Case study of Bernie Madoff
'It was all just one great big lie' were the words that 59-year-old Bernie Madoff said to the FBI agents when they arrested him on the 10th of December 2008 in New York City relating to Fraud charges that included Mail Fraud, investment, Wire fraud, and Money laundering offenses. Madoff had created a Ponzi scheme, an investment fraud, where the early investors are paid off with money from new investors. Investors are usually taken in by the promise of high returns with low risk but in Madoff's case, there weren't any investments made, it was all lying in his bank account. It is estimated that he had accrued a figure of approximately 64 billion dollars with this coming from roughly 3 million investors, To fully appreciate the full enormity of this figure, it is worth finding a comparable barometer to measure it up against. Bill Gates the Founder of Microsoft at the time, had a personal wealth of $54 billion dollars
This essay will give an understanding of the 'One Great Big Lie'
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White Collar Crime was coined by criminologist Edwin Sutherland (1939) he wanted to show that crimes could be committed by persons of a higher class, a higher social standing, and respectability in the course of their occupation. White collar crime that is committed by salaried professional workers or persons in business and that usually involves a form of financial theft or fraud (as in securities dealing) is a definition given by Merriam-Webster. Fraud is one of several white-collar crimes that include Insider Trading, Money Laundering, Bribery, and Embezzlement
Madoff certainly fit this demographic as he was well educated and previously held senior roles such as the chairman of the Nasdaq stock exchange and certainly someone who wouldn't be seen as a criminal in the eyes of the general public.
The loss of one's liberty as a punishment for a criminal act would in most cases be the greatest deterrent to most. There was a study published in the International Journal of Law, Crime, and Justice, that examined the differences in length of sentencing and the type of white-collar offense, This showed that white-collar criminals had significantly shorter sentences than street criminals
Are criminal sanctions a deterrent for a white-collar criminal? Ogden's (1973) perspective gives strength to the argument that white-collar criminals are treated softly. There seems no desire to criminally prosecute the offenders with the possibility of incarceration. White Collar crimes take a considerable amount of time and skill for prosecutors to prepare evidence suitable for court. This gives further credence to the point that individuals such as Madoff feel that the criminal justice system isn't hunting them down, so to speak and they can get away with it.
The US Securities Exchange Commission was discovered to have let him slip through their fingers on numerous occasions. Harry Markopolos the whistle-blower who initiated the investigation into Madoff, had passed over vital intelligence that could stopped Madoff, but these were ignored by SEC. It was later revealed in court that they put this down to staff shortages amongst other things. Markopoulos (2010) stated that Madoff had 3 different accountants in 3 different countries, to not have continued yearly reporting. A key element was Price Waterhouse Coopers, which he registered with, were in different countries. Thus, creating Different companies, different corporations holding independent records. It was also said that he had a small accountancy firm undertaking his audits, it beggars' the belief that an organization that is trading in millions of dollars is having the work audited by a local accountancy firm.
Because of the scandal, the SEC undertook a series of reforms post-Maroff to stop any further frauds of this magnitude. These included a fully staffed enforcement division, this being one of the major failings of creating more specialized departments. Changing the handling of the complaints division. Working with insiders more to gain more intelligence. A complete overhaul of audits and risk assessments.
The millions that were lost due to the scandal would have caused a substantial amount of loss of revenue to the US government. The disruption in public delivery is no more evidenced by the staff shortages within the SEC, which ultimately created a vacuum for Madoff to continue with his criminal operation.
Financial Gain was certainly a key factor, but the author has garnered information from other sources to indicate psychological indicators were the dominant factor, he indicated traits of a personality disorder. He wanted people to trust him and to make them feel that they were special and that they were the winners in this situation. He was alluring and charming indicating the behaviour of a sociopath. A stereotypical con man is considered larger than life, vivacious, boasting of successes feeling that they knew everything, but this wasn't the case with Madoff. The point is further enhanced by interviews he had with Diana Henriques (2018); he made her feel that she was special. He made her feel that she was the smartest in the room.
His victims ranged from elderly residents, people who had their life savings to people of great wealth including the owner of the New York Mets. Madoff appeared to have a personality that could be chameleon-like. For Corporations he defrauded they felt that they could trust Madoff, especially as he had been Non-Executive Chairman of NASDAQ, a man with an established history of investment. Even though he was not a household name, his previous history on Wall Street allowed him some extra allowance with clients
Madoff didn't push for investment and didn't seem overly disappointed that people didn't want to invest. This would make existing clients feel special and part of the chosen few. In a sense, he was playing hard to get, which would make the proposition more attractive to new investors.
Madoff was a master at affinity fraud, where trust is valued hugely and this would have allowed him to work within communities like the church, and certain ethnic groups where references and word of mouth are a huge factor and allow people to take someone's word for it. This point is further enhanced by the evidence presented in the Con Game where it is mentioned that Madoff did not meet any of his victims and did not see them. Not meeting the clients strengthens the view that he was in control, that he had the power to influence people, even though they were handing over thousands of dollars or in corporations' cases millions at a time.
Madoff was charged with 11 offences and these included Mail Fraud, Wire Fraud, and Money Laundering contravening the Wire Fraud Act 1956, Mail Fraud Statue 1872, and the Money Laundering Act Control Act 1986.
The Financial Action Task Force was established in 1989 with their headquarters in France. Their aim is to have an implementation of legal, and regulatory measures for overcoming money laundering, terrorist financing, and other threats that might destabilize the international financial system. There are 37 member States and 2 regional organizations
Donald Cressey (1950) a criminologist who was being mentored at the time by Sutherland created the theory that there had to be more elements than just a financial incentive for a financial criminal offense. His model contained 3 factors. Opportunity, Motivation, and Rationalisation
To enable Madoff to perform his fraud he needed those weaknesses or in his case familiarity within the organization, this is where he had his family working within the company. This point is strengthened by the role his brother Peter played in the business.
The requirement of a motive and rationalization are needed for the triangle to be complete. Madoff had numerous motivators, his personality, and the financial wealth to be gained from the Fraud. Madoff rationalized his actions by believing that he wasn't doing anything wrong, he didn't mean any harm and most famously stated that that the government itself was just a big Ponzi scheme.
The model didn't fit Madoff perfectly until Wolfe and Hermanson (2004) created the new diamond model adding capability. Madoff certainly had an ego and confidence. Their research found that being able to lie effectively and consistently and being able to maintain their lies. Madoff proved that he was a master of this for over 20 years
Bernie Madoff appeared to lie throughout his 82 years I would suspect. His sons and wife were apparently unaware of this fraud. He lied to the people who invested millions of pounds, he lied to his own Jewish faith group. He even continued to lie and boastful during his time in prison. So, it comes as no surprise that his final words when he was finally caught were 'It's one great big lie'
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