ETHICAL AND LEGAL ISSUES
Bernard Lawrence Madoff was a well known and respected entrepreneur, investor and stockbroker. He also was the non-executive chairman of NASDAQ up until the uncovering of his fraudulent activities that he had carried out since the early 1990s. Madoff established his investment firm in 1960 with which he used his influence and trust to con people of their hard earned money promising a good return on their investments at a better rate than the prevailing stock market and bank rates. However this was a huge scam, what is known as a Ponzi scheme. A Ponzi scheme is a type of securities fraud where the promoter gives the investors misleading information about an investment promising them a high rate of return on their investments. What the promoter actually does is that he uses the money of new investors to pay of old investors instead of paying all investors from the profits gotten from investing their money. The Ponzi scheme survives on money brought in by new investors to pay off older investors and so on without which it collapses. Most of the funds used in Madoffs Ponzi scheme were from live savings and retirement funds of his clients.
Madoffs Ponzi scheme is said to be the largest scam ever in which $65 billion vanished from the pockets of some of the world’s richest people. This scheme ran for more than 20 years defrauding thousands of people of billions of dollars. Madoff was the chairman of his investment company until his arrest in December 11, 2008. It is alleged the major beneficiary of Madoffs Ponzi scheme was Jeffry Picower and other beneficiaries were JP Morgan and New York Mets owners, Fred Wilpon and Saul Katz. However they all categorically refuted these claims and filed lawsuits against Madoff’s company. It is believed that his sons gave him up to the authorities after he confessed to them that the asset management wing of his firm was a massive Ponzi scheme. This was on December 10, 2008 and on the next day Madoff was arrested by the FBI and charged with securities fraud. Interestingly the U.S. Securities and Exchange Commission had earlier on conducted investigations into the business activities of Madoff but they found nothing tangible. Madoff pleaded guilty to 11 federal felonies in March 2009 and he was sentenced to 150 years in prison on June 29 2009. The presiding judge termed Madoff’s crimes as extraordinary evil and giving the possible maximum sentence.
ENRON Corporation was a company that dealt in energy, commodities and services. The company was based in Houston, Texas and it went into bankruptcy in December 2, 2001. It was one of the largest companies in the world that dealt in natural gas, electricity, pulp and paper and also communication services. It was a very profitable company that raked in a record $101 billion in 2000 and named “Americas Most Innovative Company” by Fortune for 6 years in a row (Mallor, Barnes, Bowers & Langvardt, 2010). However there emerged that the good financial fortunes of ENRON were being driven and sustained through a well orchestrated fraud better known as the ENRON scandal. This led to the questioning of the accounting practices of other corporations in the country which gave rise to a new law, the Sarbanes-Oxley Act of 2002. ENRON is today associated with corporate fraud and corruption. The firm later on filed for protection from bankruptcy in 2001 that happened to be one of the biggest bankruptcy cases in the U.S. and it later on emerged from the bankruptcy in 2004 but the whole scandal left a huge dent in the firm’s image.
Madoff had no regard for values and corporate ethics for his clients in his dealings. He only thought of himself as he acted selfishly to enrich himself fraudulently through the heard earned money of his customers (Cross & Miller, 2008). His intentions were ill-willed because he sought to exploit his customers for his own benefit (DesJardins & Hartman, 2010).
ENRON on the other hand believed it acted on the best interest of its shareholders and all stakeholders by creating a good image of competitiveness and profitability but this was not so as their fraudulent ways were soon uncovered forcing the company to go down in bankruptcy. From there on the prestigious name of the blue-chip firm went down the drain.
Mallor, J., Barnes, A., Bowers, T. & Langvardt, A. (2010). Business Law: The Ethical, Global
and E-commerce Environment. New York: McGraw-Hill/ Irwin
DesJardins, J. & Hartman, L. (2010). Business Ethics: Decision-Making for Personal Integrity &
Social Responsibility. London: Irwin
Cross, F. & Miller, R. (2008). The Legal Environment Today: Business in its Ethical,
Regulatory, E-Commerce, and Global Setting. Cincinnati: South Western Pub.