Some say that Bernard L. Madoff is the biggest financial fraud in history. The N

Question

Some say that Bernard L. Madoff is the biggest financial fraud in history. The New York Times gives us some background on Mr. Madoff

"For Bernard L. Madoff, there was also his multimillion-dollar private foundation that doled out money to hospitals and theaters. Indeed, through his charity work at places like the Gift of Life Bone Marrow Foundation or his public service at institutions like Yeshiva University, where he served on the board, Mr. Madoff seemed to have created a stainless persona of integrity and trust. And that fit with his rate of return, which was never attention-grabbing, just solid 12-13 percent year in, year out."

How did Mr. Mandoff keep his new investments at such a high rate of return and keep paying off investors and giving to charities? Explain how he was able to do what he did financially so long.

Explanation / Answer

Annette Bongiorno and Joann Crupi, two back office workers who worked for Madoff, they created false trading reports based on the returns that Madoff ordered for each customer. For example, once Madoff determined a customer's return, one of the back office workers would enter a false trade from a previous date and then enter a false closing trade in the amount of the required profit,Bongiorno used a computer program specially designed to backdate trades and manipulate account statements. In some cases returns were allegedly determined before the account was even opened

Madoff admitted during his March 2009 guilty plea that the essence of his scheme was to deposit client money into a Chase account, rather than invest it and generate steady returns as clients had believed. When clients wanted their money, "I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds,"

Jewish "affinity fraud"
Affected Jewish institutions considered victims of affinity fraud include Hadassah, the Women's Zionist Organization of America, the Elie Wiesel Foundation and Steven Spielberg's Wunderkinder Foundation. Jewish federations and hospitals have lost millions of dollars, forcing some organizations to close. The Lappin Foundation, for instance, was forced to temporarily close because it had invested its funds with Madoff. Madoff also dealt with James Harris Simons

Size of loss to investors
About $36 billion was invested into the scam, returning $18 billion to investors, with $18 billion missing. About half of Madoff's investors were "net winners," earning more than their investment. The withdrawal amounts in the final six years were subject to "clawback" (return of money) lawsuitsThe Internal Revenue Service ruled that investors' capital loss in this and other fraudulent investment schemes will be treated as a business loss, thereby allowing the victims to claim them as net operating losses to reduce tax liability.J.P. Morgan Chase & Co. also benefited from the scheme

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.