The Bernie Madoff Ponzi Scheme: Analytical Essay

The Bernie Madoff Ponzi scheme was the biggest of all time, so much so that he earned himself 150 years in prison. The Madoff Ponzi scheme was so big it captured the attention of the entire world. It rivaled OJ Simpson's case in attention which is no small feat. Bernie Madoff's last words before he was sent off to jail were that he had left a “legacy of shame.” Honestly, I think a better description would be a legacy of unethical manipulation. Madoff knew what he was doing wrong which made everything he did worse. Eventually, he let his guilt get the worst of him and turned himself in. The worst part of Madoff's schemes was that he left a wake of destruction behind him; he left his family with the burden he created, thousands broke, and all that chaos. This even lead multiple people to kill themselves. I want to demonstrate just how morally corrupt Bernie Madoff had to be in order to do this and how his sins are still being corrected today.

Ponzi scheme is a word that is thrown around a lot, but most people do not know what it is and how it all works. The schemer must set up a front; for example, a new business opportunity that is too good to pass up. When he does this, he must convince a first round of investors to buy into his ideas. When he does this, he can set up a front that will work as a façade to convince more investors to buy in, such as office space. Now, he would go after a second round of investors to pay off the first but now this is where he would make profit. He takes the second round of investors to pay off the first round and in some cases more since they were faithful initial investors. However, he takes a cut for himself as well. At its most basic form, this is a Ponzi scheme. All the schemer must do is keep finding new investors to pay off the last round as well as pay dividends to them (in some cases). Ponzi schemes can be compared to building a pyramid upside down: possible at first but eventually it becomes unstable, it falls apart. The illegal part, among other things, is that a Ponzi scheme must rely on securities fraud. Securities fraud is when someone gives false information, manipulates information, or has and acts on insider information. This is the very foundation of unethical action and is why no Ponzi scheme can be an ethical one. Unethical people and businesses always set up a solid base of operation where they can convince people they are legitimate, and Bernie Madoff was no different. The reason that so many people trusted Madoff with their money was because he was an experienced and well-known member of the financial industry. On top of this, he helped found the NASDAQ stock market and National Association of Securities Dealers. He also advised the Securities and Exchange Commission on trading securities. So, it is easy to see that with this body of work behind him why people would trust him with thousands if not millions of their dollars.

To better understand what happened throughout the process, we'll go through the timeline of events during the scheme. In 1960, Bernie Madoff fresh out of college started Bernard L. Madoff Investment Securities, with $5,000 of money saved from working as lifeguard. This company grew into a massive company that at one point was the largest market maker at the NASDAQ.

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“A market maker is a company that is a member of an exchange that also buys and sells securities at prices it displays in an exchange trading system for its own account which are called principal trades and for customer accounts which are called agency trades. Using these systems, a market maker can enter and adjust quotes to buy or sell, enter, and execute orders, and clear those order” (Investopedia).

It has long been debated whether these payments and how the companies operate is ethical. Madoff, who was one of the founding members of this practice, believed it was ethical because it did not affect the price that the consumer had to pay. I do not know anything anywhere close to the amount of information anyone in this field knows, but I know in everything adding a middle man to any process means another person to pay; furthermore, the extra money is pushed down the line and on to the customer. Some may believe this is a form of legal bribery because the broker must pay the market maker to make the sale. Personally, I do not think this is an ethical practice because it is practically a kickback for doing a service. I think this is the perfect example of people who are greedy and are willing to get money at any cost, even if that cost makes some brokers and some customers impossible to get into stock trading. This is where I think Madoff got his unethical start he realized he could manipulate people into paying him money when it really was not necessary for them to pay. Even though this part of his practice was legal, it does not directly mean it was ethical. I believe that this is a prime representation that Madoff's intentions were corrupt and unethical form the beginning. In certain situations, a “money at any cost” attitude can be a great thing but as seen here with this much power, it turns into manipulative and unethical actions. In 2000, Massachusetts financial analyst Harry Markopoulos warned the Securities and Exchange Commission that Madoff's numbers were too good to be true and borderline impossible. This is one of the few examples of good ethical decisions in the whole scam. Harry was far from the only person to know about Madoff's scheme, many people in the financial market would not invest or do any business with Madoff because they knew there was only one explanation for why his numbers were high. It is not ethical for all these people to know about how Madoff was scamming thousands out of their money yet did nothing about it. I liken it to someone watching multiple crimes happen but never doing anything about it, never calling the cops, never stepping in to help, but just watching . In late 2008, Madoff's scheme was starting to topple, investors were starting to pull out and they wanted seven billion dollars back, but Madoff only had around 300 million dollars. This is when Madoff knew it was over and he turned himself in to the police. A fraudulent $65 billion later, Madoff's time was done. In 2009, Madoff was sentenced to 150 years in prison. Plans were put in place to try and repay more than sixteen thousand people who were scammed.

We can answer three major questions as we look at the full picture when it comes to the Madoff scheme. Why did he do this and what was his motivation? What did he do wrong? What could he have done different? Madoff's motivation was a pure one at first. Just like any man, he wanted to provide for his family and live the American Dream, but that dream ended corrupt. His dream turned into a “money at any cost” attitude, when that happens you find ways to scam people out of their money at any or every opportunity. Both ethical and unethical people think about others as much as they can, the difference is that ethical people think how to help others and unethical people think about how they can manipulate them and that is exactly how Madoff thank. It is clear what Madoff did wrong but what separates him from everyone else is the scale of his scheme. Madoff took money from people like director Steven Spielberg, actor Kevin Bacon, and even would accept charitable donations with promises to provide a better future to them. I think that this is the saddest part about the whole thing: people trusted their whole livelihood and ended up broke. Lastly, Madoff was in such a good position to be setup for the rest of his life financially. He could have been a normal wall street elite and just ran a hedge fund, but he wanted more. I reflect that Madoff could have done almost anything else in the position he was in and still could have ended up as a millionaire if not a billionaire. He came from humble beginnings and got somewhere through hard work. Unfortunately, the greedy drive for money at any cost from the time he was a lifeguard turned into the biggest scam of all time.