Bernie Madoff: An Issue of Ethics There are many ethical issues in the world’s news today, some bigger than others, and many that get swept under the rug. One particular ethical issue is at the core of a huge story that has dominated the news for months on end and has lead to more trying times on Wall Street. The story is about Bernie Madoff and the massive effect he and his ponzi scheme had on hundreds of people who trusted him. This paper will discuss the ethical issue underlying the conflict, the damage that resulted from it, and the leadership that acted to counter suit his disaster.
Bernie Madoff’s ponzi scheme is sure to go down in history as one of the largest business scandals ever and should make every person stop and make sure there ethics are in check. Bernie Madoff exploited ethical theories much like a hawk swooping down to kill its prey. Bernie’s twisting of moral philosophy, virtue ethics, universalism and business ethics controlled both common and upper classes within predominately Jewish investors, prominent social groups, banks, successful foundations and charities. He wielded his genius in investments and securities tantalizing those who could not spot his cabal.
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Bernie’s acute cognizance of small investors and the ruling classe’s desire to believe in moral philosophic principles, rules, and values let to the contamination of right and wrong with financial deals earning him 50-65 billion dollars. Bernie literally earned the title of greatest Ponzi schemer in the history of the world. The Bernie Madoff Investment Securities LLC outwardly demonstrated unmatched moral character, and virtuous ethical values, while secretly providing a moral minimum to unsuspecting victims.
When clients wanted to cash in their investments, Bernie would simply pay them off from the money he swindled; forcing him to replenish his accounts with new investors. Bernie was perfectly aware that the values society needs to function could be used to provide Bernie a smoke screen appearance of possessing moral bearing. He disguised his innate lack of universalism to all including the Elite Weisel Foundation for Humanity, Santander Bank of Spain, HSBC Bank, Hedge Funds Man-Group and Clermont.
Bernie’s business ethics and moral behavior always projected high business standards and principles, and even his need to scheme his family appeared innocent. Bernie’s two sons discovered his devious plans and turned him into the authorities. Ultimately his extreme egotism fed his behavior and would ultimately lead to his demise. Organizational leadership is a critical function of any business and generally plays a significant role in the success or failure of any given company.
In the Bernie Madoff case, facts compiled throughout the Ponzi scheme investigation revealed that for over 20 years Bernie Madoff’s company was responsible for laundering money, committing mail fraud, and filing false SEC reports. These were the criminal activities that ultimately amounted to over 50 billion dollars in fraud committed against clients and charity organizations. The company had two primary areas of focus. One are was performing the functions of a stockbroker (broker) and market maker in U. S. shares and was where most of the company’s staff worked.
This fund management area of the organization was the primary function of legitimacy for the firm and opened the door for trusting investors to continue business investments with Bernie Madoff. The second section of the company, the investment advisory department, was the primary area of the 2008 FBI investigation. It was in this area of the company that Bernie Madoff allegedly worked alone and advised many multi-millionaires of ways to invest their money. The FBI investigation showed that Madoff was providing returns in the 15 to 20 percent range, which is unheard of in the industry especially in a recession centric economy.
It is difficult to comprehend how auditors, Madoff’s business partners, investors and other chair people leading the investing firms that invested through Madoff could have possibly missed or overlooked this scheme. It appears that the people involved in this scheme failed to recognize what was taking place because of their own personal greed, failure to maintain adequate financial records, inexperience, or simply having turned a blind eye to what was taking place. This is a specifically troublesome idea considering that Madoff had many employees that worked closely with him and at his firm.
The leadership within Madoff’s firm apparently had a complete management failure, but also important to mention is the leadership from the firms that were the victims of the fraud. For them to have neglected to properly track their principle investments shows that they failed to do their due diligence and as a result allowed themselves to become the subject of millions of dollars in losses for their firms and partners. Because of the Madoff scheme, many firms are taking a closer look at their organizational board member diversities.
This diversity is not simply related to ethnicity or race, but at experience, culture, location of assignments, age and other factors that could potentially strengthen the company’s versatility and overall ability to identify future fraudulent plots directed at the organization. Although is it a good step towards avoiding future schemes there is much more to be done. It is too late for Bernie Madoff, but had this Ponzi scheme been discovered sooner numerous ethical standards and communications could have been implemented to resolve the issues.
According to The New Internationalist’s article on Bernie’s scheme, “Madoff’s company didn’t even invest the money they received (2009), so the first course of action to turn this company into an ethically sound and financially well functioning organization would be to have the company begin investing the money they received instead of funding their lavish lifestyle with it. Madoff was caught embezzling and was the only one convicted, so that means he had somehow managed to “pull the wool” over everyone’s eyes that worked in the company including his own wife (2009).
To prevent that from happening again, management would need to implement a system of checks and balances to ensure that their employees were not participating in embezzlement or fraudulent activities. These checks and balances can be as simple as having different people accepting deposits for new accounts, another person responsible for monitoring the accounts activity, a designated employee responsible for overseeing investment loss and gains, etc.
These simple checks and balances can easily prevent fraudulent activity from taking place or going on unnoticed in a company. After these standard checks and balances have been placed, management would then need to begin opening the lines of communication with the employees letting them know that unethical behaviors would no longer be tolerated and that the company would be holding themselves to a higher moral code. The best way for management to begin implementing these new ethical standards would be to first set the example themselves.
After setting a better example for their employees, management would need to hold numerous meetings and communicate with employees clearly and consistently to help them understand and begin practicing the new ethical standards that would be expected of them. Once these ethical standards were clearly explained to each employee, management would need to begin disciplinary actions against employees that had not followed these ethical standards after their implementation and rewarding those that have followed these standards.
Although it would be difficult initially for both management and the employees to understand and implement these new ethical standards, in the long run these changes would result in more loyal employees and customers as well as a secure and legal business structure. As discussed in the article researched, we can see the issues that were at hand such as the stealing, mishandling of individual’s money, and the blatant disregard for ethics and the law.
This caused irreparable damage to his clients costing them billions of dollars collectively, but now that Madoff has been exposed the public is aware of the dangers that existed in that broken system that allowed it to happen. The investigation will lead to reform of that broken system, and new precautions will be taken by the millions of people looking to invest.
Ethical issues like this that span beyond the scope of the individuals involved are what shape the laws and rules in work and life today, and will continue to do so in the future. References Altman, A. (2009). A Brief History Of: Ponzi Schemes. Time, 173(2), 18-18. Retrieved July 23, 2009, from Academic Search Daily News. (2008). Leon Bernard Madoff biography – fraud reach 50,000 billion dollars. Retrieved July 31, 2009, from http://www. dailynews. s/2008/12/leon-bernard-madoff-biography-fraud-reach-50000-billion-dollars/ McDermid, B. (2009). Bernie Madoff. New Internationalist, 32. Retrieved August 1, 2009, from http://www. newint. org/columns/worldbeaters/2009/07/01/bernie-madoff/ Trevino, Linka K. , & Nelson, Katherine K. (2004). Managing business ethics: Straight talk about how to do it right. [University of Phoenix Custom Edition e-Text]. New York: Wiley. Retrieved July 31, 2009, from University of Phoenix, PHL323 – Ethics in Management