Corporate Governance & Business Ethics Case Study

Madoff Scandal: A Blow to Investor Confidence

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Abstract:
Madoff, a former Chairman of Nasdaq stock exchange and founder of Bernard L Madoff Investment Securities, attracted a large number of investors by offering attractive steady annual returns of around 12%. Many charitable organisations, international banks and individual investors became its clients through feeder funds. Everything was running smoothly until December 2008, when due to the financial crisis, many investors demanded a withdrawal of money forcing Madoff to reveal his $50 billion Ponzi scheme. On 11 December 2008, the FBI arrested Madoff on a securities fraud charge and the federal court froze his assets. The case discusses the impact of Madoff's Ponzi scheme on his clients and the failure of the chief regulatory body, Securities and Exchange Commission, to reveal the scam much earlier. The case provides valuable lessons for investors before they invest in an investment securities firm.

Pedagogical Objectives:

The case attempts to achieve the following pedagogical objectives:

• To analyse Madoff's Ponzi scheme and its global impact.
• To analyse the losses incurred by victims and the failure of regulators to expose the scam.
• To discuss the lessons learnt from such a scam.

Keywords : Madoff, Investors, Hedge funds, Ponzi scheme, Banks, SEC (Securities and Exchange Commission), Scandal, HSBC (Hong Kong and Shanghai Banking Corporation), Charities, Victims, Risk assessment, Investor confidence