The Case of Bernard Madoff

Introduction

Former stock broker, investment advisor, non-executive chairman of the NASDAQ stock market, Bernard Madoff was a very flourishing investor. He was also an investment adviser in his early career. He founded Bernard L. Madoff Investment Securities LLC in 1960, in the Wall Street, and remained its chair person till December 2008, when he got arrested for involvement in Ponzi scheme scandal. He made his firm one of the market maker businesses on Wall Street, which bypassed "specialist" firms by directly executing orders over the counter from retail brokers. He enjoyed a good reputation in the market because his firm was consistently giving high return for his clients. It was revealed later on that he employed Ponzi scheme to defraud his entire investor portfolio. With the promise, of large returns as bait, the fraudster took in money from new investors and used it to pay off the earlier investors until no more new recruits could be found and the whole scheme collapsed, with the newest clients losing all especially the nonprofit organizations and education institutions. Bernard Madoff had a legal firm to attract investors with high return rate also eluded the investigation from SEC; he injected money to the legal firm from illegal one when the loss happened. His family did a lot for this fraud, Bernard's son, and his brother was involved in his business, his wife did the social networking to attract celebrities to open account in his firm. Everything went smoothly until 2008, when economic recession happened, everything went down, and then Bernard Madoff was sentenced to jail.

SWOT Analysis

Strengths

Madoff was relatively very highly qualified. He has developed understanding of the most complex financial securities. Madoff's enjoyed a leading industry standing. He is perceived as the one who provides guaranteed highest investment return to all his investors which increased his influence in the general public. Along with a very good reputation in the industry, Madoff was able to exploit the trust investors have vested upon him because of his high level of professional qualification and reputation in the industry. His team used to transfer their external risks in a way that it becomes impossible for the regulator authorities to track down any suspicious activities.

Weaknesses

Any Ponzi scheme inherits on fundamental weakness that it is dependent upon the continued inflow of cash from new and even existing investors. Same is the case in Madoff scheme, which is also, dependent upon attracting new investors to pay off the earlier investors. Like any other Ponzi scheme, Madoff's scheme would have collapsed if it did not attract new investors in the scheme because it would make it impossible to pay the earlier investors. Ponzi scheme tends to reach a point of failure one day. No matter how bigger the scheme is working, it will eventually reach a crisis point, and the culprit will be disclosed eventually. With all the knowledge about the sophisticated financial instruments, Madoff still forgot the fundamental element of Ponzi scheme.

Opportunities

The Ponzi scheme ...