The 'Bernard Madoff' Financial Scam

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Case Details:

Case Code : FINC055
Case Length : 16 Pages
Period : 1990-2008
Pub. Date : 2009
Teaching Note :Not Available
Organization : Bernard L. Madoff Investment Securities LLC
Industry : Banking & Financial Services
Countries : US

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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'Nothing stupefies like money. Even the savviest investors tend to look the other way when extraordinary returns are being made. This unfortunate human trait is the fuel behind speculative bubbles and the magic behind all financial scams. No one, it seems, has exploited this as blatantly in recent times as Wall Street bigwig Bernard Madoff.'¹

- Financial Times², in December 2008.

The Confession

On December 10, 2008, Bernard Madoff (Madoff), a prominent Wall Street trader and former Chairman of NASDAQ³, confessed to a US$ 50 billion fraud.

Madoff confessed to having operated a Ponzi scheme⁴ through the investment management and advisory division of his firm, Bernard L. Madoff Investment Securities LLC (BLMIS). Andrew Calamari, a senior enforcement official at the New York's Securities and Exchange Commission (SEC), termed the scheme as 'a stunning fraud that appears to be of epic proportions.'⁵

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The 'Bernard Madoff' Financial Scam - Next Page>>

1] 'Madoff with Ya Money,' http://www.ft.com, December 13, 2008.

2] The Financial Times is a leading international business and finance newpaper, published in London, UK. It was founded in 1888.

3] NASDAQ (National Association of Securities Dealers Automated Quotations) is the largest electronic screen-based equity securities trading market in the US (Source: http://en.wikipedia.org).

4] A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors - out of the money paid in by subsequent investors rather than from net revenues generated by the business (Source: James Quinn, 'Bernard Madoff: an American Tragedy,' http://www.seproforum.com, December 22, 2008).

5] Tim Reid, 'Wall Street Legend Bernard Madoff Arrested Over '$50 Billion Ponzi Scheme,'' http://www.timesonline.co.uk, December 12, 2008.

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