Maddoff investment securities LLC Case Study

Maddoff investment securities LLC Case Study

Mr. Markpolos wrote an email to the SEC raising concerns about the operations of Maddoff investment securities LLC. He claimed that the company was likely a Ponzi scheme.  Ponzi scheme is an operation where an organization or an individual pays dividends to investors using the new capital raised from new investors rather than from profits made. However, even after Mr. Markpolos raised the red flag, the SEC investigated and concluded that there was no evidence of fraud. This tells us that raising the flag is not the end thing, proving it is the problem. People who run schemes are good at covering their footsteps.

The whistle blowers do not receive a good reception. For example when Mr. Markpolos raised the flag, the SEC did not consult him in the investigations. Before he raised the flag, Mr. Markpolos must have discovered something and the SEC did not care to consult him on what had made him raise the flag. It is common for whistleblowers to be assumed as people who are trying to tarnish the name of a company for personal benefits.

Mr. Madoff was a reputable person and even had friends in the SEC. the investors could not raise questions about the steady returns because they were happy with the returns. In addition, any investor who raised any questions had his/her money returned immediately. With a steady dividend, investors would want their money returned. The SEC on the other hand had conducted several investigations but never found the company guilty. One wonders how for eighteen years they never found any evidence. In my view, they must have feared the influence Mr. Madoff had or they were friends with Mr. Madoff.

A questioning attitude plays an important role in preventing the collapse of a company. By questioning the operations of a company, the management is kept in check and any problems unearthed soon enough. If the SEC had keenly followed the questioned raised about Mr. Madoff, it would have prevented the loss of $ 50 billion of investors money.

In my view, the investors could not have suspected the high levels of returns that never lost momentum. The main priority of an investor is high and steady returns. No investor wants to receive high returns on one period and then low returns on the other period. The investors were happy with the steady returns they were receiving. In addition, given Mr. Madoff’s reputation, the investors must have thought he was good at his work. He was very influential in the creation of NASDAQ and was even a chairperson of NASDAQ.

Arthur a former head of the SEC was known to consult Madoff on issues to do with the market. With such a reputation, investors could not question the returns they were receiving. They viewed Madoff as an experienced investor who had the capability to maintain momentum in the returns. In addition, whatever Madoff did to receive the profits for the high returns paid to investors was a secondary concern for the investors. The primary concern was the returns received. Given that, Madoff provided high returns as compared to other companies, investors were happy with his work.

Mr. DiPascali, the second in command in the company had not even finished college when Madoff employed him. His compensation was $ 2 million per year translating to more than $ 166,000 thousands per yare. This was a higher compensation for someone who had not finished college. Mr. DiPascali confessed in court that he had helped Madoff and other people commit fraud knowingly. I think Mr. DiPascali could not resist the urge to help them.

First, he was earning a high compensation. $ 2 million per year was too high for someone in his education level. In addition, he had been hired in the early years of the company and so he felt part of the company. Looking at it in Mr. DiPascali perspective, if he raised the flag, the company would be closed down and he would lodes his high compensation. With the reputation that the company would receive, it would have been hard for him to get another job let alone the high compensation.

As a normal human being, he chooses not to compromise his benefits. He participated in the fraud. In addition, when a company leader is committing fraud, it is common for employees to follow suit since they get the perception that non-fraudulent activities are not a priority in the company.

 
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