Moral Hazard

Introduction: Bernie Madoff was a well-respected financier, his company Bernard L. Madoff Investment Securities, LLC was very well known and even helped launch the Nasdaq stock market. Madoffs company was well trusted and he even had celebrity cliental such a Steven Spielberg, Kevin bacon, and Kyra Sedgwick. Madoff came from a low income family however, he was able to start his company from getting a $50,000 loan from his in-laws and he using money that he had saved from side jobs such as lifeguarding and installing sprinkler systems to found his company. The successfulness of Madoff’s company came from the company’s ability to adapt to change and us modern day computer technology. As his business grew he stated employing family members to help “His younger brother, Peter, joined him in the business in 1970 and became the firm 's chief compliance officer. Later, Madoff 's sons, Andrew and Mark, also worked for the company as traders. Peter 's daughter, Shana, became a rules-compliance lawyer for the trading division of her uncle 's firm, and his son, Roger, joined the firm before his death in 2006”(Bernard Madoff Biography 2016) Unfortunately on December 11th 2008 Bernie Madoff became well known for a whole new reason. He had been accused of performing an elaborate Ponzi scheme and he had been reported to the federal authorities by his own sons. A year later he admitted to the investigators that he had lost $50 billion dollars of his investors’ money and pled guilty to 11

Bernie Madoff continued his scheme for thirty years because his company was the largest market maker on NASDAQ. He had an impressive rate of returns that his firm earned annually, and the Securities and Exchange Commission did not oversee the stock market and protect investors. Madoff also had flawless credentials. His scheme was so clever that he knew he could only aim toward the investors

On Dec. 11, 2008, Bernard Lawrence Madoff confessed that his vaunted investment business was all "one big lie," a Ponzi scheme colossal in volume and scope that cost investors $65 billion. Overnight, Madoff became the new poster child for Wall Street gall, greed and

Some investors wondered, did the SEC have any knowledge of the fraud happening at Madoff Securities? SEC investigated Madoff Securities on at least 8 occasions prior to 2008. However, each investigation resulted in no wrong-doing. Most of the complaints were filed by Harry Markopolos. Harry Markopolos is a financial analyst and fraud investigator from Boston. In 2005, Harry Markopolos, sent the SEC a lengthy complaint that clearly specified and identified the 29 red flags suggesting fraud. Unfortunately, the SEC did not act on any of Mr. Markopolos accurate finds. Among these red flags was Madoff’s refusal to provide his clients with online access to their accounts and would instead mail monthly account statement to each client. Bernie would

JPMorgan Chase had many incidents where it has violated the rules and regulation and ended up paying big chunk of money for the violations. But one of the biggest penalties the bank had to pay was $13 billion. The bank represents several alliances of most Chicago and New York money center banks. In 2008, JPMorgan Chase bought two failing institutions after the government asked it to help out when the institutions got into deep financial difficulties. First one was brokerage house Bear Stearns that was one of the firms that was heavily involved in the businesses of packaging and reselling subprime mortgage-backed securities. In March 2008, to prevent Bear Stearns from collapsing, JPMorgan stepped in to buy the company with help of $29 billion

Bernie Madoff was one of the most trusted investment experts in Wall Street, but in 2008 the market collapsed and he admitted to his firm that his entire wealth management business was a Ponzi scheme for the last 30 years. More than 2, 200 people invested approximately $20 million. Many of Bernie Madoff victims invested money for their retirement fund. Most of the victims had their entire life saving into their account amounting to $65 billion. Majority of them should be retired and are in their mid-60 and now they still have to work to make ends meet. “In 2008, Michael De Vita of Chalfont, Bucks County, said the $5 million retirement account he and his mother entrusted to Madoff would allow him to retire at 60.Well, I'm now 65, still working and I figure I

Although the families were reimbursed, JP Morgan Chase failed to protect their customers and caused itself to have a negative impact on its reputation. Another weakness is their inadequate IT infrastructure for the use of business operations. I think that it is common sense for the institution to have used an organization that specializes in IT, such as IBM or Microsoft. JP Morgan Chase had to cancel its outsourcing on top of its employees being put on IBM’s payroll. The employees became increasingly upset due to this matter, causing JP Morgan Chase’s productivity to suffer severely when they decided to hire new consultants to take over

had unfinished business with the regulators worldwide on their trading fiasco. For example, the bank had entered into a so called “cease and desist” order with the Federal Reserve and the Comptroller of the Currency (COC) to work out new regulator-approved processes relating to the issues about the board’s role, risk management, finance and audit identified in the internal Task Force report. And questions of fraud in the London office and inadequate SEC disclosure by JP Morgan Chase &Co. are also being pursued by government investigators.

J.P. Morgan was hunting for an opportunity to break into a prime brokerage business to broaden its influence on the market. J.P. Morgan made a well thought through decision to acquire Bear Stearns, knowing that a prime brokerage business is one of its specialties. According to CNNMoney, “200 JPMorgan staffers were working on the deal, assessing the strengths of Bear Stearns' different businesses and its exposure to toxic mortgage securities.” It is apparent that a lot of effort and rigorous research have been invested in the decision making process. On top of that, the Bear Stearns’ offering price came at a great discount as well “to provide cushion to protect J.P. Morgan in turbulent times and would provide the company ‘margin for error.’” As we can see, J.P. Morgan was well familiar with the possible consequences it may face after the acquisition and made the deal the way to protect itself in the future. In its turn, Bank of America purchased Countrywide Financial in 2008 to become “No. 1” in mortgage lending, according to then-chief Kenneth Lewis. By making this acquisition the bank achieved its goal and became “the nation's largest mortgage lender and loan servicer.” Similarly to J.P. Morgan we can see that the bank had its incentives and executives clearly understood the pitfalls of the deal.

Madoff promised their clients to invest in its investment-advisory entity, so the investors would earn returns

Bernie intently accepted large sums of funds from investors with the knowledge that he was not going to make legitimate investments with his the stackholders money. Bernie Madoff’s was conducting his business practices off of maximizing profits for himself over twenty years, which he intentialy defrauded his clients of almost sixty-five billion dollars. It is in my opinion that Bernie Madoff’s apparently knew what he was doing when he was engaging in un-ethical practices. When Madoff pled guilty to all charges in March 2009, which includes securities fraud, mail fraud, false statements, false filings with the SEC, investment advisor fraud, wire fraud, money laundering, and theft from an employee benefit plan, I believe that he completely understood that his scam would be exposed at some time.

During the financial crisis of 2008, the biggest Ponzi scheme in history was uncovered. It was run by Bernard Madoff and encompassed roughly $65 billion (Ferrell, 2009). Madoff first entered the investment business in 1960 when he started his own company, Madoff Securities (Ferrell, 2009). As his business grew, Madoffbegan employing some of his family members: Peter, Madoff’s brother, joined the firm and helped set it apart from the competition by introducing modern technology. Other family members to join were Madoff’s wife, Ruth; Peter’s niece, Shana; and both Madoff’s sons, Mark and Andrew (Ferrell, 2009). Madoff’sbusiness was flourishing, trading billions of dollars of investors’ money, establishing Madoff as a credible and respected figure on Wall Street. Madoff expanded his influence and reputation by serving as the chairman of NASDAQ for three years in the early 1990s (Ferrell, 2009). It is assumed that the beginning profits ofMadoff’s business were legitimate earnings and not based on fraud. The Ponzi scheme is estimated to have started around 1990, in order to keep up with the high 10-12% return on investments that he promised to his clients (Ferrell, 2009). Madoff’s investors were affluent, prestigious and very intelligent and they trusted him with their money. Throughout the course of the fraud, Madoff was investigated numerous times by the SEC, without any findings or actions taken. There were many individuals who suspected Madoff was running a Ponzi scheme, the

The Financial Institution JP Morgan Chase has been in several controversies allegations because of the way it done business over the past few years. JP Morgan Chase is well known as one of the biggest financial institutions based on their assets.

As long ago as 1999, an independent investigator, Harry Markopolos, concluded that Madoff’s success could not be legitimate. In 1995, he sent the US Securities and Exchange Commission a 17 page document titled: “The World’s Largest Hedge Fund Is a Fraud”. Two years later the SEC found no evidence of fraud after an investigation that seems to only involve just a little more effort than simply asking Madoff if he was a criminal or not, and then excepting his answer.

Bernard L. Madoff Investment Securities occupied 2.5 floors in the Lipstick building located in New York City. The main trading floor was on 19; the software programmers were stationed on 18 and the lucrative hedge fund operations was stationed on the 17th floor. To the traders, the 17th floor was off limits and was kept a secret. One trader recalls, “We knew it was statistically impossible [to have the steady gains for which Madoff became famous]. We always kind of wondered: How the hell does he do it?, You’d say, There couldn’t be anything bad. The Madoffs had such a name – and such an aura” (Fortune).