A Ponzi scheme in its purest form can be defined as a fraudulent scam that promises investors high returns with little risk. (Merriam-Webster,’2018) Ponzi schemes naturally require an endless supply of willing participants investing money for a specific purpose. To encourage the thought of success for investors, they are promised things that are highly unlikely to be acquired. However, with so much falsified information and little truth, it is easy to be manipulated. There is a sequence of law and order that must take place to ensure these schemes are hard to detect.
The newer investors are paid off with funds collected by old investors rather than funds that should be coming in from the projects the investors have invested in. Seemingly newer investors are satisfied due to their income of money, however, when the supply of investors dries up or an economic crash takes place the older investors lose their funds previously obtained by whichever company. The funds contributed to whichever company is being utilized fraudulently.
The person or people responsible for Ponzi Schemes are using these funds for personal gain and enjoyment as they rendezvous with money that should have been devoted to the project. One of the greatest examples of this horrific white-collar crime would be that of Bernard L. Madoff. Bernard, informally referred to as Bernie, was the former chairman of NASDAQ as well as the founder of a Wall Street firm formally known as Bernard L. Madoff Investment Securities LLC. This crime was and is still currently deemed the most horrific and largest Ponzi scheme in history.
That is what certifies this scam as a phenomenon. This elaborate scheme began in the early 1970s, lasted for about 38-40 years, and resulted in the loss of an estimated 50 billion to 65 billion. With such a disaster that took place within so many lives, precautions have been set in place to decipher when a scam is possibly taking place. In essence, Bernie paved the way for serious changes within workforces similar to his to be made due to his tarnished work ethic.
The white-collar crime that took place was in the form of a Ponzi scheme. This particular crime can be distinguished in multiple different ways. It can also be managed in multiple different ways. Nonetheless, the outcome of complete and utter devastation remains the same. To better understand all that derives from a Ponzi scheme, it is vital to consider the history of this crime. The Ponzi scheme is named after Charles Ponzi who conned countless people out of their money in the early 1900s. “Ponzi’s bait to lure in investors was the idea that postal coupons purchased in Europe could be redeemed in America for six times their value, because of the difference in currency values (Zuckoff, 2005).” He promised returns and stayed true to his word until the funds ran out. Had the funds been properly handled instead of knowingly mistreated, the funds would have never evaporated. Ponzi schemes are so easy to get intertwined with because they “may be able to deliver a high rate of return to a few early investors for a short period (Valentine, 1998).” A Ponzi scheme, in essence, deceives investors with fabricated lies of high returns due to the project, firm, business, etc.. they are investing in when in reality they are taking from Greg to pay Gavin. They are simply paying new investors with old investors’ money. This concept ensures a constant money flow to be utilized in whatever way the con artists see fit. Bernie Madoff perfected the Ponzi scheme to the degree of 50-65 billion dollars. Bernie Madoff was so successful with his scam because of the cleverness linked to this crime. The way he conducted his firm revealed little to no error, therefore his ability to retrieve investors was not a hassle. “Madoff took in client assets, transferred client money to his accounts, and mailed out fictitious account statements to hide the ruse. Then, when clients withdrew funds, he used recently acquired capital from other investors to pay out redemptions (Rimkus, 2017).” Madoff was able to operate a Ponzi scheme due to his very intricate and detailed art of deception. He created a set of professional portfolios that lured in his victims. He also chose a specific clientele to work with and his standards would not lower. “By catering to an exclusive clientele, one that had to be both super-rich and selected by him, Madoff drove up the demand for his services through their scarcity (Petsko, 2009).” Aiming to integrate a specific clientele improved his reach and connections with other potential investors. Although the return on investing with Madoff was seemingly small it was intricately explained and large enough to gain the attention of extremely wealthy and prominent individuals. Madoff with his wit and charm and extensive utilization of manipulation was able to maintain his company without error for 40 years. His wide scope of knowledge in this field particularly enhanced his skills to scam investors. The offender, in this case, is Bernie Madoff. One man caused thousands, who were intertwined with his firm, to their unimaginable downfall. Some of the victims, in this case, were well-known, while others were not. However, one aspect they all shared was their filled-to-the-brim bank accounts. Some of these people include Steven Spielberg, the owners of the New York Mets, as well as various actors one being Kevin Bacon. Carl Shapiro, a well-known entrepreneur, lost out on more than 400 million dollars personally and through his foundation both invested in Madoff’s firm. Thousands of other outrageously wealthy singular individuals were defrauded as well. Organizations and charity funds that invested with Madoff such as The Elie Wiesel Foundation for Humanity lost out on over 15 million dollars. Even NYU claimed to have lost 24,000,000$ invested through a third party. You can only imagine how this substantial loss affected programs within extracurricular activities and educational endeavors this university previously provided but could no longer fund. Individuals, consumers, and charities are not the only ones who were affected immensely. Banks that invested in Madoff’s firm ruined the comfort and security people felt using them. The trust was shattered. “In many cases, schemes affect the daily operations of banks and taint the banking industry’s overall reputation for safety and soundness (Valentine, 1998).” Analyzation shows how schemes injure the entire idea of banking. This is unfortunate for regular people and the foundation of banks. His schemes faithfully plague anyone associated unknowingly and will continue to do so.
Ponzi schemes, similar to Madoff’s are not only highly unethical within the workplace and extremely immoral they are also classified as a white-collar crime that encourages the arrest and convictions of those involved. A white-collar crime is synonymous with a nonviolent crime that is traditionally motivated by financial greed committed by members of the government or business professionals. There are different levels of laws that are breached due to Ponzi schemes. To begin with, many investors insist on crafting up a contract in hopes of a mutual law-abiding agreement that “guarantees,” security. Many investors view this method as a way to ensure they are legally secure should something unforeseen occur. However, the entirety of a Ponzi scheme is built on deception therefore signing a contract does not seem like a significant factor considering the grand scheme of things. Contracts are violated and the entire premise of agreement between the investors and the scammers is now insufficient. With many laws violated due to Ponzi schemes, law enforcement agencies have partnered together. They have created an alliance as an attempt to dismantle any business that is exemplifying signs of fraud. Typically state officials will file suit against Ponzi scheme scammers, however, these crimes tend to go beyond local police to the headquarters of these law enforcement agencies. Both the Federal Trade Commission and The Securities and Exchange Commission work as a team to eliminate any organizations that display fraudulent activity. The SEC can utilize its resources to put a temporary hold on any suspected fraudulent activity in businesses. “The Securities and Exchange Commission also pursues these schemes, obtain injunctions against so-called ‘financial distribution networks’ (Valentine, 1998).” Not only are these steps taken but further action is introduced once there is enough evidence to pursue a criminal case. Once this occurs other federal agencies collaborate to serve justice. “The U.S. Department of Justice, in collaboration with investigative agencies like the FBI and the U.S. Postal Inspection Service, prosecutes pyramid schemes (Valentine, 1998).” If we consider the amount of fraud, security issues, and money laundering that takes place it would seem practical for large agencies previously mentioned to try and rectify the problem. With the help of multiple different agencies, the SEC can formally begin a lawsuit. “After a Ponzi scheme is discovered by government regulators, the SEC files a lawsuit against the Ponzi perpetrator, (Jory & Perry).” Investments require a sense of security and honesty rather than deliberate fraud. Ponzi schemes invite all different forms of money discrepancies without any regard for those investing. The intentions are strictly egregious but the steps are taken to enable such a scheme are extremely illegal. Madoff’s firm undoubtedly indicated fraud. Once fraudulent activity within Madoff’s firm was confirmed his consequences were consistent with the consequences given by the government in cases such as his. Madoff’s demolition of his company began after he expressed to his sons, who were not aware of the scheme, that the foundation of his company was indeed a Ponzi scheme that mishandled billions of dollars. “According to data compiled by Investment News… Madoff’s scheme alone cost thousands of investors nearly $65 billion (Sullivan, 2010).” With such a life-altering set of news, his sons turned him into the FBI the very next day, and thus his criminal case began. On December 11, 2008, he was arrested and charged with securities fraud alongside other charges. He was released on a 10 million dollar bail. Shortly after a federal court order froze all of his assets. He has not considered a flight risk therefore several attempts to jail him were unsuccessful. However, he was placed on house arrest on December 17, 2008. After long months of gaining extensive information regarding his company and the scheme therein, he received a staggering sentence. He plead guilty to 11 felony charges which were charges of money laundering, fraud, and perjury. He was sentenced to 150 years in prison as well as having to pay back millions of dollars in restitution to his victims. Not only was he personally affected, but his family also suffered mounds of pain due to his professional incompetence. Both of his sons, his brother, and his niece who all worked at his firm were hit with a lawsuit of 199 million dollars simply based on their rank within the firm. As for the victims, billions of dollars in funds were recovered. Not nearly as much money invested has been recovered due to Madoff’s lavish spending, however, the US government set up an account in 2013 to distribute funds to his victims. Some restitution has been made and there has been excellent support for the victims who were undoubtedly destroyed by this scheme.
Bernie Madoff is allegedly single-handedly responsible for one of, if not the most devastating Ponzi schemes in American history. With the amount of destruction that occurred, many people believe it to be nearly impossible that the presence of a scheme was not discerned.
Bernie mentioned himself that there was absolutely no way investors could not believe there was not some form of fraudulent activity going on. For the general mind, it may be more difficult to comprehend the entirety of his case or the extent of damage that occurred. However, criminological theories have been utilized as the reference of a reference to enhance the knowledge already known regarding Bernie Madoff’s 40-yea scam. These theorists also explain how this crime could have possibly occurred for such an extended period. Criminological theorists tend to examine cases by beginning at the root of the individual. They start examining the childhood of the person in hopes of finding some sort of understanding. Mark Colvin’s theory of Differential Coercion insists that there is a relative relationship between coercion and a high probability that they will create a crime. Coercion is simply something in a person that causes negative actions to occur because of fear, anger, differential, and anxiety. DifferentialThe differential in this specific theory simply means the variation in the consistency of those negative exposures. Mark Colvin insists that the higher level of coercion the more likely the individual will develop social skills outside of the norm as well as deficits within their character and decision-making skills which ultimately leads to chronic criminal activity. Colvin theorizes that those who interact with social contexts will develop certain characteristics. “An individual reacting with them(social contexts) is more likely to develop coercive ideation and thus a greater propensity for chronic criminal behavior (Colvin, pg. 116).” Relating this theory to Bernie Madoff’s upbringing could help others better understand his ruthlessness as he crafted his firm on the foundation of a Ponzi scheme. Bernie Madoff was not raised in a wealthy environment which is what may have prompted him the desire to gain a massive amount of funds. His parents could hardly afford the bare necessities. His home life was nothing short of unstable and his financial situation growing up equates to being without much. Mark Colvin’s theory of Differential Coercion implies that criminal behavior, such as fraud and money laundering, is a direct cause of coercion. Many will agree that the life and environment Madoff grew up in aided his desire to become wealthy no matter the cost. This assumption alongside Colvin’s theory possibly explains what led to such chronic criminal activity. The Rational Choice Theory of decision-making has been used as a way to process the decision-making skills of a criminal since the 18th century. The Rational Choice Theory suggests that people base choices on what supports their best interests. This theory indicates that even in an event regarding crime the potential risks are weighed heavily against the potential consequences. Whichever yields better results regarding the individuaindividual’sls self-interest will be utilized. This theory indicates complete rationalization in any situation, criminally or not. This theory suggests there was a significant amount of reasoning that took place when Madoff decided to create a firm that scammed billions of dollars out of people. “In rational choice theory, individuals are seen as motivated by the wants or goals that express their preferences (Scott, 127).” The framework used in his decision-making and to begin this firm embodied an extensive amount of benefits thus making this Ponzi scheme worth it. The motivation linked to the creation of Madoff’s Ponzi scheme and a crime would be the elimination of poverty and integration of wealth. There is a direct connection between his intense desire to eradicate any form of living without what he enjoys and loves that aided his ability to create such a scheme. The rationalization that took place, the calculation of benefits, consequences, and costs all resulted in a choice to create a firm that was a Ponzi scheme in disguise. To Madoff, the pros outweighed the cons, and his desires regarding g his self-interests would be ultimately fulfilled despite the consequences. Both theories suggest the lasting effects that lingered with Bernie and trickled into his adulthood from his childhood could explain how and why this crime occurred.
There is absolutely no doubt that Ponzi schemes and all other derivatives of white-collar crimes result in catastrophe. After the Madoff scheme efforts of extensive proportions have been made. The Security and Exchange Commission(SEC) is geared towards rtowardegulating and enforcing security concerns (Merriam-Webster). The SE has made some specific changes in hopes of rectifying current schemes and eliminating schemes before they begin. It is understood that the SEC “implemented a system to track and handle complaints, encourage cooperation of “insiders”, adopt rules that protect clients of investment advisors from theft, and adopt rules for enhanced protection of clients’ assets (Kfir, 2018).” With such great implementation from the SECNowell, there are other ways to avoid such scams from occurring again, but precautions must take place. There are roles set in stone to diminish such schemes from prevailing. There is the role of the individual or group that is interested in investing. They need to research as much as possible before even thinking of engaging in such a high leveled business endeavor. They must collectively take the time to examine the business and the paperwork as well as any portfolios that may be presented to them. It is also crucial not to get blinded by any relationship created as a result of business-orientedisand oriented plans. Madoff succeeded so long because of the long-lasting relationships he created with people who couldn’t possibly believe they were fooled in such a deliberate way. There is also the role of the specific agencies created such as “the Securities and Exchange Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the Commodity Futures Trading Commission, and the Treasury Department’s Financial Crimes Enforcement Network (fbi.gov),” that investigate and prosecute. The FBI in particular is one of the well knowell-known federal agencies that gear their attention specifically on corporate fraud. As a result “The FBI’s white-collar crime work integrates the analysis of intelligence with its investigations of criminal activities(fbi.gov),” to eliminate white- collar white-collar crime and restitute something for this kind of victim kindprioritiesnd of measures to control this crime from happening. After large Ponzi schemes have occurred these partnerships built between federal agencies were extremely specific changes that happened. Corporate fraud has been deemed one of the highest criminal prifororities to these agencies and continues to reign supreme. This is because of the amount of financial devastation that occurs that interrupts the well-being of people as well as destroys organizations and even charities that have devoted their existence to great causes. The immoral and unethical behavior of someone who willingly and knowingly participates in white-collar, crimes causes significant loss but also ignited a fire for justice within governmental agencies. With the discretion implemented by investors and the educational steps taken by investors generally, this crime will not occur so often. With the immense dedication and defense of victims by the government, the specific changes that have occurred have decreased the likelihood of this crime occurring at such a high peak.
Madoff was a clear renegade with his betrayal and unorthodox business ways. His hunger for power and lust for greed resulted in catastrophic changes within businesses like his own. There are more security measures now as well as organizations who are designated to uprootinguproot businesses with any sign of fraudulent activity. A plethora of people suffer to this day consequently because of the damages this Ponzi scheme enabled, encouraged, and executed.