Financial Fraud: Benard Madoff’s Case

While efforts have been made towards preventing fraud, the issue remains a significant problem that needs to be adequately addressed. One of the most famous fraudsters in the United States is Bernard Madoff. Orchestrating over $65 billion, Bernard Madoff Ponzi was one of the most prominent financial fraudsters in the United States history (Grattagliano et al., 2018). For years he perpetrated the largest pyramid Ponzi scam in history, fleecing thousands out of their savings to the tune of billions. Many lost everything they had. At 71 years old, Madoff was exposed in December 2008, got arrested, and was sentenced in June 2009 on money laundering, 11 counts, and theft. Eight different behavioral-based learning objectives can help professionals ensure that they meet their profession’s ethical expectations to avoid cases that may lead to fraud. The learning objectives can be applied to Bernard Madoff by focusing on his behavioral aspects.

The first learning objective is developing an ability to recognize own tendency towards rationalization. People use rationalization as a way of reconciling and soothing any action that is unhealthy with ethical values (Boyle, Boyle & Mahoney, 2018). Madoff became accustomed to rationalizing unethical behavior that resulted in a process that led to his engagement in fraud. The particular unethical behavior that Madoff engaged in is conceiving many investors to hand over their savings and giving them false promises that they would gain profits in return. The second objective is understanding that fraudsters are real people and not black-cloaked villains. Most fraudsters are first-time offenders who hold authority and respect positions. They should not be portrayed as villains. For instance, Bernard Madder was a well-respected financier who provided advised the Securities and Exchange Commission and sat on to the National Association of Securities Dealers (Grattagliano et al., 2018). Thus fraudsters like Madoff are well educated, often respected, and trusted in organizations.

The third objective is recognizing the intangible and tangible costs of getting caught and the psychological costs of getting away with crime. Getting caught due to fraud may lead to reputational damage, loss of job, incarceration, and loss of income (Boyle, Boyle & Mahoney, 2018). Most people forget that fraud can significantly affect the people they love, lead to public humiliation and loss of lifestyle. Madoff’s family significantly paid for his crime (Grattaglaino et al., 2018). Not only were they neglected by society, but they also lost their income and reputation. The fourth objective is clearly defining the explicit standards that are most critical to individuals in their personal and future career values. Even though most people think that they have a robust set of personal values, they are likely to yield rationalization and pressures as they make critical decisions. Madoff is among the individuals who could not take his time to reflect and define his values.

The fifth objective is understanding the significance of living within personal means. Most people, especially in the United States, are not prepared financially. Research also indicates that most fraudsters have financial difficulties and live beyond their means (Boyle, Boyle & Mahoney, 2018). Bernie Madoff earned a very lucrative salary, including stock compensation and bonuses. However, he still managed his life with ongoing financial pressures. If Madoff learned this objective, he would have recognized scenarios he lived beyond his means and formulate a financial exit strategy. The sixth objective is building a trusted network as a way of solving non-shareable problems.  Fraudulent behavior often results in non-sharable problems that, in most cases, go unresolved. These non-sharable problems may include family problems, divorce, addictions, and many more as immigrants in the United States. Madoff may have been facing several non-sharable issues that led to his fraudulent behavior. He may also have been experiencing financial hardships and family problems as he grew up.

The seventh objective is to understand the significance of maintaining marketability in a person’s profession. Most people who commit fraud often find themselves locked in their current position and professions (Boyle, Boyle & Mahoney, 2018). To keep their positions, they would do anything no matter how costly it may be. Madoff was in the same position ad while working as a financial operator; he did not find any time for networking and professional development. The last objective is that individuals should understand that they are people of value as reflected in the life choices they make. They should always avoid defining their worth by focusing on the professional positions. From his education life, it is evident that Madoff had strong values that enable him to finish his education and get a good job (Grattagliano et al., 2018). However, he failed to recognize that he could make better choices in life and avoid such behavior. Madoff defined his self-worth on his short-lived position as a manager leading to the excess pressure of maintaining that position.

References

Boyle, D. M., Boyle, J. F., & Mahoney, D. P. (2018). Behavioral assessment and modification in fraud mitigation efforts. Management Accounting Quarterly, 20(1), 1-12.

Grattagliano, I., Alessio, O., Maricla, M., Cassano, A., Fulvia, C., Di Marcantonio, M., … & Graziamaria, C. (2018). Financial-Psychological Crime: The Madoff Case. In 70th Annual Scientific Meeting (Vol. 70, No. I2, pp. 801-801). AAFS.