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Bernie Madoff Accounting ISU
Transcript of Bernie Madoff Accounting ISU
Today we are going to talk about one of the biggest Ponzi scheme ever in the US. A Ponzi scheme is when investors promise clients large amounts of return for the money that they had invested. The early clients would receive the money that they had been promised from the investor’s own money. This would raise the company’s reputation and the company would get recommended to other people. As more people are told about it and more money gets invested, the more the people involved make. After a while when they have a desired amount of money, the investors disappear with all of the money from the clients, leaving them nothing in return.
Outcome of Scandal
Summary of Problem/ Scandal Faced by Company
GAAP affected by Scandal
The Company was very small. It had 20 employees who were paper pushers but the big people in the firm were mostly his family. Peter Madoff (Bernard’s brother) was the senior manager of the company. He got sentenced to 10 years in prison. Mark and Andrew Madoff's (sons) turned to the police and confessed about their father’s scheme. Mark later committed suicide. Annette Bongiorno and Joann Crupi, two back office workers who worked for Madoff were also indicted. The entire family including his daughter Shana Madoff were sued because of their fathers scheme.
Bernard Madoff's business was starting to lose money so instead of coming clean to their clients, Bernie and everyone else that was on the scheme changed the numbers which resulted themselves violating more than one GAAP and getting themselves in bigger trouble.
The main criminal in this accounting scandal was Bernie Madoff himself. Before the scandal, Bernie Madoff was originally the chairman of the NASDAQ stock market. He had also founded the Wall Street firm “Bernard L. Madoff Investment Securities LLC” in 1960. With this he was able to pull off one of the biggest accounting scandals ever. However, he did have help from others. Even though Madoff claimed that his family had no part in the scandal, this was false. Peter Madoff, Bernie Madoff’s brother, and Frank DiPascali confessed to participating in the scheme that Bernie Madoff had executed. Another known criminal involved was an accountant by the name of David Friehling.
It was estimated that over $65 billion was taken over 2 decades. It was believed that Bernie Madoff had been setting this up since the 1960’s.
This GAAP was violated because this company were not fair to their investors. Books and reports were changed to make the business look like it's making money.
The Full Disclosure Principle states that all information needed for a full understanding of a company’s financial statements must be included with the financial statements. The business did not include all of their information which would affect the income statements because their books were changed. The company didn’t really show that they were earning much
The Revenue Recognition Convention
The GAAP's violated are The Principle of Conservatism, The Full Disclosure Principle, and The Revenue Recognition Convention.
The Principle of Conservatism
The Full Disclosure Principle
1. What was Bernie Madoff's company?
2. How much money did Madoff swindle?
3. Name a victim of his Ponzi scheme.
4. How many years of jail was he sentenced to?
5. What are some tips to avoid being scammed?
A lot of people wonder what caused Bernie Madoff to execute the scandal he did. It was believed that he promised his clients good performance and high return rates. However, even though he believed in his skills he was losing money that clients had invested. He didn’t want to fail so instead he created an intricate plan that would land him large sums of money.
Why it worked as well as it did
- Bernie Madoff was very well known
- Had a successful brokerage firm that had been operating for a long time
- Had partners he trusted to aid him
- Bernie Madoff was a highly trusted fund manager
- He was very experienced and knowledgeable in the area
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Ahamed, Liaquat. "How Bernard Madoff Did It." Book Review. 13 May 2008. Web. 01 Dec. 2013.
"Bernard Madoff and His Ponzi Scheme." Business Finance. About, n.d. Web. 01 Dec. 2013.
"The 10 Worst Corporate Accounting Scandals of All Time." Accounting-Degree.org. N.p., n.d. Web. 03 Dec. 2013.
"How Ponzi Schemes Work." HowStuffWorks. N.p., n.d. Web. 05 Dec. 2013.
Ethics is an area of study that deals with ideas about what is good and bad behavior. The reason ethics is important in the accounting field is because accountants acquire important information from their client and are trusted to make good decisions to help the client. The information can be anything from social security numbers to bank numbers. An accountant is responsible for making sure they follow the ethical standards while working in the accounting field. If not, accountant can be held responsible and can face serious consequences.
Revenue Recognition Convention was violated because the revenues weren’t recorded when it was earned
The company does not exist anymore, now the money is either back to the investors or in law suits. The NASDAQ that was created by Madoff’s company is still being used to this day.
Charities had to close because they took money from Madoff. For example the Chais Family Foundation, the Robert I. Lappin Charitable Foundation, the Picower Foundation, and the JEHT Foundation were forced to close also hospitals and theaters received money from Madoff but they did not get shut down and also they did not get any more money. A lot of investors lost millions of money. Affected institutions considered victims of affinity fraud include the Women's Zionist Organization of America, the Elie Wiesel Foundation and Steven Spielberg's Wunderkinder Foundation. Jewish federations and hospitals have lost millions of dollars, forcing some organizations to close. The Lappin Foundation, for instance, was forced to temporarily close because it had invested its funds with Madoff, plus a lot of people lost their savings to Madoff and that caused them a great damage to their home and family.
Bernard Madoff is now sentenced to jail for 150 years. After pulling one of the largest ponzi schemes in America, Madoff and everyone else involved now face the consequences.
Madoff got caught in the act because of his son's, Mark and Andrew. Bernard L. Madoff Investment Securities LLC does now not exist.