of innocent and unsuspecting people who have put their trust in an organization or an individual. Bernie's fraudulent activities affected people who had placed their trust in him and they were blinded when they lost all they had. Fraud lacks a place in the conduct of business as it costs innocent people of their hard earned funds, degrades the company's reputation and may even result to the liquidation of such a company whereby employees lose their job and money.

Though theft is much like fraud, not all thefts are fraudulent, as one doesn't have to deceive someone to steal from them. Bernard Lawrence Madoff allegedly stole funds from an employee benefit plan, denying the employees an opportunity to make honorable income. Theft should have no place in the conduct of business as it costs organizations lots of money.

Mr. Bernard Lawrence was also alleged to have sent out deceptive annual reports to clients and filed doctored financial statements with the Securities and Exchange Commission (Clarke, 2009). The reports sent out to clients showed that they (investors) were doing well even if he had not invested their money at all. Falsification and doctoring of information for personal or organizational gain is an unethical and illegal act and should have no place in the conduct of business activities as it misrepresents the wellbeing and financial position of a company, consequently costing the company its reputation.             

Types of Parties Impacted by the Actions of Mr. Madoff and how they Were Impacted

First came the clients cum investors in Bernard L Madoff Investment Securities LLC, Mr. Madoff's company, who lost a lot of money and some even lost their life-time savings. Some charities had to shut down after being defrauded by Mr Madoff, as they had also invested in the scheme. Charities are non-profitable organizations and they seemed to put their trust In Mr. madoff.

The employees of Mr. Madoff's investment company lost their jobs owing to his actions. The loss of jobs impacted on their livelihood and to a larger extent their families who directly depended on them.

Owing to the gravity of his actions, Mr. Madoff's business associates lost their reputation in the business world. Banks and financial institutions, which leant money to Mr. Madoff, will not be paid back, affecting their capitalization.

Business Safeguards that May Have Prevented the Harm Caused By Mr. Madoff

One safeguard is to be wary of the red flags. If a deal sounds too good, you probably need to think twice. Operational procedures and safeguards should have been put in place in order to look out for any warning signs or red flags. Throughout my research, I found out that not all the warning signs and red flags that cropped up were paid attention to.

Another safeguard would have been taking an extra step to be an independent auditor and thoroughly go through the financial statements that were allegedly being made. There might have been an actual way to prove when an investor really made an investment for a client. To ensure that the money is actually being invested as stated in the annual financial reports, the auditor ought to investigate thoroughly and look to all the statements, reports and information received from the investment company.

One is left to wander why there were not enough safeguards within the Securities and Exchange Commission that would have helped to uncover fraudulent activities such as those Mr. Madoff carried out. As I carried out my research, I found out that there were numerous complaints sent to the Securities and Exchange Commission with regard to Mr Madoff. On several occasions Mr Madoff was investigate by the Securities and Exchange Commission and no fraudulent activities were found to have been going on. With minimal knowledge about the internal structure of the Securities and Exchange Commission and or how it runs, they surely needed to have more risk management strategies and processes to oversee complaints and investigations. A control system should be in place to monitor and look into any irregularities of all the investment advisors they are keeping track of.

Ways in which Private Investors Might have Better Protected Themselves from Risk

One such way would have been not putting all eggs in a single basket, i.e. separation of functions. According to my research, there was no separation of functions as Mr. Madoff's company did everything for the investors. It acted as the investment advisor, the broker of operations and the company also generated the statements. In this case what may have helped would have been the presence of a third party to oversee the statements, thereby denying Mr Madoff the chance to create false statements without any oversight. The private investors would have separated some of Mr. Madoff's duties and lowered his involvement in their investment activities.

The private investors should have inquired for proof that their stocks were in actual sense being purchased. What they did just blindly believed Mr Madoff, who deceived them that he was buying the stocks. There must have been a way to prove that investment transactions actually took place.

When a deal is too good, one ought to think twice.  From my research, I found out that during the flat year for the S&P100, madoff investments' rival, Gateway investments made returns of 5.5% which is well expected, while Mr Madoff reported returns high at 12% (Allen, V., 2008). That particular discrepancy ought to have aroused some doubt. An investor should have asked himself or herself why Mr. Madoff could get that return which no one else could.

Legal Actions that may Possibly be Brought against Mr. Madoff under Criminal or Civil Law

Of the eleven criminal actions brought against Mr Madoff, three were outstanding. These are; perjury, securities fraud and mail fraud. Perjury is described as the willful act of lying while under an affirmation to tell the truth or an oath, both spoken and in writing, concerning matters important to a judicial proceeding. Mr. Madoff perjured himself repeatedly as the investigation on his Ponzi scheme was undergoing. He also lied and misled the Securities and Exchange Commission while under investigation. He gave false information to the Securities and Exchange Commission about the number of clients and investors he had and the type of strategy he used to invest for his clients (Scannell, 2009). This is illegal and unethical.

Mr. Madoff would take money from his clients and pretend to invest the money, and then falsify financial statements and reports, bringing about the securities fraud action. When Mr Madoff said he was making investments, he didn't at all invest and this amounted to defrauding his clients of hard earned cash. He knowingly falsified financial statements and reports to indicate a strong financial position of his company and show that investments were doing well while the investments didn't exist in the first place.

It is unethical and against the law to use the United States Postal Service with an aim of defrauding people of their money, securities or valuables. Mr. Bernard Lawrence Madoff used the United States Postal Corporation to send out falsified financial statements and accounts to his investors and clients and consequently defrauding them of billions of dollars. He therefore committed mail fraud.

The Federal Bureau of Investigation arrested Mr. Bernard Lawrence "Bernie" Madoff on 11^th December 2008 on a criminal charge of securities fraud. The original complaint estimated the loss by investors at a high of 50 billion dollars, before the Wall Street Journal established later that the figure included the purported false profits that the firm had reported to its clients over the decades (Scannell, 2009).