Every business has an ethical responsibility not only to stakeholders but also to culture most importantly. This responsibility should maintain line with stakeholder interest and society's welfare. The federal government and regulators have a responsibility of making certain firms follow these ethical objectives. Failure to do so can lead to losses which will not only have an impact on stakeholders but contemporary society most importantly. The financial scams which was experienced in Bernie Madoff Purchases in america is a definite exemplory case of the losses which might be incurred anticipated to failure to observe ethical responsibility by firms. Bernie Madoff run his company, Madoff Investments within an unethical way which resulted in severe implications to stakeholders and world most importantly which incurred losses amounting to billions of us dollars. Although he was later arrested and punished for the crimes, his victims never have been able to recover from the financial loss incurred and several developed health issues associated with stress and depressive disorder over the effects of the scandal.
This paper will measure the Bernie Madoff financial fraud with regards to honest responsibility of organizations. The financial scam utilized by Bernie Madoff will be examined at length and the consequences on stakeholders and culture discussed. The honest responsibility which firms have with regards to their stakeholders and culture will also be analyzed in the paper. Finally, the measures that ought to have been considered by the federal government and regulators to prevent the Bernie Madoff scandal and other succeeding financial scandals may also be layed out in the newspaper. The discussed issues will be summarized by the end of the newspaper.
Business ethics can be an essential requirement of any business environment since it means that the objectives of firms are achieved in ethically satisfactory ways. In addition, it ensures that companies perform their honest responsibility towards contemporary society in order to guard its welfare. Businesses are expected to take on activities in a legal way which conforms to concepts such as prudence, honesty, full disclosure, sociable and environmental responsibility amongst others. They are also expected to operate in way which is environmentally and socially friendly to the neighborhood community and modern culture. Failure to comply with honest requirements is usually damaging to various get-togethers involved in the business activities. These include the shareholders, community, administration, suppliers or other get-togethers that have a stake in a business.
Bernie Madoff can be an American investment adviser and stock broker who run Madoff Investments in an unethically appropriate manner. He used the company as a leading to commit a Ponzi system which fleeced traders of over $65 billion (Arvedlund, 2009). This has been thought to be the major Ponzi scheme ever. Madoff grew up in a humble qualifications and he proven the Madoff Assets Company with support from the father in law. One or two relatives and buddies members also reinforced Madoff with the functions and progress of the business. Madoff used the profits from investment to support several charitable and politics causes which his organization presumed in.
However, in 1999, there is concern that the profits created by Madoff Purchases surpassed the normal income expected from a firm in that venture. Markopolos, a specialist in investments prepared the exchange commission that it was not possible to attain the level of profits which were attained by Madoff Investments which is possible that the firm engaged in scam. Several investigations were undertaken through the next couple of years and in 2008, Madoff was unable to pay earnings demanded by buyers. It was then that he accepted that his investment program was a Ponzi structure and he was later priced in judge with scam. Madoff was sentenced to 150 years and happens to be portion his term. This paper will further discuss the Madoff securities scandal with reference to the honest responsibility which organizations have against stakeholders.
Bernie L Madoff investment scandal
Madoff undertook financial fraud through misrepresenting the nature of his business to traders and motivating them to invest in his company. Madoff founded a business, Madoff Assets which handled investment of securities and stocks. He began working with a capital of around $50, 000 however in a decade, this sum experienced increased to hundreds of millions of dollars (Fred, 2009). Potential traders saw the business as successful and they invested vast amounts of dollars in the business. However, Madoff did not deal totally with financial assets but he carried out a Ponzi program, with the financial investment as leading. He used assets by new shareholders to pay profits to prior shareholders without really making profit from the capital spent. It's important to comprehend how Ponzi strategies work to be able to make clear Madoff's strategies. Ponzi strategies are financed by capital from following investors. For example, if entrepreneur A committed to 2000 and buyer B committed to 2001, Madoff used the administrative centre invested by trader B to protect for the comes back of investor A. Trader B's earnings would consequently be paid by capital spent by a new investor, C and son on (Fred, 2009).
In order to cover for the financial fraudulence, Madoff used the financial investment funds as a entry for his fraud. He falsified return forms of buyers and gave dividends according to pre-determined rates to avoid nurturing suspicion. These comes back, as discussed, were financed by capital from succeeding traders. A computerized program was used to falsify the accounts and ensure that they balanced, to avoid suspicion from financial regulators. However, several people lifted suspicion with the huge comes back associated with Madoff Investment funds. It was seen as impossible to earn such high returns from trading in financial securities without engaging in scam. In 1999, the first suspicions were brought up although it got over ten years for the Ponzi design to be uncovered. It has been blamed by inefficiency by financial regulators and the US government. Effective investigations would have unearthed the scandal within the first five many years of operation.
However, as is normal with Ponzi plans, it collapsed. These strategies collapse when profits required by previous investors surpass the investments made by new investors (Beach, 2007). When this occurred to Madoff Ventures, he confided to his family that the investment firm was a just forward for conducting fraudulence through the Ponzi program and it did not in fact are present. One of is own sons reported this to the authorities. This resulted in his following arrest and he was recharged in court. He pleaded guilty and received a sentence of 150 years. His family, including his partner apologized to the public although their jobs in the scandal were further investigated plus they were cleared. Madoff happens to be offering his term.
Ethical issues regarding Madoff investments
It has been discussed in the benefits stage that companies are expected to carry out their affairs in ethically appropriate ways which comply with social values. Businesses are expected to conform to guidelines such as prudence, credibility, full disclosure, public and environmental responsibility amongst others (Diller et. al. , 2006). They are also expected to operate in way which is environmentally and socially friendly to the neighborhood community and population most importantly. Ethics usually dictates just how business undertake their businesses and it is dependant on organizational aims, any professional ethics and federal government regulations when working within the business environment. Firms usually follow business ethics to meet the needs of stakeholders while safeguarding the welfare of society (Beach, 2007).
There are various moral issues which arose during the Madoff scandal and which are contrary to ethical requirements of businesses. Among these issues is scams. Companies are not likely to engage in scams since it is not only against business pursuits, but additionally it is illegal under law. When Madoff and his staff engaged in fraud, they broke the ethical responsibility towards organizational stakeholders and likewise, they dedicated a criminal offense. This resulted in his jail word of over 100 years. The second honest issue which arises when studying the Madoff case is misrepresentation. Businesses must follow the honest responsibility of full disclosure to all or any organizational stakeholders (Fred, 2009). Misrepresentation isn't just a breach of ethical requirements but additionally it is a offense. Madoff misrepresented the status of his firm's money and a fake notion that it was making money. This is what attracted the thousands of traders to Madoff Opportunities. Misrepresentation also allowed Madoff escape detection from financial regulators although there is suspicion on his illegitimate practices.
The third honest issue which comes from the case study is money laundering. This is actually the use of any legal source of revenue to hide illegal resources of revenue or profits that have not been declared or taxed by the government. This is an unethical practice which is a crime and is punishable by a long time in prison. Madoff used his investment organization as a front to hide the revenues which were received through the Ponzi design. The investment firm was used to portray the business activities are legal and also to hide the true sources of revenue. Money laundering is a criminal offense which Madoff was incurred with and it contributed to his long prison sentence.
How the investment negatively affected stakeholders
There are several negative effects which Madoff Assets experienced on stakeholders. These will be analyzed on the basis of their romance with the company.
Investors are some of the stakeholders who had been worst influenced by the scandal. The investment lost by investors surpassed $65 billion, which is huge by all expectations. The small level investors were most influenced since many were households and households in the centre income status. People which lost their investment funds suffered various adverse effects including health problems associated with stress and melancholy which emanated from the deficits (Eamon, 2008). Some investors passed away credited to health difficulties occasioned by the surprise of losing their lifetime cost savings. Others got their lifestyle changing to be able to accommodate the losses, some of which arose from borrowed finance used to purchase Madoff Securities.
Employees were also greatly afflicted by the Madoff Securities scandal since most lost employment opportunities. As a result of the shortcoming of the firm to remain liquid, it was shut down to ensure that further loss weren't experienced by stakeholders (Eamon, 2008). Employees who relied on the company for their livelihood lost jobs and many were not able to aid themselves and their own families. Some developed health issues from stress associated with lack of employment while some improved their lifestyle to support their diminished income earning status. Although some employees secured work in other companies, many suffered huge financial losses as the company was unable to compensate them for the work reduction (Eamon, 2008).
Creditors also experienced the closure of Madoff Securities. There is over $100 million which was straight owed to lenders due to provision of outsourced services to Madoff Securities. It's important to note these creditors were separate from shareholders. Some of the creditors were able to recover bad debts while some cannot (Eamon, 2008). This resulted in the closure of some of the organizations which provided services and goods to Madoff Securities.
There are various charities which endured therefore of the closure of Madoff Securities. A number of the charities that have been afflicted by closure of the company include JEHT Base, Robert Lappin Basis and Chais family Base. These charities closely relied on financial support from Madoff Assets and without enough funds, some were pressured to scale down their operations and provide charity services to fewer people. Furthermore, some of the causes which were backed by Madoff Securities such as lymphoma research also heavily suffered consequently of the liquidation of the organization. Madoff contributed over $4 million annually to support this research and the closure of Madoff Securities damaged the money towards lymphoma research (Eamon, 2008).
The local community also experienced the closure of Madoff Securities from the scam scandal. Madoff Securities supported various social triggers which the areas determined with. The firm added generously towards community jobs which were intended for empowering the population. This is achieved through the organization sociable responsibility programs. The company also funded education and training opportunities for needy children in the local community. After the closure of the company, many of these causes that have been supported by Madoff Securities collapsed scheduled to lack of donors who propagate the task which had been started out by Madoff (Fred, 2009). A number of the children who would have been empowered through education also lost an opportunity after the organization was sealed.
Finally the government experienced undesireable effects due to the Madoff financial scandal. Among the major results is the increased loss of potential tax revenues from the firm. The company usually paid huge amount of money in annual tax and this way to obtain fund was lost by the government. This affected the development programs and infrastructural developed usually paid for through this tax source. In addition, the government confronted adverse promotion especially due to its inability to find the scandal and action promptly even through several red flags had been increased on the issue. It had been also dubious that Madoff recognized certain government causes and political parties which might have been construed to clarify why he was not arrested immediately after the scandal initiated.
The negative impact the investment got on the economy
There is a macro aspect of the scandal which affected the entire American market. Various costs were incurred by the government and economy at large, which negatively affected progress and development. The expense of the undesirable health ramifications of the victims of the scandal including employees and investors were offered to the market. Traders and employees who became unwell because of the stress and melancholy experienced partly increased the professional medical costs to the overall economy. The loss of manpower anticipated to loss of careers by employees compounded by deficits incurred by buyers and creditors was a huge cost to the current economic climate. The federal government was partly accountable for settling these subjects and it also lost earnings from the closure of the Madoff Investment firm. These indirect and immediate costs which were passed on to the federal government reduced the available income for infrastructural and interpersonal development in america. As a result, the monetary development and growth levels were damaged by the scandal. The weight of the funds involved that was over $60 billion, slowed down economic progress levels.
Another undesirable impact to the economy is a drop in investment. Many shareholders who had committed to Madoff Securities lost their investments which made them hesitant to invest in future (Arvedlund, 2009). Other investors who had invested in others also pulled out their investments in initiatives to avert a crisis like the one experienced at Madoff Assets. The marketplace generally adopted a cautionary procedure towards investment because the Madoff Scandal discouraged consumers from investment. The decline in investment levels immediately affected economic development. For the overall economy to expand there should be high investment levels. The decrease in investment because of the scandal reduced the economical growth rate. The government heavily invested in encouraging the marketplace to invest more in securities and shares.
How the scandal might have been prevented
There are several methods that ought to have been taken up to reduce the probability of the fraudulence scandal. Some of these procedures should be put in place in future in order to discourage a similar scandal in america business environment. A few of these steps will be mentioned below;
Audits are effective in preventing fraud especially where they are exterior in nature. Madoff did not carry out regular audits and he falsified documents in order to prevent the recognition of the fraud which was being committed. Exterior and internal audits should have been frequently performed in order to analyze the accurate financial position of the firm. These audits could have revealed the scam regularly and averted further deficits to the organizational stakeholders. Managers should undertake consistent audits to be able to encourage honest practices running a business and discourage scam.
Technology is also likewise effective in preventing accounting scams. Technology should have been used to restrict access to home elevators Madoff Securities. Passwords, hair and others should have been used to limit the confidential information and when accounts were tampered with, it could have been clear on who provided authorization to access the files. Technology would also have been used to permit investors to access financial information of Madoff Investment funds online (Arvedlund, 2009). Access to such information would have revealed any unlawful or unethical tactics in the firm. Future professionals should make use of technology to ensure that business operate within an ethically suitable manner.
Employee determination is a powerful tool in the operations of any organization. Employees have to be motivated if they are to operate in an ethical manner. This is because employees with high motivation levels are pleased with businesses they work in and are likely to only perform activities with are regular with organizational goals. Such employees are therefore less likely to engage in fraud or other unethical behavior (Bateman, 2010). In the event the employees at Madoff Investment funds had high drive levels, they might not have collaborated with Madoff in committing fraud and the scandal could have been exposed previously. Managers should inspire employees by using both non financial and financial rewards to be able to boost their performance and increase their devotion to the firm.
Government action on the Madoff Scandal
The government required several measures to be able to mitigate the damage triggered by the financial scandal and the as discourage further scandals in future. The first action taken was to bolster financial legislation and investigations into market players in the stock market (Wilhelm & Joseph, 2010). The government passed several regulations which businesses were likely to adhere to to be able to ensure that they controlled in ethically upright ways. Another step which was taken by the government was to develop legislation to discourage future financial fraud cases. The government developed harsh punishment for firms and people who are involved in financial scam. This included heavy fines, jail phrases or both. These laws and regulations were exceeded by congress plus they have been effective in discouraging fraudulence.
The government also needed steps to restitute the victims of the scandal. Various property, profits and accounts which were linked to Madoff Opportunities were iced and funds consolidated in efforts to pay back shareholders (Wilhelm & Joseph, 2010). Small shareholders received main concern when being compensated although larger shareholders also received a share of revenue collected. Creditors were also compensated for the services which they possessed rendered to Madoff Assets. However, most buyers were not completely paid out for the losses incurred due to prior money laundering strategies which Madoff possessed undertaken.
Plea, sentencing, and jail life
When Madoff was costed with the criminal offense, he pleaded guilty for the offense. However he had not been a cooperative see and he didn't reveal other people he conspired with to commit the financial scam scandal. The judge got the option to fine him, jail him or apply both varieties of sentences. The judge sentences Madoff to 150 years in jail, an exact carbon copy of life imprisonment.
How investors should protect themselves from fraud
There are different measures which shareholders should implement in order to ensure they aren't victims of scam. The first rung on the ladder which buyers should take is demand regular audits with their company. Audits should be demanded through their annual AGM conferences and these will encourage the management to operate within ethically acceptable ways. The second step is talking to external experts. Experts specifically those in the financial services industry should describe the projected results on investments over a period of time. For instance, an expert would have told buyers in the Madoff Investment scandal that it was impossible to get such large comes back within short time periods which could have made them suspicious of the operations of the company. This would have prevented the deficits of investment made by shareholders.
Finally, traders should pressure the management to help make the accounts public especially when there are mass media accounts about an impropriety by the management. In the Madoff scandal, shareholders were aware of adverse information on the operations of the organization but they disregarded these reports. If indeed they experienced pressured the management release a financial claims, the fraud would have been exposed previously and kept the investors billions of dollars. The traders should ensure that they have a timely and accurate view of the budget of their firm at anybody time.
Summary and conclusion
This newspaper has reviewed the Bernie Madoff financial fraudulence in relation to moral responsibility of businesses. The financial fraudulence practiced by Bernie Madoff has been examined in detail and the effects on stakeholders and world talked about. Bernie Madoff run his company, Madoff Ventures in an unethical way which resulted in severe effects to stakeholders and contemporary society most importantly which incurred deficits amounting to vast amounts of us dollars. He used the business as a front side to commit a Ponzi scheme which fleeced shareholders of over $65 billion. It has been thought to be the greatest Ponzi scheme ever. However, in 1999, there is concern that the profits created by Madoff Ventures surpassed the normal profits expected from a firm in that business. Several investigations were carried out during the next few years and in 2008, Madoff was unable to pay comes back demanded by shareholders. It was then that he accepted that his investment scheme was a Ponzi structure and he was later incurred in courtroom with fraud. Madoff was sentenced to 150 years and is currently portion his term.
There are various moral issues which arose through the Madoff scandal and which are contrary to honest requirements of businesses. One of these issues is fraudulence. Companies are not expected to engage in fraudulence since it isn't only against business interests, but additionally it is illegal under legislation. The second ethical issue which comes up when analyzing the Madoff case is misrepresentation. Businesses must follow the moral responsibility of full disclosure to all organizational stakeholders. Madoff misrepresented the status of his firm's funds and a false perception that it was making profits. The third honest issue which comes from the case study is money laundering.
There are several negative effects which Madoff Ventures possessed on stakeholders. Traders are a few of the stakeholders who had been worst damaged by the scandal. The investment lost by traders surpassed $65 billion, which is huge by all standards. Employees were also greatly influenced by the Madoff Securities scandal since most lost employment opportunities. Creditors also experienced the closure of Madoff Securities. There was over $100 million which was straight owed to collectors due to provision of outsourced services to Madoff Securities. There are many charities which endured therefore of the closure of Madoff Securities. Some of the charities which were influenced by closure of the company include JEHT Foundation, Robert Lappin Groundwork and Chais family Basis. The local community also experienced the closure of Madoff Securities from the fraudulence scandal. Madoff Securities recognized various social triggers which the neighborhoods identified with. Following the closure of the firm, some of these causes which were supported by Madoff Securities collapsed due to absence of donors who propagate the task which had been began by Madoff. Finally the federal government experienced undesireable effects due to the Madoff financial scandal. One of the major results is the increased loss of potential tax income from the company. In addition, the government faced adverse publicity especially because of its inability to find the scandal and take action promptly even through several red flags had been lifted on the problem.
There are several steps that ought to have been taken to reduce the probability of the fraud scandal. Some of these procedures should be executed in future to be able to discourage a similar scandal in the US business environment (Wilhelm & Joseph, 2010). Audits work in preventing fraudulence especially in cases where they are exterior in nature. Managers should undertake regular audits in order to encourage honest practices in business and also to discourage fraudulence. Technology is also similarly effective in stopping accounting scams. Technology should have been used to limit access to information on Madoff Securities. Future managers should make use of technology to ensure that business operate within an ethically suitable manner. Employee motivation is an efficient tool in the operations of any company. Employees have to be motivated if they're to operate in an ethical manner. Professionals should stimulate employees by using both non financial and financial rewards in order to improve their performance and increase their devotion to the company (Bateman, 2010).
There will vary measures which shareholders should implement to be able to ensure they are not victims of scams. The first step which investors should take is demand regular audits of the firm. Audits should be demanded through their twelve-monthly AGM meetings and these will encourage the management to use within ethically appropriate ways. The next step is consulting exterior experts. Experts especially those in the financial services industry should make clear the projected profits on opportunities over a period. Finally, buyers should pressure the management to make the accounts public in particular when there are mass media information about an impropriety by the management. They have to ensure they have a timely and accurate view of the budget of their firm at any one time. This will likely ensure that companies operate in ethically suitable key points and discourage unethical techniques such as financial fraud.
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