fb

How could Bernie Madoff make off with so much cash?

Bernie Madoff is in prison and he handsomely deserves to be.  Over years, he ran a private investment fund that took deposits from rich investors and delivered consistently great returns of 10% real terms each year or more.

The only problem is that the whole thing was a vast fraud. He was stealing funds and using new depositors’ funds to hide the hole his pilfering was creating.  It’s called a ponzi scheme and is strictly illegal.   Total investor losses are estimated to be in the region of £18 billion.

Can you even imagine such a figure?

The question is – how did he get away with it?  There’s no single answer, but these features are significant:

• There was a very excessive degree of authority and power vested in one man (Bernard Madoff himself).

• There was a lack of scrutiny by directors and senior management and investors themselves.

• A whistleblower had contacted the regulator ten years before the scandal broke saying that the returns made were mathematically impossible. The regulator did nothing.

• The auditor was too close to the client and generally showed a deep lack of professional scepticism.

So, Madoff was a colossal failure of corporate governance.  Almost every significant principle of the Combined Code was broken. Yet this happened in the USA – home to the stringent Sarbanes-Oxley Act. How could this happen? Well, SOx only applies to listed companies and Madoff was a private equity investment, so outside its scope. There appeared to be no appetite for voluntary compliance with best practice.

Perhaps the biggest lesson is that when investors are being given apparently huge returns, they become unwilling to ask questions.  Indeed, investors who asked too many questions were dropped by Madoff as being a nuisance.  Maybe the victims of the Madoff scandal became victims of their own credulousness and greed?

Share this entry

Recent articles

View All Articles
Professionally qualified in one year – DipIFR
Mar 22, 2024
Title
Professionally qualified in one year – DipIFR
Excerpt

Unlocking Opportunities with DipIFR Introduction In the second installment of our series, we shift our focus to the […]

Professionally qualified in one year – CMA (USA)
Mar 21, 2024
Title
Professionally qualified in one year – CMA (USA)
Excerpt

Accelerate Your Career with CMA Certification Series Introduction In our fast-paced world, the demand for highly skilled professionals […]

Lego – building strategy blocks…
Mar 14, 2024
Title
Lego – building strategy blocks…
Excerpt

In the contemporary business environment, characterised by rapid changes and unforeseen challenges, companies across various industries must adapt […]

Weathering the chocolate storm?
Mar 12, 2024
Title
Weathering the chocolate storm?
Excerpt

In today’s interconnected global economy, the ripple effects of local weather phenomena can have far-reaching consequences, extending far […]

Pass the doughnuts…
Mar 12, 2024
Title
Pass the doughnuts…
Excerpt

Does your weight affect the amount of money you earn? That’s an interesting question and researchers from the […]

The Significance of Audit Quality: Lessons from KPMG’s Fines
Mar 06, 2024
Title
The Significance of Audit Quality: Lessons from KPMG’s Fines
Excerpt

In the intricate world of finance and business, the accuracy and integrity of a company’s financial statements stand […]

Insider Trading: A Cautionary Tale from the Oil Industry
Feb 29, 2024
Title
Insider Trading: A Cautionary Tale from the Oil Industry
Excerpt

In the complex world of finance, insider trading remains one of the most controversial and closely watched issues. […]

Lessons from Kraft Heinz’s Sales Decline
Feb 20, 2024
Title
Lessons from Kraft Heinz’s Sales Decline
Excerpt

In the fast-paced world of business, staying ahead of market trends and consumer preferences is paramount. The recent […]