Essay Example on Money Fraud: Madoff Investment Scandal

Introduction

Money fraud is a common issue facing financial institutions. In America, there more than 50 cases of fraud that are experienced each year (McDaniel, 2019). Madoff investment scandal is one of the significant stock and securities scams that has ever been discovered in history (Manning, 2018). The scandal discovered in 2008 after some investor become suspicious about the cash flow in the company and fictitious profit (Manning, 2018). The chairman of Bernard L. Madoff Investment Securities LLC (BLMIS), Bernie Madoff, had engaged in fraud and other ten illegal activities (Manning, 2018). As such, the financial institution lost billions, which affected its continuity. In December 2008, Madoff was arrested (McDaniel, 2019). In March 2009, he was aligned in court, where he was accused of 11 financial crimes (McDaniel, 2019). According to research, the institution was worth more than $170 billion (Manning, 2018). In which, the company had more than 4,800 customers by 2008 (McDaniel, 2019). It was believed that Madoff had ignored opportunity cost, and hence, he willingly engaged in fictitious profit. The research analyzes the Madoff investment scam and how the scandal affected the American economy.

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Objectives and Aim

To evaluate the Madoff investment scandal.

To analyze how the government failed in controlling the scandal at an early stage.

To examine how the scandal affected the economy of the country.

Research Question

What economic effects did Madoff investment scandal cause to the country, and how does the government control such issues to ensure all financial institutions engage in the right activities?

Findings

On 11 December 2008, Bernard L. Madoff, 70, was arrested on criminal issues that were associated with securities fraud (McDaniel, 2019). On arrest, Madoff pleaded guilty for 11 charges, fraud, perjury, theft, money laundering, and others associated with investment control (McDaniel, 2019). The court highlighted that Madoff triggered the loss of $65 billion of clients' funds (Wilson, 2019). The amount included all the false profits that Madoff's company had received from its client in the past decade. At first, Madoff was charged with a specific count of securities scam, which required him to pay a fine of $ 5 million or face imprisonment for not less than 20 years (Wilson, 2019). Later on, the court availed that Madoff's investment company had about 4,800 investors by November 2008 (Manning, 2018). As such, the court requested all clients to provide monthly reports.

The court indicated that Madoff had used investors' money for personal gain. As such, Madoff, together with his wife, was required to surrender their passport to control them from leaving the country. Later, Madoff received several death threats, which forced the government to introduce a camera in his apartment to monitor his movement (Manning, 2018). Additionally, the government freezes all the activities of BMIS to control engaging in activities.

Based on the crime committed, the prosecutor recommended that Madoff be imprisoned for 150 years (Manning, 2018). Based on the federal, 150 is the maximum period a person can spend in prison (Manning, 2018). Several parties, such as the Bureau of U.S. and lawyer, Iran Sorkin, requested a less period in prison. As a way of showing solidarity, the judge requested Madoff could use his clothes during the period.

Additionally, the imprisonment decision was made based on the profile while collar trials, who had committed such crimes. The judge, Chin, illustrated that punishment would help other individuals from committing such crimes in the future (McDaniel, 2019). Regards, the judge referred to the crime as evil since a large number of victims lost their savings through fraud. According to federal law, a person can be imprisoned for 50 years if they are found engaging in fraud that goes up to $ 400 million in the loss (Manning, 2018). However, Madoff's fraud was several times the federal cap.

During the period when the account was frozen, all Maddoff's asset was worth $826 million (McDaniel, 2019). According to the court, Madoff did not have a pension plan, which could cater to the family at an older age. However, on 17 March 2009, a prosecutor presented a file that included more of Madoff's assets (Manning, 2018). Some of these materials included jewellery and precious watches. Additionally, Ruth Madoff and Peter Madoff had a passive limited partner in housing but was funded by the company. In December 2010, Barbara Picower agreed to return $7.2 billion that was collected in real estate (Manning, 2018). In connection with Madoff, the authority document a motion requesting that the law court allow it to distribute the acquired cash in accordance with the department of justice control.

Affinity Fraud

According to Manning (2018), Madoff targeted wealthy individuals, especially the American Jewish community. Using false information, Madoff managed to acquire materials from both institutions and persons. For instance, Wunderkinder Foundation lost millions of dollars, which lead to its closure. Economically, Madoff fraud is a massive scandal ever in the world (Manning, 2018). The large amount of money that was lost profoundly affected the economy due to low financial flow. A large number of financial institutions and companies broke down due to a lack of capital to cater to the needs (McDaniel, 2019). Due to the action, the government of America enacted a financial limit that regulates the amount of money an organization can withdraw (Wilson, 2019). As a result of a good connection, especially from politicians, investors, and regulators, the scandal highly affected the financial flow throughout the country.

Despite several financiers alerting the U.S. Securities and Exchange Commission (SEC), the organization did not take any step toward the step (Manning, 2018). These financiers believed that Madoff was operating illegally, and there was highly likely that he would run with cash. The suspicion increased after it was realized that Madoff had not registered under the SEC (Manning, 2018). Additionally, Madoff was paying a considerable amount to the investor either in a good or bad period. The ability to generate such a big amount to become more suspicious and facilitated by his crackdown.

Analysis

Like other countries, the United States experience challenges in the implementation of financial law. The aspect gives conmen like Madoff a chance to steal from clients. According to Wilson (2019), financial regulations are essential in preventing the excessive risk that investors engage when they invest in particular financial institutions. Currently, financial regulations are controlled by both the federal and state level. Through this financial regulation, the government has managed to control issues associated with fraud, money laundering, and other issues associated with cash (Manning, 2018). The effective performance of the authority has helped to controlled illegal actions associated with finance.

Additionally, the government has managed to retrieves a large amount of money that had been taken through fraud (McDaniel, 2019). As a way of enhancing the effectiveness of financial institutions, the Federal Reserve oversees their performance, and hence, it is easier for the government to regulate illegal actions. Establishment of more policies that control financial flow has helped the government to manage individuals from engaging in such scandals.

Conclusion

The Madoff investment scandal is one of the significant causes of stock and securities scam that has recently been discovered. Madoff took advantage of the trust the investor had on him and engaged in different crimes such as fraud and money laundering. The court highlighted that Madoff triggered the loss of $65 billion of clients' funds. In which, more than 4,800 investors had invested with Madoff. Based on the crime committed, the prosecutor recommended that Madoff be imprisoned for 150 years. Based on the federal, 150 is the maximum period a person can spend in prison. A large number of financial institutions and companies broke down due to a lack of capital to cater to the needs. Due to the action, the government of America enacted a financial limit that regulates the amount of money an organization can pay. The large amount of money that was lost profoundly affected the economy due to low financial flow. A large number of financial institutions and companies broke down due to a lack of capital to cater to the needs. Due to the action, the government of America enacted a financial limit that regulates the amount of money an organization can withdraw. The government of America has established more policies and regulations to control individuals from engaging in financial scandals. The step is critical in controlling economic distortion, which may be experienced then some financial institution engage in fraud.

References

Manning, P. (2018). Madoff's Ponzi investment fraud: a social capital analysis. Journal of Financial Crime. https://www.emerald.com/insight/content/doi/10.1108/JFC-06-2017-0057/full/html?casa_token=svl3Sx3o7sUAAAAA:PM5ZQ0T7hzDLEHE-1HlisD9fCwaJIvfwnJoSySuzFvXYpk-cl7qEW8WwRM1CcruLVU1YvvrX_yUBuCIMQNtNJ8OJudoPf7JfRdmurMrPQ9kvZvdA0JE.

McDaniel, C. C. (2019). Madoff madness: A textual analysis of the SEC's response to the Madoff Ponzi scheme (Doctoral dissertation, Virginia Tech). https://vtechworks.lib.vt.edu/bitstream/handle/10919/89486/McDaniel_CC_T_2019.pdf?sequence=1&isAllowed=y.

Wilson, L. (2019). Madoff's dirty money. Journal of Money Laundering Control. https://www.emerald.com/insight/content/doi/10.1108/JMLC-03-2018-0022/full/html?casa_token=abpdbeTyxkoAAAAA:XlRXst3yWWnE1UJQ4TDkYO4Q-jWGfurZBbQXccrMmguwXSZFBaP_iH9ptkzzg2DMUqJtNMgxHWd6Ncduds-XOFWGTsxebeqnV9-uibXqfS7Mve_2t1M.