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Copy of The Fraud of the Century: The Case of the Bernard Madoff

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Christine Zitti Dela Cruz

on 17 August 2014

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Transcript of Copy of The Fraud of the Century: The Case of the Bernard Madoff

The Fraud of the Century:
The Case of the Bernard Madoff

Ethical Dilemmas
1. Public Interest vs. Financial Goods



3. Always perform due diligence of all business entities and partners
B. Regular demand of audits from the firm
Point of
View:

How to avoid unethical behavior among businesses?
Ponzi Scheme
Recommendation

High employee motivation level.
Although in this case, the fraud arises in the top executives, there’s a big possibility that employees can do unethical business behavior. If the top management does all activities morally and ethically, setting example for others, the employees are less likely to engage in fraud or other unethical business behaviors. Top executives must communicate with managers at the operations level and enforce overall ethical standards within the organization for the employees to follow. To impose high motivation level among employees, those who comply with company policies and standards must be rewarded and those who do not must be punished.
Problem of Implementation
1. Develop codes of conduct (formal statements that describe what an organization expects to its employees).

2. A code of ethics must be developed as part of senior management’s desire to ensure that the company complies with values, rules, and policies that support an ethical culture.

3. Having a high-level manager or committee who is responsible for an ethical compliance program can significantly enhance its administration and oversight.

Ponzi Scheme
-Investment fraud which is identical to "Pyramid Scheme"

-Promises high ROI (Return On Investment)

-Pays dividend by using investments from other investors

-Requires sufficient new investors to sustain the scheme

Objectives:
Ethical Issue

In this case,
from Madoff’s behavior
, his unethical behavior creates legal risks and financial risks for the business. He used the trust of the stakeholders (investors, friends, charitable organizations, etc.) to gain benefit. Madoff is well-known as generous philanthropist and he gain money from charitable organizations.


From the government
, the issue was when the Security Exchange Commission (SEC) didn’t investigate on a cursory and limitation of government regulations.

2. Greed vs. Trust
1. Employee Motivation
Problem:
BSBA Students
Is it ethical for Madoff to cheat the public to fulfill his desire of getting fast money or is it unethical to do so?
Trick investors through his wealth management company
Promising high ROI (Return On Investment
Unethical to earn through illegal method
Fraud amounted more than $10 Billion
Is it ethical for Madoff to give up his title or name to get what he wanted doing, cheating investors(money)?
Bernard Madoff is a well known public figure of Charity and Liberal Contributor
Used trust gained from his title to scam people into the scheme
The power of greed caused others to lose their trust and faith in him.
3. Negligence or Deception
Securities and Exchange Commission(SEC) failed to follow or did not want it to be found?
SEC failed to properly investigate Madoff's trading even though complaints have been made.
No necessary step executed to determine legality of Madoff's trading
SEC might be deceiving the public to cover up facts that some SEC affiliates are involved in the scheme
Unrealistic investigation of SEC
Alternative Courses of Action
Strengths
• High motivation level. Employees are less likely to engage in fraud or other unethical business behaviors.

• Employees are motivated to follow the standard operating procedures implemented by the company.

Strengths
• Audits would have revealed the frauds in a timely manner and prevented further losses to the organization.
• It increases protection for investors against fraud, or other unethical cases such as failure of disclosing financial information in the public.
• It monitors funding activities and the flow in the financial reports of the company.

Weaknesses
• Pressure to management to make accounts public

Investors should conduct a background research on the company that they plan to invest in.

Strengths

• Research about the company details and the owner details gives preview if the company is reliable and trust worthy for investments.

• Research on company licensure on investment trading

To describe and understand business ethics
To discuss the individual factors that influences ethical or unethical decisions
To examine fraud as business ethics issue
To examine how business sector adapt business ethics
To understand why companies need to develop ethics program

B. GOVERNMENT’S UNREALISTIC INVESTIGATION ON THE CASE
C. INVESTORS’ ACT WITHOUT DUE DILIGENCE
A. BERNARD MADOFF’S UNETHICAL BUSINESS BEHAVIOR (FRAUD)
Alternative Courses of Action
-Bernard Madoff should not have even committed the fraud as it made him betray the trust of his peers.
• Ethical values are not for personal and selfish well-being. Madoff was concerned only on money and earning profits for personal benefit, did not take consideration and concern to the victims of the scheme.

• Ethically responsible business decision is obeyed by the law, however, Madoff did not do so.

• Madoff take advantage of the trust between him and his friends and cheated the whole market that shows lack of ethics and morality

• Madoff confessed filing false and misleading certified audit reports with the SEC

• Started in 1992, the SEC received complaints and tips about Madoff’s investment

• The limitations of legal reputation to unethical business practices

• The law provides an important guide to ethical decision-making. The limitations on regulations of the government is leading to continuous fraud

• SEC exists to protect investors, uncover frauds that are happening in the market and strict on their investigation
• Investors didn’t check the background of the scheme and build trust based on Madoff’s positive personality expressed

• Investors trust schemes that guarantee high or over-consistent Return On Investment

Ethical Issue
Fraud.
When an individual engages in deceptive practices to advance his or her own interests over those of his or her organization or some other group, charges of fraud may result.

In general, fraud is any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression.


-The government and their regulators should be thorough and strict on their investigation.
• SEC should be more professional in approaching complaints by executing detailed investigations, but they failed to do so.

• SEC should send spies to the company in order to understand how the company runs and what actions are used to fraud the investors
CON'T


THE END!!! ;)

THANK YOU FOR LISTENING...
Full transcript