Bernard Lawrence Bernie Madoff Assignment Example | Topics and Well Written Essays - 1250 words

Bernard Lawrence Bernie Madoff - Assignment Example Ultimately, Madoff’s sentence of 150 years in prison demonstrates the gravity of the crimes he committed. Madoff is primarily known for his use of the Ponzi scheme, a strategy that takes money from investors and pays them returns from their own money or from money paid by other investors. By avoiding any actual investment of funds, there is no real profit being made by the investments. Because earnings for the Ponzi scheme operator are usually less than the payments made to investors, the scheme is unlikely to be sustained for long periods of time. In Bernie Madoff’s case, by using consistent and somewhat believable returns to investors he was able to maintain his practice for decades. The first charge levied against Madoff was a criminal charge of securities fraud. This is defined by encouraging investors to make investment decisions with false information that results in losses to the investor. This is the case with Ponzi schemes such as the one operated by Madoff, because investment returns are financed by later investors and estimated return information given to potential investors is fraudulent. This behavior is unethical and illegal because the investor doesn’t gain real returns on their investments; and because it cheats subsequent investors out of the money they invest to pay falsified returns to earlier investors. This can cause bankruptcy and financial ruin to common stock holders. Investment adviser fraud is another crime Madoff pleaded guilty to. This type of fraud involves when investment advisers, such as those in Madoff’s firm, give false information to investors. This practice became illegal in 1940, when all investment advisers were required to register themselves with a federal Securities and Exchange Commission. This practice is unethical and illegal because, like securities fraud, it unfairly impacts investors and undermines the security of the stock market