Abstract

The case examines the ‘Ponzi Scheme’ operated by Bernard Madoff (Madoff), a prominent Wall Street trader and former Chairman of NASDAQ, through the investment management and advisory division of his firm, Bernard L. Madoff Investment Securities LLC (BLMIS). During the investigation, it was revealed that Madoff operated the ‘Ponzi Scheme’ since the 1980s. Though Madoff was supposed to invest the clients’ money in securities market, he deposited the entire amount in a bank account in Chase Manhattan Bank. He fulfilled redemption requests of his clients using this money. This fraud that amounted to US$ 50 billion became public with Madoff’s confession on December 10, 2008. It was the biggest financial fraud in the history of the US affecting a large number of investors. Industry experts blamed the regu-lators and investors for neglecting the warning signals which enabled Madoff to carry on with the fraud for decades. The case ends with a discussion about the impact of the scam on the already strained US economy.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Analyze how Bernard Madoff conducted the fraud
• Understand the events that led to the disclosure of the fraud
• Examine the role of regulatory agencies and the reasons for not detecting the fraud
• and Analyze the impact of the fraud on the US economy.

Keywords

Bernard Madoff, Financial Scam, Ponzi scheme, Bernard L. Madoff Investment Securities LLC, NASDAQ, Split-strike conversion, Corporate Frauds, Options, Financial Scandal, Standard & Poor's 500 index, Global financial crisis, US Mutual Funds Industry, Regulations for Mutual Funds, Investment Management, Financial Industry Regulatory Authority, Hedge Fund, Harry Markopolos, Securities Exchange Commission, Friehling Investment Fund, Charges against Madoff