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    Bernie Madoff

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    abdoboss199

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    Bernie Madoff

    Uploaded by

    abdoboss199
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    3 views3 pages

    Bernie Madoff

    Uploaded by

    abdoboss199

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Bernie Madoff

    Born on april 29th 1938 in queens NY


    Still alive at the age of 80
    The Madoff effect refers to the financial industry's
    impact on Bernie Madoff's Ponzi scheme, which
    led to significant losses for investors. The fraud
    eroded trust in the industry, exposing weaknesses
    in regulatory agencies and due diligence
    processes. The scandal prompted increased
    scrutiny of financial regulations, resulting in calls
    for reforms. The Madoff effect also increased
    investor skepticism, emphasizing the importance
    of thorough due diligence. The scandal also raised
    ethical questions about the responsibilities of
    financial professionals and the consequences of
    unethical behavior.
    how large an impact one fraud event can have on the entire financial system.

    A study published in The Review of Financial


    Studies reveals that the financial system can be
    significantly impacted by a single fraud event. The
    study found that after Madoff's scam was
    discovered, investors who knew his victims or lived
    in the same areas lost trust in the financial system
    and changed their investment behavior. They
    pulled $363 billion from their advisors in favor of
    the relative safety of banks, leading to many
    advisors in affected areas going out of business.
    Firms with clients in affected regions were more
    than 40% more likely to close up shop. Two years
    after the scandal was discovered, the S&P 500
    index went up 40%, and those who removed their
    assets missed out on the returns.
    Madoff's Ponzi scheme was a classic and simple Ponzi scheme that involved
    attracting investors by promising high returns on their investments. When
    investors handed over the money, Madoff deposited it into his personal bank
    account at Chase Manhattan Bank, paying "returns" to earlier investors using
    the money obtained from later investors. Clients' trading statements, showing
    their alleged profits, were complete fabrications. The scheme fell apart in 2008
    when a large number of investors wanted to cash out their investments,
    amounting to around $7 billion. Madoff had only managed to come up with a
    couple of hundred million at that time. Two unsolved riddles surrounding
    Madoff's Ponzi scheme were when it began and how it managed to go
    undetected for so many years. Some sources claim the scam began as early as
    the 1970s, while others believe it began in the 1990s. Despite being widely
    distrusted by many Wall Street firms, Madoff managed to operate his massive
    Ponzi scheme without detection for at least a couple of decades.

    The aftermath
     Bernie Madoff was arrested in 2008 and eventually sentenced to a 150-
    year prison term in 2009. The United States government ended up
    offering to pay out more than $700 million to defrauded Madoff
    investors, but that amount paled in comparison to the billions upon
    billions of dollars that investors had been scammed out of. However, it is
    true that some of Madoff’s earliest investors did manage to recover their
    full investment amount plus a hefty profit.

    The Madoff effect


     Researchers at Cornell University set
    out to quantify the impact and found that
    Madoff’s fraud was responsible for $363
    billion withdrawn from investment funds.
    The study found that investment firms
    with clients in areas affected by Madoff
    were 40 percent more likely to go out of
    business. Most of the money withdrawn
    was deposited into less-risky investments
    and in banks. The study also found that
    firms that build trust with clients by
    providing services like financial planning
    experience fewer withdrawals.
    PONZI SCHEM
    One of the most puzzling aspects of the Bernie Madoff case is the
    question of why he ever committed the fraud. Madoff’s legitimate
    brokerage business was wildly successful, making him and his family
    extremely wealthy. He certainly had no financial need to bilk
    thousands of clients out of billions of dollars.

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