White Collar Crimes: Bernard Madoff Ponzi Scheme Term Paper

Introduction

White collar crimes are increasingly rampant today and are getting more and more sophisticated each day. These are crimes that are committed by people in respectable occupations in the course of their work. Examples of such crimes are bribery, fraud, forgery, embezzlement, Ponzi schemes, insider trading, computer crime, medical crime, identity theft, counterfeiting, extortion, currency schemes, among others (Green 5).

This discussion will look at Bernie Madoff’s Ponzi scheme, whose revelation stunned many investors who had entrusted him with their savings. A Ponzi scheme is a white collar crime in which the perpetrator encourages people to invest in a business and promises high dividends within a short period of time. The perpetrator does not invest the money but pays dividends to the old investors with the new investors’ money.

The perpetrator lies to the investors that the dividends are the profits generated from their investment. The scheme ends when there are no longer sufficient funds from the new investors to pay the old ones. The perpetrator may also end the investment and take off with the money when he feels that he has amassed enough funds.

Discussion

Bernie Madoff is an American white collar fraudster who swindled a lot of money from many investors through his Ponzi scheme. He owned the firm Bernard L. Madoff Investment Securities LLC, which turned out to be a scam. He formerly worked as the NASDAQ stock market chairman and an investment advisor and stock broker. According to Sarna and Malik (147), Madoff’s Ponzi scheme was the “longest-running and most extensive” in history.

Until his arrest, Madoff was the chairman of his firm, Bernard L. Madoff Investment Securities LLC, which he founded in 1960. He was reported to the authorities by his sons when he confessed to them that the firm was a Ponzi scheme. The 2008 financial crisis had hit his firm hard and he had no more money to pay to the investors.

The estimated amount that he fleeced his investors is sixty five billion dollars. His victims were from all walks of life including celebrities, ordinary investors, banks and charitable trusts. Madoff pleaded guilty to his scandalous crimes in March 2009. The crimes included lying under oath, wire fraud, securities fraud, money laundering, mail fraud, making false statements, making false filings and theft from an employee benefit plan. He was thereafter sentenced to imprisonment.

Bernie Madoff easily deceived his victims for a number of reasons. Firstly, his role in helping to establish NASDAQ stock exchange and his tenure as its chairman elevated his repute. In addition, his victims trusted him because they were able to withdraw their dividends without any delay whenever they wanted to.

In 2000, Harry Markopolos made attempts to expose Madoff’s scheme when he suspected that it was a scam. He reported the matter to the Securities and Exchange Commission officials but no action was taken. He went back with the same claims in 2001, but no proper investigations were carried out. If investigations were done at this time, the Securities and Exchange Commission would have rooted out the Ponzi scheme before it defrauded more people of their hard earned savings (Kotz 61).

Madoff confessed that he never invested his clients’ money but banked it in his personal account and he simply paid them out of the account when they wanted to withdraw. He also said he tried several times to go back to legitimate business but it was not possible to settle the investors’ accounts, and therefore exposure of the scheme was inevitable when he was finally unable to pay the investors.

Madoff claimed that his investment had been legal since its inception, and that he started the Ponzi scheme in the 1990’s, a claim that the investigators doubted as all evidence showed that he started the illegitimate scheme in the 1970’s.

Madoff was arrested on December 11, 2008 where he was charged of committing fraudulent crimes. He paid a bond worth $10 million and was consequently confined under house arrest in his apartment, under strict surveillance. On March 12, 2009, Judge Denny Chin annulled his bail and had him kept in remand at the Metropolitan Correctional Center because he feared that Madoff might evade justice owing to his immense influence, age, and affluence.

Madoff’s attorney’s attempts to have his client released from jail until his sentencing, by filing a petition, did not succeed as the court rejected the appeal. The lawyer further sent a letter to the judge urging him to give Madoff a 12 years’ sentence since his lifespan was envisaged to be 13 years, a request that the judge turned down. Madoff was ordered to surrender his assets amounting to $170 million. His wife’s assets, worth $85 million were also ordered to be seized.

On June 29, 2009, Madoff got a prison sentence of 150 years, from Judge Denny Chin; although his lawyers were pushing for a shorter sentence citing his old age (he was seventy one years old at the time of the sentencing). This long sentence ensured that Madoff could not be confined in a minimum security prison.

After the sentence, Madoff asked for forgiveness from his victims, though he said he knew that his apology would not help them. Madoff’s firm has been liquidated under the direction of Irving Picard and the victims of the scam have started getting their money back. The recovered money is divided among all the investors though it is not likely for them to get all their money back.

According to Barlow and Decker (198), white collar and street crimes are similar in that they both cause harm, be it emotional, physical or financial, to the victims. However, they differ in a number of ways. White collar crimes involve the selling of lawful products through unlawful practices like misappropriating funds, bribery, among others.

On the other hand, street crime includes robbery, murder, assault, theft, among others. In addition to that, street crimes are of a violent nature while white collar crimes are not. The perpetrators of street crime are usually of a low socio-economic class while white collar crime perpetrators are employed professionals usually with a glowing career reputation.

Although white collar crimes are more costly, they are not as strictly handled as the street crimes. Some of the reasons include the fact that white collar crime perpetrators are wealthy and can therefore hire the finest lawyers for their cases. In addition, very few agencies are concerned with investigating white collar crime.

The society views white collar crimes as causing less harm than street crimes because the former are not violent. Perpetrators of street crime however use violence and brutal force, and sometimes even murder their victims.

Normally, street crime perpetrators are confined in maximum security prisons because they are considered a serious threat to the safety of the citizens, while their white collar counterparts end up in minimum security ones. In addition, the penalties differ, with those for white collar crimes being lighter than those of street crimes.

White collar perpetrators get light penalties such as fines, community service or probation, while street crime offenders get very harsh sentences. (Gonzales par 5). However, recently, white collar criminals are getting very severe sentences, like imprisonment for long periods of time. For instance, white collar perpetrator Bernie Madoff got a prison sentence of 150 years. Many felt that this was a well-deserved punishment since he fleeced many people and organizations of their life time savings.

Conclusion

White collar crime is a trend that is increasingly taking root in our society. It is a fairly hard crime to detect and this calls for investors to be exceedingly careful when investing their money, lest they lose it to blatant fraudsters. Signs to look out for in a Ponzi scheme include promises of high returns on a low investment, minimizing withdrawals with promises of even higher returns, and problems in paying proceeds to the investors when the investment slows down, among others.

Investors should be wary of investment schemes, especially ones that seem too good to be true. The above discussion has looked at the concept of white collar crime, and particularly at the Bernie Madoff’s case. Comparison has also been made between white collar and street crimes to establish whether these two crimes should be classified together or whether they are disparate.

Works Cited

Barlow, Hugh, and Decker Scott. Criminology and Public Policy: Putting Theory to Work. USA: Temple University Press, 2010. Print

Gonzales, Joe. “White Collar Crime – Guide to White Collar Crimes Law.” Hg.org, 1995. 12 Oct. 2011. <https://www.hg.org/white-collar-crime.html>

Green, Stuart. The Concept of White Collar Crime in Law and Legal Theory. Buffalo Criminal Law Review, Vol. 8, No. 1 (April 2004), pp. 1-34

Kotz, David. Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi scheme: Public Version. USA: DIANE Publishing, 2010. Print

Sarna, David, and Malik Andrew. History of Greed: Financial Fraud from Tulip Mania to Bernie Madoff. USA: John Wiley & Sons, 2010. Print