Ponzi scheme and Madoff Fraud

Ponzi scheme is a fraudulent undertaking whereby the investors atomic number 18 duped into a seemingly profitable deal. The clients are asked to invest their money in a venture to earn immense interest rates. This normally works through the payment of the earlier investors interests and principals by using the later investors principal amount. This illegal activity got its name after Charles Ponzi of England (1920s). Bernard L. Madoff and Ponzi scheme Bernard Madoff, 70, is the former chairman of Nasdaq Stock Market. He held the position coin bank December 2008 when he was arrested over alleged possibly the largest fraud always in history.He is the founder of Bernard L. Madoff Investment Securities, which undertakes market-making, and acting as middleman in buying and selling of securities, but is since under receivership after a woo order was obtained to place an injunction on its operations by the protective covering Exchange Commission. (Mike, 2008) It was revealed that Madof f had a separate and secretive investment arm of his mansion which was running on a separate floor of their premises. The firms financial statements were kept under lock and key and Madoff was cryptic close to the firms investment arm, according to some top aim management employees of the firm.This secret investment arm is the one under investigating due to believe that it is where the Ponzi scheme was perpetrated. (Mike, 2008) Madoff was very smart in playing the Ponzi scheme. He filed false returns with the Securities Exchange Commission, and fabricated gains claiming that its investments together with accounting and size up firms it ran were highly lucrative. At some point for example, Fairfield Sentry Ltd, Madoffs postpone fund ran by Madoff Investment Services to invest in the shares in Standards & Poors 500. Fairfield claimed that its share index had risen by 5.6%, opus that of S&P 500 had fallen by more(prenominal) than 30%. Fairfield was later said to be down by 0. 06% when that of S&P 500 had fallen by closely16%. The firm was averaging 10. 5% annually since its inception in 1990. These statistics are quite illogical to believe, and is one way in which Mr. Madoff managed to survive through his Ponzi scheme. (Mike, 2008) The firms losses accrued up to $50 billion since it was no longer able to meet its client demands. This is after clients requested for about $7 billion when they had only about $250 million in the account. (Mike, 2008)Prevention of similar frauds The SEC should be made more proactive. For instance, warnings such as those of Harry Markopoulos, a financial analyst, should have been taken seriously by the SEC since he started his revelation back in 1999. The hedge fund of Mr. Madoff too didnt register till phratry 2006, which is too late. Recommendation for enforcement of law, such as Sec. 17 (a) of the Securities Act 1933, Sec. 10 (b) of Securities Exchange Act of 1934, and rule 10b-5 there under, and sections 206(1&2) of th e Advisors Act of 1940, will as well help prevent such frauds.It is worth to make public the mankind of rates of interests offered by a firm to its clients. This creates transparency and some intellect of genuineness of a firms undertaking. The accounting professionals also should be made to learn from such cases to prevent future occurrences of the same vice. human race awareness programs can be broadcasted through media too. This will warn investors to be careful in their choice of investments portfolio. Reference Mike, S. (2008, December 13th). Biggest Fraud in History $50 billion Madoff Ponzi Scheme. Retrieved April 4th, 2009, from The Market Oracle http//www. marketoracle. co. uk/Article7769. html.