Bernie Madoff's Billion Dollar Ponzi Scheme

BERNIE MADOFF'S BILLION DOLLAR PONZI SCHEME

Fall 2012 Semester

Bernie Madoff, former NASDAQ chairman, was responsible for a multi-BILLION dollar Ponzi scheme that went on for decades. He was arrested on December 11, 2008 at his Manhattan home by federal agents and charged in a 20 year Ponzi scheme, the largest fraud in Wall Street history. Madoff pleaded guilty on March 12, 2009 to all 11 felony counts, including securities fraud, money laundering and perjury. He was basically paying off yesterday's investors with tomorrow's money, and embezzling today's money. As long as new investment continued to come in the door, the earlier adopters reaped fat rewards. A Ponzi scheme can only go as far as the money can take it before the time catches up. Once markets tumbled and investors withdrew, the whole thing collapsed like a house of cards.

For something of this nature to go on for 20 years, there has to be some red flags along the way. There has to be someone in between all the phony paperwork, made up financial statements and returns that has to be liable. Accounting firms such as KPMG, PricewaterhouseCoopers, BDO, Seidman and McGladrey & Pullen all gave clean "bills of health" to the many funds that invested with Bernie. Also, Bernie was not actually a client of any of the large auditing firms. The firm he used, Friehling & Horowitz, had an office in a strip mall that was 13x18 and had only three employees, including a secretary, an accountant and a partner in his 70s who lived in Florida. Even industry experts are saying that just the size of Madoff's accounting firm should have been a giant red flag. I'm merely an amateur and I know that doesn't make sense; a multi-billion dollar investment does not equate to a hole in the wall accounting operation. After 13 years of Madoffs scheme, suspicions rose and the SEC decided to audit his operation in 2001. Shockingly, he cleared. It seems like Bernie Madoff had the right people in his pocket, because he was literally untouchable.

In conclusion, I have two approaches for the responsible parties. The first one being David Friehling, the accountant who ran the tiny auditing firm that serviced Madoff's broker firm. He was arrested and charged with securities and investment advisor fraud in 2009. Friehling reviewed internal controls at Madoff's firm, including controls over the custody of assets, and found no material inadequacies. However, the buck does not stop at Friehling, the buck stops at the top, the SEC. In my humble opinion, they are predominantly, if not solely, responsible for something like this to happen. The SEC was un/intentionally negligent for not catching a 65 billion dollar fraud over such a long period of time. The damage has already been done, and the money already spent. I recommend