One of the greatest scandals in the financial markets in America is the scandal of Bernie Madoff. This fraud saga took place for decades before the actual realization that Bernie, who was a trusted financial advisor, was the man behind a business that would lead to loss of revenue by thousands of Americas. The fact the serial coning of individuals and business entities occurred for so many years without revelation of the unscrupulous business made the story hit headlines after it was uncovered in 2008. This paper discusses the circumstances surrounding the Madoff Scandal, how the fraud took place, the players in the crime, the outcome of the scandal and the people that incurred losses in the scandal.
There exists no clear-cut timeline as to when the crime started. However, in a court confession four weeks after initiation of trial, Madoff admitted that he had coned people of their money since 1987. On another controversial account by a financial manager in Madoffs organization reported that the fraudulent had occurred from as early as 1975. Bernie Madoff had run a Ponzi scheme, which gained its name from the originator of this type of business, Charles Ponzi (Smith, 2013).
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Bernie Madoff’s business involved borrowing money from investors and individual business developers. He then reassured a constant return of a certain amount of money in a specified period. In a typical Ponzi scheme, such as the one that Madoff operated, the key player borrows money from investors with promises of doubling the money or increasing the money after a given time. Madoff failed to disclose the investment plans that offered the returns to his clients, giving an excuse that the security of his business had to remain on guard. However, in reality, the Ponzi scheme only borrowed money from new investors to pay off supposed returns to his older clients, creating a perception that his business was actually working.
According to the promises made to the investors, Madoffs business had accrued up to 65 billion U.S dollars, making it the greatest scandal in the history of American financial markets. This total amount was an estimate of the total returns according to clients, but actually, as it later came to revelation from financial audits, Madoff had pocketed about 20 billion U.S dollars from his customers. The trick in the business was to keep investors in the business by encouraging them to pump in more capital into the scheme. This way, Madoff was able to pay to some of his debtors while retaining some of the money for himself and other operations ( The Economist, 2008).
It was difficult to doubt the legitimacy of the business and this allowed it to operate for such a long time. First, the perpetrator of the scheme Bernie Madoff was a reputable personality in the finance business and had acted as an advisor to many firms, some of which became part of his customers. Madoff had also been a long serving veteran in finance who had started NASDAQ stock market that had existed since 1960. Secondly, Madoff had also served as a financial director and advisor at National Association of Securities Dealers. One could hardly express any suspicion that Madoffs scheme was an actual duplicitous venture in the view such an attractive profile for the then 70 years old (Lenzner, 2008).
Despite the secretive nature of the underhand business, Madoff’s scheme started to deteriorate in the early 2000s raising a red alarm that its nature was deceitful. The business faced a reduction in the number of new investors, making Madoff unable to pay off old debtors. An excessive number of clients also made demands for their returns, which overwhelmed payment capacity of Madoff. As much as 7 billion dollars was the amount that the investors demanded from Madoff but he only had less than 300 million dollars, which were by far too little to make the payments. What followed were a series of legal processes that led to investigations into the legitimacy of the Madoff project.
Investigations into the project led to findings that indicated that Madoffs business was nothing but a corrupt, fraudulent and dishonest project that conned Americans of their money. Witnesses expressed their losses in their court statements that they had given out their money with promises of huge returns, which never came by. Trial commenced to prosecute Madoff, and his finance manager. The court process culminated into a sentence of 150 years in prison for Bernie Madoff with multiple charges of money laundering and deceit. Likewise, the financial manager in Madoff’s scandal was sentenced to 30 years in prison ( Lenzner, 2008) . This was justifiable from the harm that the scandal had caused many individuals and investors across America.
Up to 16,519 victims of the scandal have filled cases with Irving Picard, the judge mandated with compensation of the victims of the scandal. Sadly, only 4.9 billion dollars that the court recovered has been used to compensate the victims. Majority of the investors still languish in uncertainty as to whether they would recover their money and assets. The recovery process has faced many obstacles considering that the unscrupulous business held records in secrecy. As many as 11, 000 claimers are non-verifiable since they entrusted their monies to third parties, which in turn invested with Madoff. This complicates the process of compensation even further rendering some of the claims illegitimate. Despite all this, the Department of Justice has offered some relief to a few other clients through its establishment of 2.35 billion dollar compensation kitty (Smith, 2013).
The effects of the scandal were enormous to the judicial system as well. The investigation process as well as the prosecution consumed a lot of capital. To reveal the details of the transaction, the court had to outsource several firms including Baker Hostetler. This involved many professionals such as IT experts, financial analysts and auditors. The estimate capital that this whole process consumed is about 800 million dollars. This lump sum of money had a great implication in the court systems that had a dedication to sort out the mess created by Madoff’s scandal. The multi-billion scandal had also served as an employment for many individuals. These lost their jobs after revelation of the scandal and some of them still lack employment up to date. Majority of the employees who worked for Madoff cannot secure opportunities due to employers’ fears that they may not be trustworthy ( Sander, 2009) . Some victims confess of deteriorating standards of living since the revelation of the dealings of the scandal. A sad consequence is also that Madoff’s son committed suicide during his father’s second anniversary in jail.
In conclusion, the Madoff scandal, which is the greatest money-laundering saga in the history of America, had great consequences that will last decades after revelation of the scandal. Many investors lost their revenue leading to closure of business and deterioration of the living standards of the individuals who entrusted Madoff’s scheme with their resources. Although Madoff serves a 150 years jail term in a Medium facility in North Carolina, justice for the victims has remained cry since compensation for most of them has not occurred.
References
Lenzner, R. (2008). Bernie Madoff's $50 Billion Ponzi scheme. Forbes. Retrieved From: http://www.forbes.com/2008/12/12/madoff-ponzi-hedge-pf-ii-in_rl_1212croesus_inl.html
Sander, P. J. (2009). Madoff: Corruption, Deceit, and the Making of the World's Most Notorious Ponzi Scheme . Lyons Press.
Smith, A. (2013). Five things you didn't know about Bernie Madoff's epic scam. CNN. Retrieved From: http://money.cnn.com/2013/12/10/news/companies/bernard-madoff-ponzi/
The Economist (2008). Con of the Century. The Economist. Retrieved From: http://www.economist.com/node/128183
