Home Work # 1: Group Members

Home Work # 1
GROUP MEMBERS:
 Abdul Wasay (2018-BBAE-001)
 Faisal Shuja Hashmi (2018-BBAE-008)
 Muhammad Haziq (2018-BBAE-031)
 Muhammad Haris (2018-BBAE-037)
 Hafiz Talha Tahir (2018-BBAE-038)
 Muhammad Ali Aftab (2018-BBAE-040)
Semester: 7th BBA(Evening)
Submitted To: Mr. Shehzad Ahmad

Contents
Question No. 1:............................................................................................................................ 1
Question No 2:............................................................................................................................. 2
Question No. 3:............................................................................................................................ 3
Question No 4:............................................................................................................................. 4
Question No. 5:............................................................................................................................ 4
Question No. 1:
Write down the summary of whole case in your own words.
Answer:
Bernard Madoff was the money manager who executed the largest Ponzi scheme is
history by defrauding thousands off his investors. He told his investors that he will invest
their money and will give them above average returns. But in reality, he was paying one
investor by collecting money from another investor. After being fooled his investors for
20 years global financial recession hits the Madoff’s Ponzi scheme and the pyramid of
investors collapsed. 13,657 customer accounts were found in the systems of Madoff
securities. Madoff approximately stole more than $50 Billion from his investors.
Madoff ran the Ponzi scheme so perfectly that SEC investigated Madoff several times
but found no evidence of wrong doing in the Madoff Securities. Madoff wave many red
flags to authorities but authorities were unable to do anything against him because he
had strong connections in Wall Street and SEC. Furthermore, it was too time consuming
to actually review the data to verify the trades made by Madoff.
Madoff’s family members were working on the executive positions in the company and
were serving the Ponzi scheme. Few of the members were aware about the fraud but
Madoff’s sons Andrew and Mark claimed that they were unaware about the Ponzi
scheme although Andrew was The Director of Trading and Mark was The Director of
Proprietary Trading.
1
Many Jewish charities, universities and famous personalities were in the investors list of
Madoff. Many of his investors lost almost all of their assets because of this Ponzi
scheme.
On March 12, 2009 70 years of Bernard Madoff was sentenced guilty to all felony
charges against him and faced a sentence of as many as 150 years in prison. Mark
Madoff hung himself in his Manhattan apartment because of many lawsuits were also
filed against him because of his father’s fraud. Andrew Madoff died because of mantle
cell lymphoma cancer in the age of 48. Soon authorities arrested all the persons
involved in this Ponzi scheme and give them punishment according to their crimes.
Furthermore, J. P. Morgan was also fined because it had failed to notify government
regulators about Madoff’s Ponzi scheme.
Bernard Madoff died in prison and no one from his family attended his funeral.
Question No 2:
Trust is extremely important in business transactions. Greed also plays a role in
some business transactions. Discuss how these two concepts were intertwined
in this case.
Answer:
Trust is a very important factor in business transactions. Sometimes greed can give
abnormal profits in business but greed will not help you in long run. In this case,
Bernard Madoff’s greed for wealth led him to the largest Ponzi scheme of history. He
promised to give his investors above average returns on their investment by investing
their money. But he was collecting money from one investor and paying interest to the
2
other investor by using the same money. By doing this he abandoned the trust of his
investors who gave him their investment. His company was also found guilty for
involving in other untrustworthy activities like closed trading system, difference between
Madoff’s trading volume and actual volume. Because of his greed he approximately
stole more than $50 Billion from his clients.
Question No. 3:
Describe a Ponzi scheme. Find several examples of other Ponzi schemes that
have occurred in recent years.
Answer:
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little
risk to investors. A Ponzi scheme is a fraudulent investing scam which generates
returns for earlier investors with money taken from later investors.
Following are some examples of Ponzi Schemes that have occurred in recent years: -
Mutual Benefit Company in Florida was shut down by SEC in 2003. They did a scam of
$1 Billion affecting 28,000 investors. Mutual claimed it used the money to pay viatical
settlements to HIV patients. Peter Lombardi was behind the Ponzi Scheme and is now
serving a 20-year prison sentence.
In May 2006, James Paul Lewis, Jr. was sentenced to 30 years in federal prison for
running a $311 million Ponzi scheme over a 20-year period. He operated under the
name Financial Advisory Consultants from Lake Forest, California.
3
Question No 4:
In this case, it appears that Madoff had many friends and family members who
were involved in the fraud. Speculate about how likely it is that Madoff’s own
sons, who were employees of the firm, knew nothing of the fraud, as they stated.
Answer:
The case states that all the activities of Ponzi scheme were done on a separate floor
totally isolated from all other business activities. The statement can somehow justify the
speculation that both of the sons would have been totally unaware of all the fraud done
by their father and were treated as employees with no stakes in the Ponzi scheme and
all the fraud. They may not have been trusted by their father much to be involved in the
fraudulent scheme.
Further the suicide of his elder son can also account for justification for speculation
because he was ashamed for what his father has done and couldn’t handle the false
accuses against him and his family.
Question No. 5:
Explain the ethical issues associated with running a family-owned business.
Were these issues present at Madoff’s firm?
Answer:
Family-owned and operated businesses certainly bring people in from the outside to
work and to advise. Much more often, however, such businesses are operated by and
employ husbands and wives, children and stepchildren, brothers and sisters, parents,
aunts and uncles and cousins.
4
The major aspect with respect to ethics in a family-owned business is major positions
occupied buy main family members, some personal ethical problems and people trying
to cash out and transparency of information among members along with proper division
of profits.
Madoff’s firm had major executive seats assigned to his sons, brother and niece.
Moreover, it seemed that information within the organization was transparent to all
stakeholders but it was not.

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Home Work # 1

 Abdul Wasay (2018-BBAE-001)

 Faisal Shuja Hashmi (2018-BBAE-008)

 Muhammad Haziq (2018-BBAE-031)

 Muhammad Haris (2018-BBAE-037)

 Hafiz Talha Tahir (2018-BBAE-038)

 Muhammad Ali Aftab (2018-BBAE-040)

Semester: 7th BBA(Evening)

Submitted To: Mr. Shehzad Ahmad

Write down the summary of whole case in your own words.

to actually review the data to verify the trades made by Madoff.

regulators about Madoff’s Ponzi scheme.

Trust is extremely important in business transactions. Greed also plays a role in

stole more than $50 Billion from his clients.

have occurred in recent years.

risk to investors. A Ponzi scheme is a fraudulent investing scam which generates

serving a 20-year prison sentence.

name Financial Advisory Consultants from Lake Forest, California.

accuses against him and his family.

Explain the ethical issues associated with running a family-owned business.

Were these issues present at Madoff’s firm?

aunts and uncles and cousins.

stakeholders but it was not.

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