The 'Bernard Madoff' Financial Scam

Authors: Gupta, V.; Chakraborty, B
Source: ICMR Center for Management Research
Year: 2009
Number of pages: 18

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Abstract:

This case examines the 'Ponzi Scheme' operated by Bernard Madoff, a prominent Wall Street trader and former Chairman of the National Association of Securities Dealers Automated Quotations, through the investment management and advisory division of his firm, Bernard L Madoff Investment Securities LLC. During the investigation, it was revealed that Madoff had operated the 'Ponzi Scheme' since the 1980s. Though Madoff was supposed to invest clients' money in the securities market, he deposited the entire amount into a bank account in the 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 10 December 2008. It was the biggest financial fraud in the history of the US affecting a large number of investors. Industry experts blamed the regulators 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.

The case is structured to achieve the following teaching objectives: (1) analyse how Bernard Madoff conducted the fraud; (2) understand the events that led to the disclosure of the fraud; (3) examine the role of regulatory agencies and the reasons for not detecting the fraud; and (4) analyse the impact of the fraud on the US economy. This case is meant for MBA / PGDBM students and is designed to be part of the finance curriculum. The teaching note includes: (1) the abstract; (2) the teaching objectives and target audience; (3) teaching methodology; (4) assignment questions; (5) feedback of the case discussion; and (6) suggested readings and references. It does not contain an analysis of the case.