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Bernie Madoff started a legitimate trade as a sole proprietor on stocks, being not listed on the New York Stock Exchange Market, in 1960s. He cooperated with other firms and his business gained prominence. However, in the 1990s, he started engaging in fraud that left many people robbed of their money. This essay seeks to examine the ethical issues in his scheme, the likelihood of other people’s participation in the fraud, and the necessary measures to prevent the vice.
Madoff disregarded public interest and proceeded with the use of the Ponzi scheme to con people. The culprit drew money from the public in the disguise of making investments, but he used the cash, drawn from new shareholders, to pay the old ones. He lured people by saying that their money would make 50% profit as a return on investments after a number of days, and his deals raked in $ 250,000 in a day. He forged investment reports and sent them through the mail to the investors in order to give them false hope that they will get their money back. The new investors would, therefore, become victim of the ploy as they would provide money for paying other people.
Madoff was a famous liberal and charity contributor and thus, people trusted him. However, his greed for money drove him into sacrificing the confidence that people had in him through financial malpractices. He manipulated and concealed facts to create a false image for his business. He exposed the public to the risk of losing their money as the scheme could not survive forever. His pursuit of illegal earnings made him engage in fraud and, thus, he could no longer maintain the reputation, he used to have before he engaged in the illegal business or before the truth exploded.
The government shoved negligence or deception through the Stock Exchange Commission as it failed to execute its role of protecting the public from financial malpractices. The commission failed to properly investigate the scheme in order to establish its moral worth and, thus, the government could not reveal the fraud. The commission disregarded people's complaints about the scheme and, when conducting investigations, it concealed the possibility of its staff participation in the crime. The government, therefore, got the blame for failing to cushion the public from such risks.
Did Bernard Madoff Work Alone?
To a large extent, it seems that Madoff was the only participant in the fraud, because in his business, he hired employees who had no experience in the field of finance and, thus, it is hard to establish whether such people participated in the crime or not. Madoff ran his business together with his family members including his brother, sons, wife, nephew, and others. However, after investigations, none of his family members was found guilty of participating in the scheme. Madoff defended his sons and claimed that they only participated in the genuine business while he admitted his own participation in the fraud. The family members argued that the two ventures - the stock trading business and the investment management business - operated on different floors of the building that housed their offices and, thus, none of the relatives had anything to do with the dubious deals. The details further revealed that he told his sons about the illegal deals shortly before the news broke, and one of his sons had withdrawn his money eight years before the time, when the truth emerged. Additionally, intermediaries had never known about this fraud and, thus, many of them lost their money too. For instance, Rene-Thierry committed suicide after losing his money; Stanley Chaiso and Schulman also lost their money in the scheme.
However, to a small extent, Madoff might have had some assistance because he was a member of the government advisory board on stock market regulation and, thus, he might have asked his colleagues to provide a good environment for his illegal business. There are no concrete evidences to exonerate the relatives from the blame and, thus, there might be a possibility of their involvement. Lastly, the Swiss Bank Union Bancaire Privee directed the clients' money into the fund, despite the research department warning, given to the top management, not to get involved into the scheme. It, therefore, depicts the possibility that the management team participated in the crime.
Measures to Prevent the Occurrence of Such Schemes
The Stock Exchange Commission should strictly fulfill its duties that involve conducting an audit of all firms dealing with the stock exchange. The commission should monitor the activities, as well as the flow of the financial reports of such firms in order to ensure that the reports are clean. The firms should further disclose any false information and make sure that it unearths fraudulent cases early enough to avoid the risks, exposed to the investors. The investors also need to research the company’s background including its ownership and licensing. By doing so, people will get convinced of the legality of the operations of the firm and they will, therefore, escape such snares easily.
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Companies need to exercise employee motivation through proper remuneration and rewards. When the workers feel appreciated in the firm, they are unlikely to engage in dubious practices and, thus, they will strive to follow the prescribed procedure for every activity. Firms should also develop strong codes of conduct that governs employees’ behavior in order to avoid cases of malpractices. The firms should additionally formulate strong codes of ethics to enhance compliance on values, policies, and rules as well as support for ethical culture.
Madoff started a legitimate business that later became fraudulent. The ethical issues in the case are the disregard for public interest, the sacrifice of trust and the government’s negligence. Due to the fact that that none of his family members was incriminated after investigations, it is possible to state that he might have committed the crime alone, although there is no sufficient evidence to exonerate him.