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Financial Tools and Methods of Testing: The Madoff Scandal

1339 words (5 pages) Business Assignment

19th Jun 2020 Business Assignment Reference this

Tags: Business AssignmentsFinance


This paper will be discussing financial tools and methods of investing. This will give a inside knowledge of what type of investor an individual is and what it means when it has to do with taking risks with their money. This paper will also explore different cases of fraud, scams, and scandals throughout history and how they are not good investing opportunities. This paper will go in to detail about the Madoff scandal and see the after effects of the victims who invested in the firm. Lastly, this paper will use different resources like journal articles, videos, and web pages in order to bring facts into the paper.

After taking the short assessment on the co-operators webpage, I have come to realize that I am a safety investor. This means that I do not like taking big risks with my money and if I do, it will be a safe investment where I know I will not lose a lot. This is exactly what the assessment told me about myself saying that my primary objective is preservation of capital. It also told me that I have a relatively short period of time to allow your investments to recover from any negative years. I believe the investment that would suit right now would be putting money in a bond or in a regular savings account in order to accumulate interest in the long run. This way, there is a low risk of me losing money that I put in and have a higher chance to make a profit. I do believe however, that my current investing behavior can change over time and a few factors can play a role in this. First, my age can make me see things differently from someone who is younger or older than me and that is perfectly ok because my choice makes sense to me now but later on down the road can change based off of my knowledge and experience. Another factor that can make me change my investing behavior is the amount of money I will be making and what kind of job I have. I it simple, the more money you have, the more you are willing to risk and the less money you have or make, the less you are willing to invest. I currently have a good job which pays all of the bills and takes care of me and my family a little money left over for personal things. I rather spend the money on small gifts or things that me and my family enjoy. I also will put some in savings just in case of a rainy day. If I had more money left over, then I can definitely see myself investing in different stocks and bonds.

When it comes to finances and big businesses it is important to protect yourself and deal with reputable people and companies in order to stay away from fraud and other serious crimes. There are many ways that fraud can occur in a business but one that stands out is a pyramid scheme. A pyramid scheme is viewed as an unsustainable business model that works by recruiting an increasing number of members at different levels (Seth, 2018). The reason why it is viewed as unsustainable is due to the fact that there are so much people that the investor will have to recruit in order to make a profit and the recruits will have to find even more people to invest in order to make a profit. It will keep getting bigger and bigger until there are no more recruits and the pyramid collapses resulting in a loss of money. In some states and countries, pyramid schemes are illegal because it scams people out of their money which are viewed as the victims because they trusted someone with their money on a promise to make a profit. I, myself have never participated in a pyramid scheme and do not see myself participating in the future. This just seems way too risky and a lot of work to recruit all of these people just so I can make a profit. I would rather put my money in a company’s stock in order to gain shares and voting rights. It can be very difficult to detect a pyramid scheme since they can be so complex and may be structured in such a way that will take longer to decide what the real concept is about. CNBC did a report on trying to detect pyramid schemes and said that it takes a fact-intensive inquiry (Greenberg, 2013). They said it also entails a complex economic analysis including an in-depth examination of the compensation structure and the actual manner in which compensation flows within an organization (Greenberg, 2013).

Fraud, scams, and scandals are all negative things that can happen inside of a business and can lead to loss of money and leave many victims suffering. The Madoff scandal was no different and left many victims with empty pockets. The Madoff affair was back in the 1960’s and the man responsible for this crime was Bernard Madoff. Madoff was pulling in investors by promising steady guaranteed returns on their money that they have invested in his firm. This was not the case; Madoff would simply use the money that was invested by his clients in order pay out the money to his previous investors. This would catch up to him in 2008 when the economy was going through a recession and the market turned. According to the 60 Minutes video, the person who caught on to the fraud was a man by the name of Harry Markopolos. It turned out that many of the victims were big name investors and even some high name celebrities like Stephen Spielberg and Kevin Bacon. This case was so difficult to investigate and even when Madoff confessed to what he had done, the Securities and Exchange Commission could not find anything against the case which led them to turn the investigation over to another agency. After watching the video of Representative Gary Ackerman, it seems apparent that the focus was not the actual crime that Madoff did, but why the SEC could not find the evidence or anything to stop this while it was happening. It seemed as though the anger shifted to the SEC instead of the actual person who actually carried out the crime.

Finances can be a very important in a person’s life and can bring a great feeling of joy or sorrow depending on what you do with it. In cases where one in willing to invest in stocks and bonds or opening savings accounts in order to make a legitimate profit can be a great thing to invest in. It is only when trying to make a profit is so important to someone that they are willing to do whatever it takes, even if it is illegal, to do so. This is where things like fraud, scams, and scandals come in to play. These heavily rely on people to invest in something that you are offering where there is a promise of profit but ends up crumbling at the end due to inadequate resources, funds, or people. It is very important to do things the right way and always make sure that when investing money into a company, that it is legitimate and legal. If it does not sound or seem right, run far away.


  • Herb Greenberg, Karina Frayter. (2018, June 19). Why Spotting a Pyramid Scheme Isn’t So Easy. Retrieved from https://www.cnbc.com/id/100364484
  • Kenton, W. (2008, December 15). The Bernie Madoff Story. Retrieved from https://www.investopedia.com/terms/b/bernard-madoff.asp
  • Rep. Ackerman on Madoff Fraud [Video file]. (2009, February 4). Retrieved from https://www.youtube.com/watch?v=FOKSkaQoF_I
  • Safety Investor – The Co-operators. (n.d.). Retrieved from https://www.cooperators.ca/en/Group/group-retirement/group-investments/Investor-Profile-Tool/safety-investor.aspx
  • Scannell, K. (2009, January 6). Madoff Chasers Dug for Years, to No Avail. Retrieved from https://www.wsj.com/articles/SB123111743915052731
  • Seth, S. (2018, October 24). What is a Pyramid Scheme? Retrieved from https://www.investopedia.com/insights/what-is-a-pyramid-scheme/
  • The Man Who Knew [Video file]. (2009, March 1). Retrieved from https://www.youtube.com/watch?v=s68FR1MXT8Q&feature=youtu.be
  • Victims of Bernie Madoff Support Group. (n.d.). Retrieved from http://berniemadoffponzisupportgroup.blogspot.com/

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