Madoff Case

In: Business and Management

Submitted By imaynie
Words 296
Pages 2
Bernard Madoff’s ponzi scheme was the largest in the history which defrauded investors out of as much as $65 billion. David Friehling, the leading auditor of Bernard L. Madoff Investment and Securities’ (BLMIS), was sentenced for aiding Madoff with investment advisor fraud, and filing false audit reports with the SEC. Since then, people are paying more and more attention to auditors’ and accountants’ legal liability. This document will describe the ways in which BLMIS auditor disregarded his responsibility to uphold the fundamental principles governing an audit; types of evidence to determine whether a company has purchased, sold and maintained proper custody of investment securities; definition of ordinary negligence, gross negligence, and fraud, and whether auditing firm should be facing criminal charges.
As the leading auditor of BLMIS, Friehling failed to conduct audits that complied with GAAS and GAAP by failing to conduct independent verification of BLMIS assets, review material sources of BLMIS revenue, including commissions, examine a bank account through which billions of dollars of BLMIS client fraud flowed, verify liabilities related to BLMIS client accounts, verify the purchase and custody of securities by BLMIS, and test internal controls as required under GAAP and GAAS standards.
Auditors should review related documents and obtain information from third parties to determine whether BLMIS had purchased, sold, and maintained proper custody of investment securities. The examiner could review all the transaction records to make sure such trades exactly happened. Auditors can also review broker/dealer activities to determine the existence of the trades. Besides, auditors can contact banks to review the accounts balance to substantiate the existence of recorded trades and occurrence of the related transactions, and to verify the cutoff and accuracy of…...

Similar Documents

Bernie Madoff Case

...Bernie Madoff Fraud Case Bernie Madoff Fraud Case Introduction One of the largest fraud cases of all times is that of the “Bernard Madoff Case.” According to Armstrong (2008), “for a number of years Madoff managed to lure billions of dollars away from huge charities, as well as wealthy individuals in both the United States and Europe by getting them to invest in his hedge fund. This he did by offering extraordinary returns to investors, until his scheme eventually reached a staggering $50 billion under “management.” Within this paper, efforts will be made answer a number of questions, including how was this fraud executed; who were the perpetrators, accomplices and victims; how was the fraud discovered; what were some of the possible red flags; and what role did the SEC play in discovering the fraud. In addition to this, mention will be made of how the case was resolved and what are some of the measures that could have deterred or prevented the fraud from occurring in the first place. Given these harsh economic times which we live in, all efforts have to be made to enforce strict rules and regulations within financial institutions – so that investors and other stakeholders’ interests are protected. Had there been closer attention given by the Securities Exchange Commission and other regulators to the ‘red Flags’ associated with Madoff and his firm, then so many persons would not have lost billions. Bernard Madoff Investment Securities (BMIS) Founded in......

Words: 2829 - Pages: 12

The Function of Accounting Information Systems in the Enron and Bernard Madoff Fraud Cases

...CASE STUDY #1 | The Function of Accounting Information Systems in the Enron and Bernard Madoff Fraud Cases | | | | | | | What is the definition of accounting information system? The Core Concepts of Accounting Information Systems textbook defines accounting information system “as a collection of data and processing procedures that creates needed information for its users” (Bagranoff, 2010). A key factor in determining the success in an organization is its accounting information system. It is the combination of the organization’s resources, such as its people, procedures, and business records that it (the organization) maintains to provide financial data. The basis of this case study is to disagree with the question of whether or not accounting information systems played a role in the Enron and Bernard Madoff fraud cases. All organizations should have an adequate, effective, and efficient accounting information system in tack. In my opinion, the Enron and Bernard Madoff fraud cases had the classic signs of pure greed; the accounting information systems were perhaps manipulated, ignored, and compromised to financially suit the personal gains of the individuals involved and did not assist with the cases. An important part of the accounting information system is its internal control system. Internal controls are methods and procedures used by an organization to safeguard assets, authorize transactions, and ensure accuracy of the accounting......

Words: 571 - Pages: 3

The Case of Bernie Madoff

...The Fraud of the Century: The Case of Bernard Madoff The fraud perpetrated by Bernard Madoff which was discovered in December, 2008 is based upon a Ponzi scheme. Madoff took money from new investors to pay earnings for existing customers. The greater the payout to retiring and withdrawing customer, the more revenue or clients he would need to start and “investment relationship” with Madoff. The Ponzi scheme was named after Charles Ponzi who in the early 20th Century, saw a way to profit from international reply coupons. International reply coupons were a guarantee of return postage in response to an international letter. Charles Ponzi determined that he could make money, legally, by swapping out these coupons for more expensive postage stamps in countries where the stamps were of higher value. While making a significant profit with this system, Ponzi got the idea of enticing investors to provide him more capital to trade coupons for higher priced postage stamps. His promise to investors was a 50% profit in a few days. Touted as a financial wizard and the ‘Warren Buffet’ of his day, Ponzi lived outside Boston, he had a fairly opulent life bringing in as much as $250,000/day. Part of Ponzi’s success came from is personal charisma and ability to con even savvy investors. The promised payout was supported by the new investors anxious to take advantage of these robust returns because he appeared to create an image of power, trust, and responsibility. In July of......

Words: 4307 - Pages: 18

Business Ethics Case: Bernard Madoff

...a lifeguard on the beaches of Long Island, Bernard Madoff founded “Bernard L. Madoff Investment Securities,” a “trading power” house that would become one of the largest independent trading operations in the securities industry (Washington, 2012). In the year 2000 his company ranked among the top trading and securities firms in the nation. By age 70, his name had become legendary; he was considered to be one of the most “influential spokesmen” on Wall Street. But on December 11, 2008, Bernard Madoff was arrested and charged “in a 20 year Ponzi scheme, which would come to be known as “the most infamous fraud in Wall Street history (Leonard, 2008; Washington, 2012).” Mr. Madoff pleaded guilty to all federal charges filed against him, which included the following: “11 felony counts, including securities fraud, money laundering and perjury (Washington, 2012).” Judge Denny Chin was in charge of the proceedings, and on June 29, 2009, Bernard Madoff, former chairman of the NASDAQ stock exchange, was sentenced to the maximum penalty of 150 years. This paper will seek to analyze this case in its multiple dimensions in order to identify all ethical issues and propose potential alternatives to the moral choices that Bernard Madoff made. Facts Bernard Lawrence Madoff was born April 29, 1938. He grew up in a small Jewish community in Queens, New York. At age 22, in 1960, he founded his own wealth management business, “Bernard L. Madoff Investment Securities.” He made his business out......

Words: 2361 - Pages: 10

Bernie Madoff Case Study

...The Fraud of the Century: The Case of Bernard Madoff The fraud perpetrated by Bernard Madoff which was discovered in December, 2008 is based upon a Ponzi scheme. Madoff took money from new investors to pay earnings for existing customers. The greater the payout to retiring and withdrawing customer, the more revenue or clients he would need to start and “investment relationship” with Madoff. The Ponzi scheme was named after Charles Ponzi who in the early 20th Century, saw a way to profit from international reply coupons. International reply coupons were a guarantee of return postage in response to an international letter. Charles Ponzi determined that he could make money, legally, by swapping out these coupons for more expensive postage stamps in countries where the stamps were of higher value. While making a significant profit with this system, Ponzi got the idea of enticing investors to provide him more capital to trade coupons for higher priced postage stamps. His promise to investors was a 50% profit in a few days. Touted as a financial wizard and the ‘Warren Buffet’ of his day, Ponzi lived outside Boston, he had a fairly opulent life bringing in as much as $250,000/day. Part of Ponzi’s success came from is personal charisma and ability to con even savvy investors. The promised payout was supported by the new investors anxious to take advantage of these robust returns because he appeared to create an image of power, trust, and responsibility. In July of......

Words: 4737 - Pages: 19

Bernie Madoff Case Study

...Introduction Operated through a complex, cryptic structure Bernie Madoff, CEO of Bernie L. Madoff Investment Securities (BMIS), perpetuated the most embellished Ponzi scheme the world has ever seen. The basis of the securities fraud that took place approximately between 1991 – 2008 was influenced by Bernie Madoff’s reliance upon an unqualified staff, outdated software, organizational seclusion, a personal halo effect, and weaknesses in the regulating body. Madoff had the confidence of the public, yet to pull off such an elaborate scheme, he relied on a startling number of family members, vital accomplices working on the illegal trading floor such as Frank D. Pascali, IT staff members, and a separate BMIS branch of international employees in the U.K. to seemingly legitimize the whole thing. Domestic and European institutional investors, friends and acquaintances of Madoff’s, and an additional couple of thousand people who had exposure to BMIS funds, trusted as much as their entire life or retirement savings. Investors were dumbfounded when the jenga-like pyramid came crashing down on them, despite many caveats from whistleblowers. Leading up to December 11, 2008, the date Bernie Madoff was taken into federal custody, he acted especially cross and frantic, specifically when the SEC was mentioned. Another sign of the impending collapse was Bernie’s reluctance to accept any more large sums of money, contrast to the usually receptive Bernie (Henriques). As a result of Madoff’s...

Words: 3388 - Pages: 14

Bernie Madoff Case Study

...Case Study: Bernie Madoff Eric Ranzinger Organizational Behavior – OL 500 Jascia Redwine Abstract 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 losing more money in the recession so they tried to cash out. Since he had been defrauding investors for years he was not able to keep up with demand. He ended up losing a total of 17 billion dollars by providing his clients with false reports. There were many red flags dating back to the late 80’s that should have tipped the authorities. Many Wall Street executives knew that Madoffs firm was fraud and did not try to bring him to justice. This is unacceptable. His scheme should have been shut down years ago before it got this bad. There are several solutions available to assure that this type of fraud does not happen again. In my case analysis, we will dig into each option in depth. It will be clear that the best option that needs to happen is to make the SEC adhere to their......

Words: 3339 - Pages: 14

Madoff Ethics Case Study

...evolved together with advances in technology, and some have proved to be more efficient than other. This case study is chronology of the largest Ponzi scheme in history. Bernie Madoff began his brokerage firm in 1960 and grew it into one of the largest on Wall Street, New York, USA .While doing so; he began investing money as a favor to family and friends, though he was not licensed to do so. Over a period of fifty years, these side investments became an investment fund that mushroomed into a $50 billion Ponzi scheme. Bernie pled guilty without a trial on March 12, 2009, and was sentenced to 150 years in prison. Thousands of wealthy clients, philanthropic organizations and middle class people whose pension funds found their way into Bernie’s investment fund lost their life savings. Background In December 2008, the highly respected American businessman Bernard Madoff made the headlines when the US authorities accused him of orchestrating a $50 billion Ponzi scheme which is the biggest financial frauds of all time and made of him “The Conman of the Century”. Bernard Madoff also called “Bernie" is a former American businessman, stockbroker, investment advisor, financier and the former non-executive chairman of the NASDAQ stock market and held a seat on the government advisory board on stock market regulation.  During his entire long successful financial career Madoff has been considered as a trustworthy, well respected and responsible man. Bernie epitomized the American......

Words: 2146 - Pages: 9

The Fraud of the Century: the Case of Bernard Madoff

...The Fraud of the Century: The Case of Bernard Madoff 1. What are the ethical issues involved in the Madoff case? Not only is what Bernard Madoff did highly unethical but for his company to be able to pass the tax audition imposed question on the SEC internal system a farce. I guess Madoff bribed the auditors. I guess the saying money talks holds true for some. How people could morally falsify documents for money is just beyond comprehensible. To even take advantage of an innocent person is unfathomable. The ethical issues I saw were a manipulation of cash flow to make his company appear to be more valuable than it truly was and his company’s financial reports were never made public during the scheme. How is it that no one ever questioned that and he got away with it? Again, all I can think of is bribery. Makes you sort of wonder how people supposed to be dealing with the law can just break it without question and get away with it. 2. Do you believe that Bernard Madoff worked alone, or do you think he had help in creating and sustaining his Ponzi scheme? Would this represent a conflict of interest? I feel Bernanrd Madoff had help with the Ponzi scheme. Even the smartest of people need help. I don’t feel a scheme like this could be concocted or carried out alone. For no one in his company over the course of the thirty years in which he carried this scheme out to have even picked up on it is just shocking to me. Not even the accountant or auditors with respect to the......

Words: 697 - Pages: 3

Madoff

...which moral values are related to human conduct, with respect to the rightness and wrongness of certain actions. This definition explains that ethics are a nothing more than an indoctrinated human behavior that is base on their environmental, social, or cultural backgrounds. Humans are therefore, inherently flawed and thus, ethics becomes a huge issue in their lives as they attempt to make up for these flaws. How humans act in a given situation or how they feel about their actions, play into how they conduct themselves in their personal and business affairs. Killing, raping, and stealing are examples of such obvious actions that most people would agree are unethical. This relates to the subjective belief of rather Bernard Lawrence "Bernie" Madoff should remain in prison or out on bail because of the practicing of Ponzi schemes because it lies in the not so obvious realm of behavior. Why? There is no essential difference between someone who steals $5 and someone who steals billions it is all the same, however, in the criminal justice system the belief in crimes at different levels are arranged at different social and cultural standards. White collar vs. blue collar White collar crime is particularly interesting it provides a sharp contrast to the common crimes and street criminals that usually attract the attention of people. A white-collar is associated by individual of a higher social class. Some of the crime can be characterized as any antitrust violations, computer and......

Words: 1162 - Pages: 5

Madoff

...Bernie Madoff & the Worst Pyramid Scheme in U.S. History It is said that we are the product of our upbringing, so it probably would not surprise you to learn that the biggest and worst financial fraud committed through a pyramid scheme in US History, was achieved by a man who was raised by parents that also commit financial frauds. Bernie Madoff was raised watching his parents Ralph and Sylvia Madoff run a business that was not successful in the financial trading world. That company was named Gibraltar Securities. Due to the fact that Sylvia failed to accurately report their company’s financial condition, the SEC closed the business in 1963 and started its investigative proceedings to determine if charges were needed to be brought against Gibraltar Securities. However, the SEC declined to continue with its proceedings against Gibraltar Securities in a deal that required them to stay out of the trading business. Even though it was admitted that they falsely reported the company’s financial condition. “The firms conceded the violation, but requested withdrawal of their registrations; and in this connection they represented that they are no longer engaged in the securities business and do not owe any cash or securities to customers. The Commission concluded that the public interest would be served by permitting withdrawal, and discontinued its proceedings." (Nicholas Varchaver, 2009) Even though Bernie watched his parents as they ran their business and also......

Words: 2314 - Pages: 10

Madoff Case Study

...Author’s Viewpoint In the case study about the Bernie Madoff scandal, the author makes the point that the motivation to succeed in business can present a conflict with the fiduciary duty that a business person has to the client. There is question whether Madoff was motivated solely by greed, in which case he was engaged in a simple Ponzi scheme, or whether he used the Ponzi scheme to hide his failure to generate returns for his clients. Madoff’s lack of transparency violated the trust of his clients, even if he did not initially intend to defraud his clients. There is some ethical ambiguity in this case. Discussion The lesson of this case is that transparency is the best policy, since secrets only allow the unethical behavior to continue. If Madoff had told his clients that his investments had failed, and they had lost their money, rather than engage in the Ponzi scheme, there would have been far fewer victims. The number of victims increased as Madoff was able to use the Ponzi scheme to hide his failure, which gave existing and future investors the impression that he was generating enormous returns for his clients. Questions One Greed and trust were intertwined in a way that makes the Madoff scheme somewhat ethically ambiguous as far as Madoff’s intent is concerned. He probably did not intend to create Ponzi scheme from the outset. By positioning himself among the Wall Street elite and being the former chairman of the NASDAQ, Madoff gained the trust of his clients....

Words: 642 - Pages: 3

Case Madoff

...Report case of Bernard Madoff’s Ponzi Scheme. I. Nature and background of firm or person. * Bernard Lawrence "Bernie" Madoff was born in April 29, 1938. He is an American swindler convicted of fraud and a former stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market. * This financial fraud admitted case of a Ponzi scheme that is considers be the largest financial fraud in U.S history. II. Ethical issue * Since the arrest in December, 2008, Mr. Madoff has been under house arrest at the mansion of a $7 million Manhattan him in the neighborhood. At that time authorities say Madoff confessed to family that he had done a scam that amount had risen to $50 billion. III. Analysis problem * A Ponzi scheme is a fraud that attracts investors with a promise of high returns, which are initially paid out from the investments made by subsequent clients rather than from legitimate profits made from the initial investment. Bernard Madoff * The success of these initial investment entices future investors, and in many cases reinvestment from the original investors. Because the return are based on the ability to attract future investors into the scheme rather than on legitimate earning, the scheme can last only as long as the perpetrator is able to contract an increasing number of investors, all of whom expect higher than normal returns. * A Ponzi scheme is likened to a house of card that is......

Words: 292 - Pages: 2

Madoff

...Bernard Madoff Affair By: Katelynn Pucci Born on April 29, 1938, in Queens, New York an ordinary male was born by the name of Bernard Madoff. During his teenage years, Madoff showed absolutely no interest in finance; he was intrigued in the school swim team at Far Rockaway High School. When he was not competing in swim meets, he was lifeguarding at a beach club in Atlantic Beach, Long Island. Madoff attended the University of Alabama up graduation in 1956 for one year before transferring to Hofstra University. He married in 1959 to his high school sweetheart Ruth, finance major at Queens College. In 1960, Madoff graduated with a bachelor’s degree in political science. He then continued onto law school at Brooklyn Law School while his wife, Ruth, worked on the stock market in Manhattan. Shortly after he dropped out to begin his own investment firm using his earnings from his lifeguarding, job and side gig installing sprinkler systems. Together he and his wife founded Bernard L. Madoff Investment Securities, LLC. Now, Madoff’s father-in-law was a retired C.P.A. who helped attract investors including famous clients such as Steven Spielber, Kyra Sedgewick, and Kevin Bacon. The Investment Securities became famous the reliable annual returns of ten percent or more. The firm handled up to five percent of the trading on the New York Stock Exchange by the 1980s. Just like every other business and company out there, Madoff Securities started using computer technology to develop......

Words: 1338 - Pages: 6

Madoff

...This paper will include a review of the Madoff Securities case. The Madoff Securities case involved the cunning Bernard L. Madoff swindling his clients to believe that he could guarantee them high profits. Madoff is the largest Ponzi scheme in history. Madoff Securities Case Bernard L. Madoff started the investment firm Bernard L. Madoff Investment Securities (BLMIS). Bernard Madoff began trading securities from the 1960s. From as early as 1962, it is believed Madoff started hiding his clients’ losses. Madoff hid the losses from his clients in order to boost his reputation. The larger portion of Madoff’s fraudulent activity began in the 1970s, under BLMIS. In this time Madoff began using his supposed genious tactics to make a profit from pricing errors in the stock exchange (Lewis, 2013). Madoff’s clients were led to believe that their invested funds were invested in as many as 35 to 50 common stocks from the S&P 100 index (Lewis, 2013). If there was a case in which all of the client’s funds were not invested in common stock, then Madoff told the clients the money was invested in money market accounts or government issued securities (Lewis, 2013). However, Madoff was not actually investing the client’s funds, but instead placed the money in his bank account. Madoff gave the client’s funds to friends, family, and those who aided Madoff in his fraudulent scheme (Lewis, 2013). Madoff boosted his character in the public......

Words: 1267 - Pages: 6