About Bernie Madoff: Infamous Financial Fraud Manager

Bernie Madoff in his infamous financial fraud managed to influence thousands of investors to give out their savings promising them that they would receive consistent profits in return. One of the major networks that played a major role in Madoff’s scheme is the fact that he had established strong social relations. Social relation is often considered a major condition for building trust among those you are working with. Madoff was therefore a well-respected financier through his multimillion-dollar foundation. He engaged in charity events in various institutions including universities where he gained integrity and trust.

As argued by Granovetter, (1985), it is much easier to hurt a person who is closer to you than a stranger. This strategy made it possible for Madoff to persuade investors to trust him with their investments and later lost billions of money.

It can be argued that Madoff used a hard to get strategy to lure investors. He managed to lure investors to part with their investment because he masqueraded as a legitimate businessman.

In the actual sense, he was operating a pyramid scheme where he could pay old investors with new investors’ money making it hard for them to realize. His strategy of fooling investors seemed to work at first, but he later lost a significant sum of money that he could not recover from. Further, investors took time a long time to realize Madoff’s fraud plan owing to the fact that Madoff’s business had performed well in the past, which made them have confidence in him.

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The investors were optimistic that they could get consistent high returns on their investment, which was actually a lie.

Based on Granovetter’s concepts, Madoff’s story is of major sociological significance. Granovetter acknowledges that social relation is among the major questions of social theory. This provides the basis for his analysis of the extent to which economic action is rooted in social relations structures. In the given case, Madoff managed to convince investors to give their savings promising them of consistent high returns. They were lured by Madoff’s promise because of the already existing strong social relations. The investors had trust and confidence in Madoff, which made them fall for his tricks. Independent individuals tend to depict a rational and self-interested behavior. In other words, social relation is the basis for a person’s behavior and the desire to win the society’s approval.

According to Granovetter, trust is a major determinant for ongoing relationships. This explains why Madoff had established trust among his investors. Additionally, Madoff had established a strong reputation among the investors, which is a major aspect of embeddedness. These aspects made his economic transactions to be successful. As explained by Granovetter, there is a link between individuals and social structure. Individuals tend to spend more time building their trust in social relations (Granovetter, 1985). Further, people become more willing to transact with those individuals they know and trust. This explains the importance of networks and informal organizations. Madoff was a well-respected financier through his multimillion-dollar foundation. He engaged in charity events in various institutions including universities where he gained integrity and trust. This made it easier for him to convince the investors to hand over their savings.

Reference

Granovetter, M. (1985). Economic action and social structure: The problem of embeddedness. American journal of sociology, 91(3), 481-510.