Bernie Madoff Ponzi Scheme

Bernie Madoff Ponzi Scheme

The Largest Financial Fraud in History

1970-2009

PONZI SCHEME: Taking money from the new investor to give to the old investor.

THE CASE: 

The Bernie Madoff Ponzi Scheme was a 50 billion dollar financial fraud led by former businessman, stockbroker, investment advisor and financier Bernard Madoff. People were investing into funds that both didn’t exist and/or were falsely represented. Madoff had many investors into his “company” and they kept bringing in new money to pay off what people perceived were their profits. He stole from the new investor and gave it to the old investor while stealing some money for himself. This was false representation of product and services. In most cases in this situation there was no product, just deception.

HOW HE GOT CAUGHT:

Madoff was turned in by his investors who realized that the money they were apparently making didn't match the numbers on the stock. He avoided confrontation with the SEC by keeping good relations with them throughout the scandal while making false filings at the same time. He was eventually charged and proven guilty. He expected to be caught within 10 years of starting this, but since he wasn't, he continued for almost 40 years.

SENTENCING:

Madoff was sentenced to 105 years of prison on account of 11 federal felonies.

In the video attached, Barbara Walters talks about her interview with Madoff while he was in jail. He talks about how he is happier that he is in jail because is isn't afraid anymore. His son killed himself and his wife left him, but it almost seems as if Madoff is at peace with himself after committing such a horrible crime.

• http://abcnews.go.com/US/bernie-madoff-live-fraud-victims-anger-familys-tells/story?id=14823108

MAJOR COMPANIES HE AFFECTED:

• Fairfeld Greenwich Advisors--- $7.5 billion
• Tremont Group Holdings--- $3.3 billion
• HSBC--- $1 billion
• Ascot Partners--- $1.8 billion
• Banco Santander--- $2.8 billion

These are just a few of the thousands of people that his scheme affected. The many people who lost money to him are expected to receive about 70% of their money back.

HOW HE AFFECTED SOCIETY:

• Made people lose trust in investment companies
• People started to not trust other companies because they didn't think they were real
• The people involved lost a lot of money

Madoff kept this scheme going on for so long and affected so many Americans including charities, universities, companies and people. He deserved to have a life sentencing of jail, but he proved to be a brilliant man by having this scheme last for so long. As said earlier, he expected to get caught within 10 years of starting this and it lasted for 39 years. No other person has kept a scheme going on for that long in history. Although he is a criminal and deserves to spend the rest of his life in jail, he did make history for the length that this scheme went on. Society learned from this that we need to be more aware about where we put our money because we don't really know what this person is doing with it. There is no law that can stop this from happening because it is already illegal to perform a crime like this, but the SEC has become more aware of the problem, and is starting to catch more people who are participating in this. 

Frank Abagnale's 50 Year Relationship with Fraud

Introduction to Frank Abagnale, Fraud, and Check Fraud
Fraud is when trickery is used to gain a dishonest advantage, which is often financial, over another person. It comes in many different forms ranging from financial fraud to pharmacy fraud. Forgery is the creation of a false written document with the intent to defraud.


In the late 1960’s Frank Abagnale was wanted by the FBI for stealing millions of dollars by forging checks and for masquerading as numerous professionals including; a Pan Am pilot, a pediatrician, an assistant Attorney General, and a BYU professor. By the time he was finally caught he was all of 21 years old. Despite everything Abagnale stole and did he was very careful to attack large corporations instead of private people. This isn’t to say fraud doesn’t have a huge impact on corporations but fraud can be devastating for individuals.


Frank Abagnale Now
After 5 years in prison The FBI arranged to shorten Abagnale’s prison sentence if he’d agree to work in their check fraud department. His legitimate life has certainly been different than his teen years. He's been working with the FBI for the past 35 years and he's also started his own business that helps other businesses and corporations prevent fraud. To his credit he paid back every penny he stole in his life as a con artist and made sure each dollar went to the appropriate place. Abagnale is still considered one of the most knowledgeable people on check fraud and he is responsible for the development of the Stanford Uni-ball 207 "forgery proof pen" which can't be touched by any of the chemicals or solvents used to alter writing on checks, check washing. He has written books on his 5 year adventure as well as on how to protect yourself against fraud. The movie "Catch Me If You Can" starring Leonardo DiCaprio was based off of Abagnale's book, and Abagnale frequently speaks about fraud at different events around the U.S. 







Impact of Fraud on Society
In the past few years fraud in society has really changed. The average person doesn't have to worry about the Frank Abagnale's of the world too much, but we should still be concerned about fraud; particularly identity theft and check forgery.

With the advancement of computers and credit cards fraud has become more prevalent than ever. Identity theft has become a large problem, more than ten million people have their identity stolen in the U.S. a year. For perspective ten million people is roughly the population of Belgium. Its very easy for thieves to obtain your information and for them to use it against you; you can be denied a loan or a mortgage, because of identity theft. The Federal Trade Commission defines 6 different ways thieves steal identities; dumpster diving, skimming, phishing, changing your address, pretexting and standard stealing. Simply keeping an eye on your bank and credit card statements can help you reverse the theft quickly in the event your identity is stolen.

Another kind of fraud to watch for is check forgery. Check forgery nearly disappeared for a couple decades, because bleach was the only chemical used in altering checks. Criminals eventually found two dozen compounds capable of removing ink. The Stanford pens have been very effective against this kind of crime, but check forgery is still widespread. Now anyone can cheaply download check writing software and drop the image of someones signature into the signature box. Check forgery is very serious and its a growing issue. It's estimated that Americans loose more than 20 billion dollars a year because of check fraud. This is four times the amount Americans were loosing 18 years ago.

The saddest part about fraud is that it is very rarely prosecuted. As technology advances, the way we protect ourselves must also advance. We must be flexible, and remember that very few thieves repay what they stole as Frank Abagnale did. People have to monitor their finances and protect themselves as best they can, because once their money or identity is stolen chances are it will be very difficult to retrieve.

Enron's Impact on Society

Courtesy of  Sara Robertson (Flickr)

"The collapse of Enron was devastating to tens of thousands of people and shook the public's confidence in corporate America."

-Robert Mueller (FBI)


To state it simply, Enron was a massive company with a massive stake in many world markets. To really get a firm understanding on just how big Enron was, you could look at modern day Google. Google started off as a small start-up company with a failing search engine behind AOL and Yahoo. Not long after it was created, it became the largest search engine in the world with ten times more functions. Google didn't stop there. Currently it has made a stake in phones (Droid), video (YouTube), TV, email, cars, and much more. Where does it stop? Google owns the very blog that I am writing on right now.  Now, it's stock price is well over an astounding $600 a share. Now as you look at Enron, instead of being on the world wide web, it started off as a gas company that craved expansion. It became greedy, too big for itself and held too much debt. This was the root for one of the most impactful collapses of a company in history.




The Rise of Enron

Enron was created in 1985 by Kenneth Lay by the merging of Houston Natural Gas and Internorth. In its earlier years Ken Lay and Enron had made a lot of money off of their natural gas pipeline system. But they wanted more revenue, just like any other business. So they expanded their natural gas company into an energy company. In 1995, it held one-fifth of the gas market in North America. To add, Ken Lay recruited Jeffrey Skilling to his booming company in the early '90s, who then became president in 2001. By the turn of the century, Enron (like Google) had a stake in electrical power, coal, steel, fiber-optic cables, and more, in addition to its original gas business. It even expanded its gas trading business on the internet, with EnronOnline. Enron also joined the fun internationally. During the '90s, its stock rose 311%. Its stock was priced at close to $90. Everything looked great, but on the inside these investments caught up to them. On the books, Enron's earning were 70 times less than what was being portrayed to the public. In actuality, the reported number was their projected numbers, not what they had. That was a big problem.


Bankruptcy and Scandal


Andrew Fastow, the Chief Financial Officer, was the antagonist for the fall of Enron. He was responsible for making his company have the ability to diverge their financial failures away from potential investors. The way that he did this was by physically keeping debt off the books by moving it to special partnership companies. The time of truth came about in October 2001. Enron's value was reported to be $1.2 billion less than it had publicly portrayed. The company that relied on making money from capital and the stock market, wasn't credible anymore. Enron down from a high of $90 per share, was now around a penny. Shareholders in total lost tens of billions. The people at the top of Enron, including Fastow, Lay, Skilling and their families and relatives made billions off of stock options from their involvement with the company. With nothing left to do, Enron filed for Chapter 11 bankruptcy in-order to, "preserve and enhance its liquidity, stabilize operations and restore relationships with business partners". It was clear that Enron, though corrupt, was desperate to regain its credit. Sometime during this period, an S.E.C. investigation was launched to see the validity of Enron's bankruptcy. Ken Lay quit as C.E.O. along with the other top Enron officials. Lay died soon after, but the other officials were still alive and well enough to be tried federally. Skilling was charged with 24 years in jail for fraud, conspiracy, and more. Fastow, ironically was sentenced for six years in jail, only because he cooperated with the government. As Enron continued to make an outrageous amount of money suspiciously,  nobody seemed to ask any questions. But when the questions started to come, there was no possible way for survival. Ultimately, Enron defrauded its investors, and only made money by manipulating people with intent to do so.

Ken Lay, Former CEO and Founder

How did the Enron Scandal impact and affect society?


At the time, the fall of Enron was the largest the world had ever seen. This resulted in a financial shock wave across the United States economy. The results that came out of the Enron scandal seem endless, but here a couple of the main ones:


1) Economic Setbacks

• From 2000-2002, publicly traded companies lost value of around $7 trillion 
• Investors of Enron lost $60 billion in market value
• Partners of Enron lost billions of dollars
• Led to fall of many other high-profile companies charged with fraud

2) Employees

• More than 20,000 employees lost their jobs
• $2 billion lost in pension money
• 401(k) loss
• retirees and long-standing employees lost all of their money
• many families lost of all their money

3) Change in the Auditing World

• Arthur Andersen
• company who audited Enron, charged of obstruction of justice after fall of Enron for shredding documents of Enron's financial woes 
• surrendered CPA licenses, lost billions of dollars and jobs
• The following year, publicly traded companies spent an average of $2.3 million more on auditing than previously

Courtesy of Flickr

3a) Sarbanes-Oxley (Sarbox)

• SEC created new law called the Sarbanes-Oxley law requiring a company's executives to certify financial information, set up audits of internal accounting by the SEC 
• largest modification of  securities law since Great Depression
• creation of Public Company Accounting Oversight Board

This fall occurred because the top officials at Enron, along with giving themselves hefty stock options, mismanaged their company. Without a doubt, the business environment and stock market after this occurrence was strained. Say for example, you personally had stock in Enron, your shares one day would be worth in total, many dollars. All of the sudden in less than 24 hours, it's worth a few pennies. The criminal trial of the company equivalent to the size of Google today, Enron, changed the way companies had to be audited and managed forever. 


***Even the rich have to follow the rules.***





"Hot" Rod Blagojevich Not So Hot

On December 23, 2008 our former Governor, Rod Balgojevich was arrested on corruption including the attempt to sell President Obama's old senate seat. According to the Chicago Tribune, the former Governer was elected to end the corruption in Illinois that former Governor George Ryan started, who was convicted of corruption. Of course we know now that Blagojevich will be going to prison for 14 years. It does not sound like that Rod completed his goal. It sounds more like he made it worse.

According to the Huff Post, Blagojevich's trial first began on June 3, 2010. This ended up becoming a very long trial that lasted several months. Several jurors may have known the guilt of Blagojevich, but unless the information presented in court is enough for a guilty verdict, then Blagojevich remains not guilty. In my opinion, it would be a tough job for me, and probably for anyone, to be a juror for this trial. This is because we have been watching our former governor drag our state through hell and corruption through his terrible legacy as governor. That is something that many jurors cannot put behind them to make it a fair trial. Not to mention that throughout the trial, Blagojevich continued to lie and stick with his rediculous lies. The jury, for sure, knew how pathetic the words were coming out of the former governors mouth.

A blog by Natasha Korecki states the quote that Judge Zagel said to Rod Blagojevich. "In the United States, we don't much govern at gunpoint," Zagel said.

"We require willing ... participation. This happens most easily when people trust the person at the top to do the right thing most of the time and more important than that to try to do it most of the time. When a state senator takes a bribe, that's one person out of 59. You are not to be compared with those who hold lesser positions in government. You, as a governor are seen to control all of them, though I concede in practice you don't....When it is the governor who goes bad, the fabric of Illinois is torn and disfigured and not easily or quickly repaired. You did that damage." 

It is certain with all of the problems in our state, that Mr. Hot Rod is just a typical Illinois governor along with George Ryan. When people are at high authority, they carry a great responsibility that is owed to the people. Wanting to be governor, or any leader of any sort, is wanting to make the people around you successful and give a guidance along the way to success. Mr. Blagojevich only destroyed the whole idea of leadership. He took the great responsibility that he owed to the people and used it to only benefit himself and his family. This is simply a sign of selfishness and irresponsibility. This irresponsibility and selfishness only led to his arrest and 14 years in prison.

It doesn't pay to lie, cheat, and steal. In fact it cost the former governor a lot of money and more importantly time. He loses 14 years of his life to spend taking care of his family and being a father to his daughters because he will rot in prison. The moral of Mr. Blagojevich's story is to never challenge the authority of the United States court system. The plea bargaining for a white collar crime like this were probably worth a lot less than 14 years in prison. A more important way to look at this is, what kind of shape would the state of Illinois be in if Blagojevich had never been elected? We will never know as we can't change the past, but people now realize to never fully trust the high power of our Illinois government. In this case, the criminal justice system worked well for our state. Future leaders of our state, and any other business, now know to not use their position benefit their personal life. Instead to fix the damage of our state and make it the prosperous state it should be.

Minors, Know Your Rights!

According to a survey given to minors about their rights and laws, we have come to the conclusion that minors need to become more educated on what the law is. So we put together a prezi presentation to do so. Throughout the prezi we educate minors regarding emancipation from several articles and a video, being arrested and prosecuted along with juvenile detention centers also from articles and a video.We also got plenty of information on the basics of minor law. In the prezi there is also information from an interview with a child advocate lawyer. For the best view of our presentaion click on more and then full screen!

Students Need to Know: Copyright Laws

After questioning students around our high school on crucial information regarding copyright laws, it was quickly evident that students are not as informed as they should be. We took it upon ourselves to make a video meant to educate students on pertinent information so that they can avoid copyright infringement.

Contract Law Manual

Welcome to the Contract Law section of the Spartans Mean Business blog. The fact that you’re on this page leads us to believe that you wish to learn about contracts... either that, or you’re trying to get out of a bad Real Estate predicament. With any sort of field that involves experience, what one needs is not a shallow memorization of the jargon and rules that comes in the package, instead, one needs to fully understand the inner workings (especially if they wish to beat the system). While we cannot guarantee that we will give you a full understanding, this manual will hopefully provide you with the bare essentials necessary to start.

I. What is a Contract?

 

From the Dictionary

con·tract [kon-trakt]

noun

1. An agreement between two or more parties for the doing or not doing of something specified.

2. An agreement enforceable by law.

3. The written form of such an agreement.

4. The division of law dealing with contracts.

Contracts are not only essential trademarks of business, they are the main means by which people can guarantee results from their transactions. In essence, a contract is a written agreement between two parties (which can range from corporations to entire countries) that sets the guidelines and expectations of both involved. The principle of framing the contract is based on mutual benefits; both parties are attempting to benefit as much as possible from each other, while keeping costs to a minimum and satisfying everyone involved.

When it comes to actual contract-building, however, not everyone is as cooperative as they should be. The key word when making a contract is “benefit”, and human nature dictates that if you can rip someone off scott-free, you’re probably going to go through with it. Luckily for you, you don’t have to feel bad about it because the other side is probably trying to do the same thing. That is why, for the sake of diplomacy, it is important to understand the inner-workings of contracts and contract law. By gaining mastery and confidence in your contract building, you can avoid loopholes, ambiguities, and misinterpretations and, as a result, fully trust your fellow party while working out the kinks that might threaten your deal.

II. The “How to”

 

A typical contract follows a general format. Though wordings can come in many different flavors, how a person chooses to spice up their agreement is usually up to personal taste (though it’s always good to be careful with your wordings to avoid misinterpretation). What’s more important to understand is what needs to be included, content-wise, in the contract.

 

Some helpful tips

1. Contracts usually start out by naming the people, businesses, entities, and etc. involved. The contract itself must first be legal, meaning that all parties involved must have the capacity to sign legally and provide what they state they will.

2. Usually, the intro will also describe what each person does (their job and what business he or she is in) and the services, employment, or products being offered.

3. A contract will then lay out (in painstaking detail) the conditions of the agreement, including things such as how much both sides will be paid, how high the quality of the work will be, how long the contracting period will last, or how copyright or licensing rights will be distributed, among a number of other potential topics.

4. A part of the contract must be devoted to “representations and warrants”. In the “representations” part, the parties involved must certify that they represent their company, person, organization, etc. as well as what they are offering and their terms. With the “warrants” the parties guarantee that they will live up to the terms set in the contract.

5. Contracts must have provisions in the case that the product or service offered does not meet expectations. The rights to set off specifies what the affected party can do and what they will receive. A good contract will also have provisions in the case of Force Majeure, or happenings out of human control such as war or natural disasters.

6. Jurisdiction and bylaws. Essentially, if a dispute between the two parties is taken to court, this section of the contract will specify which state’s laws will apply and how the dispute will be resolved (Most contracts will resolve disputes via arbitration).

7. Finally, the two parties must sign the contract, finalizing the deal and legally binding them to their commitment.

 

III. Wordings, Loopholes, and Disputes

Though contracts have proven themselves to be more useful than not, despite the restrictiveness and painful formality, one of the aspects that continually proves to be the most irritating is wording. As clearly demonstrated by Michael Bloomberg, even the smallest wording mistakes could potentially be used as loopholes.

Ideally, a well written contract should not have any loopholes. As human efficiency would have it, most contracts are not. Grammatical errors in a contract could potentially be debilitating if the opposing side discovers them, however if one of the parties is too egregious or aggressive in pressing the issue of a minor error, chances are the judge will intervene to prevent the breaking of contract. Additionally, most contracts will have a provision at the end that exonerates simple faults.

There are two cases in which a fault can be enforceable. First of all, if an incorrect legal terms is used, be it in the wrong context or with the incorrect definition in mind, a misinterpretation can be pressed. For a glossary of legal terms, click here.

The place where most contracts are broken is under the “representations and warranties” section. If one of the parties does not follow through with their guarantees, the contract can be dissolved and the opposing side can pursue the breaking party for damages.

Some useful tips

IV. Real-Life Examples

Contracts are pretty much everywhere; any legitimate, enforceable interaction will probably use a contract whether it is written, implied, unilateral (one-way promise), bilateral (mutual benefit), or forced by law. Do you own a cell phone? Then you are under contract. Even small, everyday could be considered contracts in a way. If someone posts a reward for a missing object, they are obligated by a sort of implied contract to pay the person who finds their object.

Having trouble starting your contract? Never seen one before? Here are some different categories of contracts for you to look at to help you get started:

• Real Estate Agreements
• Leasing, Rentals, or Tenancy Certification
• Employment Agreements
• Credit Collection
• Loaning and Debt
• Sale (merchandise or services)
• Cohabitation, Marriage, and Divorce
• Wills
• Arbitration Agreements
• Non-Competition Agreements
• Affidavits
• Permission for Use of Copyright