Bernie Madoff Research Articles

Who gets duped? The impact of education on fraud detection in an investment task

Many financial scandals appear to depend on a lack of skepticism on the part of their victims. Sophisticated investors trusted Bernie Madoff, for example, despite early warning signs of implausible returns. Our study investigates how education explains fraud detection in financial decision-making. In a simple survey, economics and finance students are asked to make an investment recommendation from among four hypothetical funds, including one based on Madoff’s fund. We use Truth Default Theory to explain our results. We show that education increases the likelihood that students are suspicious of Madoff’s fund, and that for students whose suspicions are aroused, education makes them less likely to choose the Madoff fund.

Insights into the Bernie Madoff financial market scandal which identify new opportunities for business market researchers

This article reflectively applies measurement tools to gage whether a renowned financier and champion of shareholder capitalism, in 20th century business history, might be categorized as a corporate psychopath. The article examines aspects of the career of the outstanding financial investment manager, Bernie Madoff. Psychopaths and corporate psychopaths are defined as background to the article. Gauges of corporate psychopathy and psychopathy are outlined which could be modified by market research companies to identify corporate psychopathy in organisations as a way of aiding investment decisions into such organisations. The current article concludes that insolvencies such as those at Madoff’s investment company, have been distinguished by CEOs being present who were simultaneously the lauded agents of financial market capitalism and who embodied the traits of the corporate psychopath. The examination of potential corporate psychopaths using this historical methodology helps inform ideas about what the effects of psychopathic leadership may be within economies and gives new insights into the reasons for the greed, risk taking, and unethical practices found in financial markets. Findings support the accepted view that corporate psychopaths can be discovered in senior roles in the financial services sector. This current paper provides new avenues for research offerings from market research companies. For example, business to business researchers could undertake research to identify firms more likely to be longitudinally viable, sustainable and less likely to collapse (i.e., non-psychopathic firms). Investment companies like pension funds could use such research to identify firms that are less risky, more ethical, better led, and therefore safer to invest in.

The Paradox of the Dark Side of Leadership Creativity: Analyzing Creative Pursuits, Ethical Decision-Making, and Organizational Downfalls through the Cases of Charles Ponzi, Kenneth Lay, Jeffrey Skilling, Arthur Andersen, Bernie Madoff, and Bernhard Ebbers

This journal focuses on the leadership behaviors, creative strategies, and unethical decisions of individuals such as Charles Ponzi, Kenneth Lay, Jeffrey Skilling, Arthur Andersen, Bernie Madoff, and Bernhard Ebbers. The study aims to understand how leadership creativity can be misused or unethically applied and its implications for organizations. The research design involves a secondary data desk review, analyzing case studies of these individuals to identify patterns and examine the misuse of creativity and subsequent ethical breaches. By exploring the transformation of initially ingenious ideas into detrimental outcomes, the study sheds light on the concept of the “dark side of creativity” and discovers patterns in leadership decisionmaking and characteristics that contributed to the downfall of the leaders and the organization. The research concludes that ethical decision-making is essential to harnessing the positive potential of creativity. It underscores the importance of ethical leadership, transparency, and stakeholder trust for long-term organizational sustainability. By prioritizing ethics and balancing creative pursuits with ethical considerations, leaders can enhance their effectiveness and promote organizational success. This study contributes to our understanding of the relationship between creativity, ethics, and leadership effectiveness. It emphasizes the significance of responsible decision-making and ethical behavior in utilizing creativity for positive organizational outcomes. The findings have implications for organizational practices, highlighting the importance of ethical leadership, transparent governance, and responsible decision-making processes in fostering long-term success and maintaining stakeholder trust.

Core traits of psychopathy.

There remains considerable debate as to what are the core traits of psychopathy. One approach to addressing this question is to identify the traits that are present in persons said to be actual or even prototypic examples of psychopathy. Ted Bundy, Clyde Barrow, Bernie Madoff, James Bond, Chuck Yeager, and Sherlock Holmes have all been described as being a psychopath. The current study conducted nine data collections, obtaining ratings on these six persons. Biographical summaries of each person were provided. In addition, for 3 cases (Bundy, Bond, and Holmes), participants who indicated that they knew the person well provided ratings without the biographical history. Each person was described with respect to the five-factor model, the Cleckley criteria, and additional traits from more recent models of psychopathy (e.g., boldness and fearlessness). Traits evident across all six persons were fearlessness, boldness, feels invulnerable, thrill-seeking, and excitement-seeking. However, this includes persons who would not be said to be psychopaths. The traits that were most specific to psychopathy were traits of antagonism, such as callousness, manipulativeness, dishonesty, arrogance, and cruelty. The results are discussed with respect to historical and current models of psychopathy. (PsycInfo Database Record (c) 2022 APA, all rights reserved).

E-Mail Network Patterns and Body Language Predict Risk-Taking Attitude

As the Enron scandal and Bernie Madoff’s pyramid scheme have shown, individuals’ attitude towards ethical risks can have a huge impact on society at large. In this paper, we compare risk-taking attitudes assessed with the Domain-Specific Risk-Taking (DOSPERT) survey with individual e-mail networking patterns and body language measured with smartwatches. We find that e-mail communication signals such as network structure and dynamics, and content features as well as real-world behavioral signals measured through a smartwatch such as heart rate, acceleration, and mood state demonstrate a strong correlation with the individuals’ risk-preference in the different domains of the DOSPERT survey. For instance, we found that people with higher degree centrality in the e-mail network show higher likelihood to take social risks, while using language expressing a “you live only once” attitude indicates lower willingness to take risks in some domains. Our results show that analyzing the human interaction in organizational networks provides valuable information for decision makers and managers to support an increase in ethical behavior of the organization’s members.

Who Gets Duped? The Impact of Economics and Finance Education on Skepticism in an Investment Task

Many financial scandals appear to depend on a lack of skepticism on the part of their victims. For example, sophisticated investors trusted Bernie Madoff, despite early warning signs of implausible returns. Our study investigates how education and personality explain skeptical behavior in financial decision making. In a simple survey, economics and finance students are asked to make an investment recommendation from among four different hypothetical funds, including one based on Madoff’s fund. We find that perceptions of the suspiciousness and ethicality of the Madoff fund affect a participant’s recommendation. In turn, these perceptions are affected by education and personality, with more education leading to higher suspicions.

Practical Applications of Analysis of Three Emerging Trends in Limited Partner Operational Due Diligence

Practical Applications Summary In Analysis of Three Emerging Trends in Limited Partnership Operational Due Diligence, from the Winter 2020 issue of The Journal of Alternative Investments, author Jason Scharfman (of Corgentum Consulting) details three ways in which institutional investors (known as limited partners, or LPs) have increased the operational due diligence (ODD) they do on alternative investment fund managers (known as general partners, or GPs). ODD is the process by which LPs analyze the potential for investment losses due to inadequate processes, failed systems, or fraudulent behavior among GPs. Prompted by high-profile instances of fraud committed by fund managers (like Bernie Madoff) and increased regulatory requirements, LPs have improved their ODD by expanding its scope (the number of risk factors evaluated), depth (the amount of detail requested), and integration with investigative due diligence (such as criminal background checks on fund managers). To help coordinate and ensure the quality of this expanded ODD, some LPs have stopped outsourcing investigative due diligence to third parties and brought it in-house to help integrate it with ODD. Eliminating the middleman in this way helps focus the investigation on what is most relevant to the LP while containing costs as well. TOPICS:Real assets/alternative investments/private equity, legal/regulatory/public policy

Capitalism, Kinship, and Fraud

Investment broker Bernie Madoff ran what is still considered the largest Ponzi scheme in history, defrauding thousands of investors over a 20-year period of more than $20 billion. He worked his game almost entirely through kinship connections—relatives, friends of relatives, and relatives of friends. The relationship between kinship and capitalism has drawn renewed attention by anthropologists, part of a broader effort to rethink capitalism not as a free-standing ‘economy’ but as deeply embedded in a wide range of social relations. In this article I use the Madoff case to illustrate, and develop further, several aspects of the kinship/capitalism connection. I also consider briefly the boundary between fraud and ‘legitimate’ capitalism, which many economic historians consider a fuzzy boundary at best.

Bernie Madoff After Ten Years; Recent Ponzi Scheme Cases, and the Uniform Fraudulent Transactions Act

December 11, 2018 was the tenth anniversary of Bernie Madoff's arrests, but Ponzi schemes and the courts efforts to address them and to recover funds for defrauded investors continue. In many cases, the courts are using the state-law equivalents to the Uniform Fraudulent Conveyances Act or the newer Uniform Voidable Transactions Act as cases in Colorado and California did in December 2018. In the meantime, the Madoff trustee has made significant recovery for the investors defrauded by Madoff's Ponzi scheme.

Selling the American Dream: What the Trump University Scam Teaches Us about Predatory Colleges

Selling the American Dream:What the Trump University Scam Teaches Us about Predatory Colleges Robert Shireman (bio) classic scams usually revolve around products that are difficult for consumers to assess: the effectiveness of a medical procedure or drug; the integrity of an investment vehicle; the value of a gemstone; the authenticity of a work of art or historical artifact. Frequently, outright deception is not necessary for a con to be successful, because marketers have become experts in crafting sales pitches that play on "modern enticements and anxieties," creating messages that are misleading but without a stated untruth (Balleisen 2017, 174). Since the consumers seem to make their choices voluntarily, holding "unrealistic hopes for profit, cure, and inexpensive quality," the sellers, even though they have an informational advantage, are frequently not held responsible for bad outcomes for the consumer (Braucher and Orbach 2015, 250). Nowhere is the danger of scams greater than in education. Advancing one's education is widely seen as a wise investment, even for buyers without disposable income. Taking out loans to pay for an education can be portrayed by the seller as a wiser choice than buying a car, because the car depreciates while an education yields returns for a lifetime. The buyer, meanwhile, has a role not only in choosing the education but also in attending, studying, and then seeking a job. [End Page 767] As a result, a scam school has multiple ways to portray any bad out-come—dropouts, joblessness, loan defaults—as the fault of the student rather than the school. Education exhibits a type of market failure that Yale law professor Henry Hansmann, in a seminal article, called "contract failure." When it is difficult to evaluate the quality of a promised or provided product or service, the provider can too easily overcharge or deliver inferior goods (Hansmann 1980, 845). Consumers in these circum-stances may not realize they did not get their money's worth until many years later, if ever. And it is extremely difficult to craft a contract that ensures that every aspect of the product will be delivered as the consumer expects. These "trust markets" are frequently where nonprofit entities emerge as preferred providers (Winston 1999, 14). For-profit providers in such markets find themselves in need of a way to convince consumers that they can be trusted. That signal may take the form of their institution being eligible to accept federal financial aid—or, as in the case of Trump University, the signal may be the nameplate of a prominent business figure. TRUMP UNIVERSITY SETS UP SHOP On a cold Thursday evening in March 2009, 40 local residents showed up at the Doubletree Hotel in Somerset, New Jersey, for a free introductory class sponsored by Trump University. Capitalizing on the hit television show The Apprentice, the 90-minute "Apprenticeship Workshops," held regularly across the country since 2007, were promoted in ads featuring a smiling Donald with the blaring headline, "Are YOU the next DONALD TRUMP? Come prove it to me!" (People v. Trump Entrepreneur Initiative LLC, Affirmation of Asst. Att'y Gen. Snell 2014, Ex. M2, 000388; hereafter Snell Affirmation). From the moment they walked in the door, the participants were scrutinized by a sales team trained to find ways to "set the hook" for a later sale. "Let them know that you've found an answer to their problems and a way for them to change their lifestyle," the salespeople were instructed. "Collect personalized information that [End Page 768] you can utilize during closing time," for example, "are they a single parent of three children that may need money for food? … [T]he more it hurts, the more they'll be prepared to pay for a speedy solution" (Trump University 2010, 19-20, 100, 104). The school's operations manual, unselfconsciously labeled the "Playbook" (Trump University 2010), assumed that potential customers would be skeptical. After all, the economy was in freefall due in part to mortgage scandals, and Bernie Madoff's arrest the prior December for an epic investment fraud was still fresh in the news. To "disarm any uncertainty," salespeople were told to be friendly and engaging during the registration process, taking care to keep the...

A Case Study of a Con Man: Bernie Madoff and the Timeless Lessons of History's Biggest Ponzi Scheme

A Case Study of a Con Man: Bernie Madoff and the Timeless Lessons of History's Biggest Ponzi Scheme

Introduction: Case Studies—Finance, Education, and Law

Introduction:Case Studies—Finance, Education, and Law William Deringer (bio) when does a con become a con? the papers in this section interrogate this often frustrating question by examining three institutional fields—finance, education, and law—in which matters of trust (and distrust) are particularly salient. The "con" in this question can be taken in at least two ways: as a description of a person (a con artist) or an enterprise (the confidence game). So too can the "when": it is both developmental—when in time does a scheme (or schemer) go from being legitimate, if perhaps a bit tricky or shady, to being an outright con (or con artist), and how does that occur?—and taxonomic—when conceptually does a specific venture cross the line from legitimacy to illegitimacy, legality to illegality? Diana Henriques's revelatory account of Bernie Madoff and his unprecedented Ponzi scheme offers a rich case for thinking through when a con becomes a con in a developmental sense. The question of when and why Madoff went from being a legitimately successful financier to the perpetrator of one of Wall Street's most horrific financial frauds remains the biggest mystery in the entire affair. "While we know a good bit now about how Madoff conducted his fraud," Henriques writes, "we unfortunately know less about why he did so" (750, this issue). As Henriques observes, there are effectively two standard narratives given to explain how con artists emerge. In the first story, the confidence man rolls in from out of town, unknown to the locals, [End Page 739] peddling a carefully wrought fraud, always already a fully fledged deceiver. This is the iconic image of a con artist as a "charismatic bon vivant" (755) that we might associate with the snake-oil salesmen of the nineteenth century or with Charles Ponzi himself, the Italian- born financial trickster who arrived in Boston in 1920 and gave his name to the scheme Madoff would perfect decades later. In this story, the con begins the minute the fraudster arrives in town, and there is nothing incremental or accidental about it. The question of how that individual came to be the deceptive person he or she is becomes essentially moot, because the con artist erases his or her own biographical past and fabricates an entirely new one. The second common story of how a con becomes a con is the story that such artists often tell about themselves, a "slippery slope" story of creeping transgression of the sort exemplified by Patricia Highsmith's Tom Ripley or Breaking Bad's Walter White. This is the story Madoff told Henriques, that "he 'got in a bind' and took some dubious 'temporary' steps to cope, then couldn't get out of the sinkhole opening underneath him" (750). In the first of these stories, the process by which the con becomes the con is sudden, timeless, volitional; in the second, it is gradual, historical, accidental. Henriques reveals that neither of these two standard accounts explains how Madoff became "Madoff." He never rolled in from out of town with a well-formed plan to defraud, but rather exacted his confidence scheme upon communities who had long known and trusted him. Rather than emerging from the proverbial shadows, Madoff worked in the open, generating credibility by doing business with highly visible Wall Street firms and surviving numerous SEC investigations. The confidence that his investors and counterparties placed in him was derived not from a flurry of fast talk and big promises but from a long record of fair dealing and soft-spoken success. (Part of the crooked brilliance of Madoff's scheme was that his funds promised strong and consistent financial returns, but never ones that were so high as to be implausible). But neither was his Ponzi scheme the product of a steady accumulation of minor manipulations and the gradual [End Page 740] erosions of moral scruples. As Henriques astutely points out, Madoff had exhibited a ruthless willingness to deceive since at least 1962, when he surreptitiously borrowed money to cover investors' losses when the market hit a momentary "air pocket." Madoff may not have always planned to execute the particular kind of Ponzi scheme he...

Bernie Madoff and the Crisis: The Public Trial of Capitalism

Bernie Madoff and the Crisis: The Public Trial of Capitalism

The Development of Audit Quality Indicators

Over the years, there has been much debate regarding audit quality. The industry has struggled with how to define audit quality, as well as, how to identify the proper framework and indicators for assessing audit quality. Audit quality gained even more attention after corporate scandals, such as Enron (2001), WorldCom (2002), Tyco (2002), HealthSouth (2003), American Insurance Group (2005), Bernie Madoff (2008) and Lehman Brothers (2011). These scandals shattered the publics’ opinion of the accounting and auditing profession and caused investors to question the quality of the audits performed. To date, there is still “little agreement on how to define audit quality, let alone how to measure it” (Dickins et al. 2014, 1). This paper reviews the most recent academic articles published in the top journal during 1981 through 2017. Key words: audit quality indicators; audit quality; assurance; AQI

The Madoffization of Irish society: from Ponzi finance to sociological critique.

Financialization and neoliberal policy created the Celtic Tiger. This economic 'miracle' furthered creditors' and property developers' speculative interests, leading to an unstable financial pyramid that eventually imploded in 2008 with catastrophic consequences for Irish society. Using the sociological imagination as social critique, this paper offers a lens on fictitious capital and Ponzi finance in the context of Ireland's boom and bust. Critique is advanced using the Madoffization of society thesis, a sociological heuristic that draws formal comparisons between Bernie Madoff's US$65 billion Ponzi scheme, which collapsed in 2008, and financialized capitalism. The Madoff case exhibits five main elements or forms which, it has been argued, underlie the varying content of life on a much broader scale: accumulation by debt expansion, mass deception, efforts to maintain secrecy and silence, obfuscation, and scapegoating. In conclusion, a crucial difference between the Madoff case and the Madoffization of Irish society is underscored. Discussion also moves from critique to hope amidst calls to renew sociology and transform financialized capitalism.

The use of anti-money laundering tools to regulate Ponzi and other fraudulent investment schemes

PurposeThe purpose of this paper is to explore dynamic issues relating to Ponzi and other fraudulent investment schemes to demonstrate how scammers convince victims of investment opportunities that turn out to be nothing but fraudulent. Specifically, it explores the nature of Ponzi, Pyramid, Advance fees scams and the mechanisms used to defraud unsuspecting victims of their money. The risks associated with Ponzi schemes can be gleaned in the fraud case of Bernie Madoff (1998) who had been running a Ponzi scheme in the USA for 20 years and reaping investors of their returns without ever discovering it until the business collapsed. The other notorious investment scams include “the Nigerian letter frauds” which combine the threat of impersonation fraud with a variation of an advance fee scheme in which a letter is mailed to offer recipients the “opportunity” to share in a percentage of millions of dollars that the author – a self-proclaimed government official – is trying to transfer out of his country. This article assesses the possibility of using anti-money laundering regulatory tools such as a “risk based approach” and “Know Your Customer” to protect victims of fraudulent investment schemes.Design/methodology/approachThe paper was written by analysis of primary and secondary data and by utilising newspaper reports on different types of fraudulent investment schemes and the context in which they normally happen in practice. It has also utilized case studies and relevant examples to demonstrate different typologies of fraudulent schemes and the possibility of using anti-money laundering regulatory tools to regulate them.FindingsThe findings suggest that many people who fall victims of fraudulent investment schemes such as Ponzi and advance fee fraud are not gullible but lack knowledge of their sophistication and how they operate to defraud unsuspecting victims of their savings.Research limitations/implicationsThe paper was largely a library-based research, and there were no interviews carried out to corroborate some of the data used in writing it. This minimises inherent bias in the use of secondary data sources to undertake a study.Practical implicationsThe practical implication of the paper is to highlight the inherent risks in Ponzi and other fictitious investment schemes that are often cleverly conjured to exploit ignorance of the public and defraud them of their savings. It demonstrates that while financial institutions can use their regulatory tools such as KYC to safeguard financial markets from criminal exploitation, people should be vigilant to avoid falling victims of criminal exploitation and lose their savings.Social implicationsWith globalisation, the market is awash with different types of investment opportunities, but people need to keep in mind that it has also created opportunities for criminal exploitation. Some opportunities that are being offered such as advance fee and other schemes are cleverly devised to exploit ignorance of the public. Therefore, this paper highlights the pitfalls which potential investors need to bear in mind when deciding on where to invest and how to invest their money.Originality/valueResearch on Ponzi schemes, advance fee fraud and misuse of letters of credit do not seem to have received proportionate scholarly attention as other forms of financial crimes. This paper, therefore, addresses a need in the market on many issues it relates.

The Vulnerability to Fraud: Factors, Motivations, and Fraud Detection and Deterrence

In the last two decades there have been many cases of accounting frauds or scandals, most notably the Enron and Bernie Madoff scandals, WorldCom, Tyco International Ltd., and Adelphia Communications Corporation. Fraud is an emerging global problem in private and public organizations that causes tremendous loss to the business world and creates morale problems in the workplace. Researchers and practitioners have conducted many studies to identify the fraud indicators and to build fraud prevention procedures. This paper facilitates understanding fraud as well the factors that motivate fraudsters to commit crime. The paper also highlights some detection techniques and prevention tools with emphasis on deterrence practices.

The Dialogues of Bernie Madoff's Ponzi Fraud

Bernie Madoff defrauded billions of dollars from his victims. The crime of fraud and the so called sin of greed have been with us throughout known human history. Instead of looking at mere greed as the cause for fraud, this retrospective of Bernie Madoff's fraud will examine the other reasons why, despite multiple warnings and red flags, smart savvy people who had been advised otherwise, still invested with Madoff. The culture of secrecy that Madoff constructed is deconstructed and explained as creating community. As well, the first person account of an academic who specializes in mental lapses, and who invested with Madoff, is given a textual analysis and some lapses are revealed and discounted.

Toward resolving the debate surrounding slippery slope versus licensing behavior: The importance of individual differences in accounting ethical decision making

A great deal of attention, research and print space has been devoted to the role of the “slippery slope” in corporate malfeasance. Slippery slope refers to a pattern of behavior in which small unethical infractions lead to more egregious behaviors over time. In accounting, this escalation can relate to increasing dollar amounts or engaging in different behaviors reflecting increasing degrees of ethical grayness. Much of corporate malfeasance indeed relates accounting practices: theft fraud (Wells 2000, 2001a, 2001b, 2002) or fraudulent financial reporting (e.g., AIG, 2005; Bernie Madoff, 2008; Enron, 2001; Diamond Foods, 2012; HealthSouth, 2003; Lehman Brothers, 2008; Saytam, 2009; WorldCom, 2002). More recent research on compensatory ethics in psychology and business, however, has shown conflicting findings: that performing an initial unethical act can create an internal incentive to end or curtail subsequent unethical behavior; this behavior has also been referred to as a “licensing effect”, in which bad behavior is limited in how much individuals can license and still preserve their reputation or moral identity (Beaman et al., 1983; Brown, Rennekamp, Seybert, & Zhu, 2014; Freedman and Fraser, 1966; Gino and Bazerman, 2009; Joosetn et al., 2014; Murphy & Dacin, 2011; Zhong et al., 2010). It is our belief that both theories may be found to co-exist in accounting practice depending on individual characteristics. We conduct two studies to examine the role of individual differences in instances of malfeasance specifically related to accounting practices, heretofore largely ignored in the accounting literature. In Study One, we investigate the role of locus of control (Rotter, 1966) and negative affect (Crawford and Henry, 2004; Lowe and Reckers, 2012; Watson and Tellegen, 1985). In Study Two, we examine narcissism (Johnson et al., 2013; Little et al., 1992; Young et al., 2015) and moral disengagement (Bandura, 1999; Detert et al., 2008). Findings confirm hypotheses that both slippery slope and licensing patterns of behavior will manifest depending on individual differences among the participants.

Professionalism and professionalisation ethics in business and industry

New York Times, reports, that: The financial meltdown has sent the literary-minded scurrying back to the classics for insight and succor. exploits of the Ponzi artist Bernie Madoff remind us of THE GREAT GATSBY (F. Scott Fitzgerald, 1950) or THE WAY WE LIVE NOW [Anthony Trollope, 1941] So when hard-core free-marketeers like Richard Posner (2009) started to question the efficacy of capitalism, the works of Karl Marx are being fished out of the dustbin of history. Most classical critiques of capitalism are much-mentioned but rarely read in the original, these were the kind of books that people routinely cite without really knowing what's in them (The New York Times International Edition, July 2009).