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93-511: The Fraud Discovery Institute was an investigative unit that sought to assist in the prosecution of perpetrators of corporate fraud . After the Institute had researched an alleged white-collar crime , it would give a report to the FBI , which could then find and arrest the criminals. The Fraud Discovery Institute was founded by Barry Minkow in 2001 Minkow had been released from prison in 1995, where he

186-417: A penny stock trader with $ 5,000 ($ 51,496 in 2023), earned from working as a lifeguard and sprinkler installer, and $ 50,000 that he had borrowed from his in-laws ($ 514,961 in 2023). His fledgling business, which he founded with his high school sweetheart Ruth Alpern, began to grow with the assistance of his father-in-law, accountant Saul Alpern, who referred a circle of friends and their families. Initially,

279-525: A whistleblower whose repeated warnings about Madoff were ignored, estimated that at least $ 35 billion of the money Madoff claimed to have stolen never really existed, but was simply fictional profits he reported to his clients. Investigators determined that others were involved in the scheme. The U.S. Securities and Exchange Commission (SEC) was criticized for not investigating Madoff more thoroughly; questions about his firm had been raised as early as 1999. The legitimate trading arm of Madoff's business that

372-490: A 'hedge fund of funds ' privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed. If this is not a regulatory dodge, I do not know what is." Markopolos declared that Madoff's "unsophisticated portfolio management " was either a Ponzi scheme or front running (buying stock for his own account based on knowledge of his clients' orders), and concluded it

465-422: A 2011 paper titled Socialization of Individuals into Deviant Corporate Culture . Organi-cultural deviance was used to describe how processes of individual and group socialization, within deviant corporate cultures, serve to invert Abraham Maslow 's (1954) Hierarchy of Needs into a theoretical "Hierarchical Funnel of Individual Needs". Organi-cultural deviance was further explored by Gendron and Husted, using

558-443: A Financial Legend, says that "the 5% payout rule", a federal law requiring private foundations to pay out 5% of their funds each year, allowed Madoff's Ponzi scheme to go undetected for a long period since he managed money mainly for charities. Zuckoff notes, "For every $ 1 billion in foundation investment, Madoff was effectively on the hook for about $ 50 million in withdrawals a year. If he was not making real investments, at that rate

651-449: A class titled Corporate Misconduct in America, at Casper College during 2008-2009. Organi-cultural deviance was introduced to students as a social philosophical term used to help describe, explain, and understand the complex social, behavioral, and environmental forces, that lead organizations to engage in corporate crime. The term organi-cultural deviance was later expanded and published in

744-474: A close Madoff family friend. Friehling was also an investor in Madoff's fund, which was seen as a blatant conflict of interest . In 2007, hedge fund consultant Aksia advised its clients not to invest with Madoff, saying it was inconceivable that a tiny firm could adequately service such a massive operation. Typically, hedge funds hold their portfolio at a securities firm (a major bank or brokerage), which acts as

837-486: A few days. That's why we were all so stunned." The Swiss bank Union Bancaire Privée explained that because of Madoff's huge volume as a broker-dealer , the bank believed he had a perceived edge on the market because his trades were timed well, suggesting they believed he was front running . The Madoff family gained unusual access to Washington's lawmakers and regulators through the industry's top trade group. The Madoff family maintained long-standing, high-level ties to

930-519: A fraud from the start. Madoff's operation differed from a typical Ponzi scheme. While most Ponzi schemes are based on nonexistent businesses, Madoff's brokerage operation arm was very real. At the time of its shuttering, it handled large trades for institutional investors. Madoff was a "master marketer" who, throughout the 1970s and 1980s, built a reputation as a wealth manager for a highly exclusive clientele. Investors who gained access, typically on word-of-mouth referral, believed that they had entered

1023-464: A half a billion dollars in investor money, totally outside the system that we can monitor and regulate. That's pretty frightening," said Richard Walker, who at the time was the SEC's New York regional administrator. Avellino and Bienes deposited $ 454 million of investors' money with Madoff, and until 2007, Bienes continued to invest several million dollars of his own money with Madoff. In a 2009 interview after

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1116-459: A key factor in perpetuating the fraud. Ponzi schemes typically pay returns of 20% or higher and collapse quickly. One Madoff fund, which described its "strategy" as focusing on shares in the Standard & Poor's 100-stock index, reported a 10.5% annual return during the previous 17 years. Even at the end of November 2008, amid a general market collapse, the same fund reported that it was up 5.6%, while

1209-527: A legal system or overall economic environment). In a 2012 paper titled Organi-cultural Deviance: Economic Cycles Predicting Corporate Misconduct? , Gendron and Husted found economic cycles result in strain, seen as a precipitating factor in organi-cultural deviance. Organi-cultural deviance is based on the premise social pressure and economic forces exert strain on organizations to engage in corporate crime. Strain creates motivating tension in organi-cultural deviance. Robert Merton championed strain theorists in

1302-510: A micro-environmental approach, identifying social dynamics within deviant organizations believed to lure and capture individuals. However, through the social processes inherent of organi-cultural deviance, social pressures and influences force the individual to vacate aspirations to reach self-actualization and become complacent on satisfying lower needs, such as belongingness. In organi-cultural deviance, social dynamics and micro-environmental forces are believed, by Gendron and Husted, to result in

1395-838: A mutual fund manager at Fidelity Investments , had been intrigued by anecdotes of Madoff's steady gains. But after a 2000 meeting with Markopolos he became convinced "nothing in Madoff's ostensible strategy made sense." In 2001, financial journalist Erin Arvedlund wrote an article for Barron's entitled "Don't Ask, Don't Tell", questioning Madoff's secrecy and wondering how he obtained such consistent returns. She reported that "Madoff's investors rave about his performance – even though they don't understand how he does it. 'Even knowledgeable people can't really tell you what he's doing,' one very satisfied investor told Barron's ." The Barron's article and one in MARHedge by Michael Ocrant suggested Madoff

1488-714: A number of countries and the European Union have been working to establish corporate criminal liability for certain offences. "Liability of Legal Persons for Corruption Offences" . 2021-05-13. United States law currently recognizes corporate criminal capacity, although it is extremely rare for corporations to be litigated in criminal proceedings. French law currently recognizes corporate criminal capacity. German law does not recognize corporate criminal capacity: German corporations are however subject to fining for administrative violations ( Ordnungswidrigkeiten ) Corporate crime has become politically sensitive in some countries. In

1581-485: A particular religious or ethnic community is a type of affinity fraud , and a Newsweek article identified Madoff's scheme as "an affinity Ponzi". The New York Post reported that Madoff "worked the so-called ' Jewish circuit' of well-heeled Jews he met at country clubs on Long Island and in Palm Beach ." The scandal so affected Palm Beach that, according to The Globe and Mail , residents "stopped talking about

1674-562: A penny a share to execute their customers' orders, profiting from the spread between bid and asked prices that most stocks trade for. Several family members worked for him. His younger brother, Peter, was senior managing director and chief compliance officer, and Peter's daughter, Shana Madoff , was the compliance attorney. Madoff's sons, Mark and Andrew, worked in the trading section, along with Charles Weiner, Madoff's nephew. Andrew Madoff invested his own money in his father's fund, but Mark stopped in about 2001. Federal investigators believe

1767-440: A product that could replicate Madoff's returns. However, Markopolos concluded that Madoff's numbers didn't add up. After four hours of trying and failing to replicate Madoff's returns, Markopolos concluded Madoff was a fraud. He told the SEC that based on his analysis of Madoff's returns, it was mathematically impossible for Madoff to deliver them using the strategies he claimed to use. In his view, there were only two ways to explain

1860-543: A significant threat to the welfare of the community. Given the pervasive presence of corporations in a wide range of activities in our society, and the impact of their actions on a much wider group of people than are affected by individual action, the potential for both economic and physical harm caused by a corporation is great (Law Reform Commission of New South Wales: 2001). Similarly, Russell Mokhiber and Robert Weissman (1999) assert: At one level, corporations develop new technologies and economies of scale . These may serve

1953-419: A split-strike conversion or a collar . "Typically, a position will consist of the ownership of 30–35 S&P 100 stocks, most correlated to that index, the sale of out-of-the-money ' calls ' on the index and the purchase of out-of-the-money ' puts ' on the index. The sale of the 'calls' is designed to increase the rate of return , while allowing upward movement of the stock portfolio to the strike price of

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2046-487: A staff of fewer than 24. Madoff also ran a branch office in London that employed 28 people, separate from Madoff Securities. The company handled investments for his family of approximately £ 80 million. Two remote cameras installed in the London office permitted Madoff to monitor events from New York. After 41 years as a sole proprietorship , Madoff converted his firm into a limited liability company in 2001, with himself as

2139-491: Is a recent philosophical model used in academia and corporate criminology that views corporate crime as a body of social, behavioral, and environmental processes leading to deviant acts. This view of corporate crime differs from that of Edwin Sutherland (1949), who referred to corporate crime as white-collar crime , in that Sutherland viewed corporate crime as something done by an individual as an isolated end unto itself. With

2232-547: The SEC Commissioners for legal action. In 2007, the Financial Industry Regulatory Authority (FINRA), the industry-run watchdog for brokerage firms, reported without explanation that parts of Madoff's firm had no customers. "At this point in time we are uncertain of the basis for FINRA's conclusion in this regard," SEC staff wrote shortly after Madoff was arrested. As a result, the chairman of

2325-694: The Securities Industry and Financial Markets Association (SIFMA), the primary securities industry organization. Bernard Madoff sat on the board of directors of the Securities Industry Association , which merged with the Bond Market Association in 2006 to form SIFMA. Madoff's brother Peter subsequently spent two terms on SIFMA's board. From 2000 to 2008, the brothers donated $ 56,000 to SIFMA, and also spent tens of thousands to sponsor SIFMA industry meetings. Peter resigned from

2418-667: The United Kingdom , for example, following wider publicity of fatal accidents on the rail network and at sea, the term is commonly used in reference to corporate manslaughter and to involve a more general discussion about the technological hazards posed by business enterprises (see Wells: 2001). In the United States, the Sarbanes-Oxley Act of 2002 was passed to reform business practices, including enhanced corporate responsibility, financial disclosures, and combat fraud, following

2511-434: The legislature is making the political judgment that this behavior is sufficiently culpable to deserve the stigma of being labelled as a crime. In law, corporations can commit the same offences as natural persons. Simpson (2002) avers that this process should be straightforward because a state should simply engage in victimology to identify which behavior causes the most loss and damage to its citizens , and then represent

2604-418: The principal would last 20 years. By targeting charities, Madoff could avoid the threat of sudden or unexpected withdrawals. In his guilty plea, Madoff admitted that he had not actually traded since the early 1990s, and all of his returns since then had been fabricated. However, David Sheehan, principal investigator for trustee Irving Picard , believes the wealth management arm of Madoff's business had been

2697-429: The 'calls'. The 'puts', funded in large part by the sales of the 'calls', limit the portfolio's downside." In his 1992 "Avellino and Bienes" interview with The Wall Street Journal , Madoff discussed his supposed methods: In the 1970s, he had placed invested funds in "convertible arbitrage positions in large-cap stocks, with promised investment returns of 18% to 20%", and in 1982, he began using futures contracts on

2790-653: The Church and its congregants, with incidents stretching back to 2001. Corporate fraud Some negative behaviours by corporations may not actually be criminal; laws vary between jurisdictions. For example, some jurisdictions allow insider trading . Corporate crime overlaps with: An 1886 decision of the United States Supreme Court , in Santa Clara County v. Southern Pacific Railroad 118 U.S. 394 (1886), has been cited by various courts in

2883-656: The General Meeting of the Administrative Sciences Association of Canada, in Regina, Saskatchewan, Canada, and The Humanities conference in Montréal, Canada. The term organi-cultural deviance incorporated the terms group think, and yes-men, to explain decision-related cognitive impairments inherent of corporations engaging in corporate crime. The researchers have found several interconnected dynamics that increase

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2976-589: The Organi-cultural deviance view, corporate crime can be engaged in by individuals, groups, organizations, and groups of organizations, all within an organizational context. This view also takes into account micro and macro social, environmental, and personality factors, using a holistic systems approach to understanding the causation of corporate crime. The term derives its meaning from the words organization (a structured unit) and culture (the set of shared attitudes, values, goals, and practices). This reflects

3069-518: The S&;P 500 during the 1980s. The Journal concluded Madoff's use of futures and options helped cushion the returns against the market's ups and downs. Madoff said he made up for the cost of the hedges , which could have caused him to trail the stock market's returns, with stock-picking and market timing . Madoff's sales pitch was an investment strategy consisting of purchasing blue-chip stocks and taking options contracts on them, sometimes called

3162-459: The SEC's New York office, Avellino & Bienes agreed to return the money to investors, shut down their firm, undergo an audit, and pay a fine of $ 350,000. Avellino complained to the presiding federal judge, John E. Sprizzo , that Price Waterhouse fees were excessive, but the judge ordered him to pay the bill of $ 428,679 in full. Madoff said that he did not realize the feeder fund was operating illegally, and that his own investment returns tracked

3255-524: The SEC's Office of Compliance Inspections and Examinations Eric Swanson , whom she had met in April 2003 while he was investigating her uncle Bernie Madoff and his firm. The two had periodic contact thereafter in connection with Swanson speaking at industry events organized by a SIFMA committee on which Shana Madoff sat. During 2003, Swanson sent Shana's father Peter Madoff two regulatory requests. In March 2004, SEC lawyer Genevievette Walker-Lightfoot , who

3348-512: The SEC, Christopher Cox , stated that an investigation would delve into "all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm". A former SEC compliance officer, Eric Swanson, had married Madoff's niece Shana, the Madoff firm compliance attorney. Outside analysts raised concerns about Madoff's firm for years. Mathematician Edward O. Thorp noted irregularities in 1991. Among other problems, Thorp found evidence Madoff

3441-418: The U.S., trading about 15% of transaction volume. Academics have questioned the ethics of these payments. Madoff has argued that these payments did not alter the price that the customer received. He viewed payments for order flow as a normal business practice: "If your girlfriend goes to buy stockings at a supermarket, the racks that display those stockings are usually paid for by the company that manufactured

3534-575: The US as precedent to maintain that a corporation can be defined legally as a "person", as described in the Fourteenth Amendment to the U.S. Constitution . The Fourteenth Amendment stipulates that, No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction

3627-649: The bane of the New York Stock Exchange. He has built a highly profitable securities firm, Bernard L. Madoff Investment Securities, which siphons a huge volume of stock trades away from the Big Board. The $ 740 million [$ 1.61 billion in 2023] average daily volume of trades executed electronically by the Madoff firm off the exchange equals 9% of the New York exchange's. Mr. Madoff's firm can execute trades so quickly and cheaply that it actually pays other brokerage firms

3720-436: The best possible price for customer orders; and operating as an unregistered investment adviser . Madoff was registered as a broker-dealer , but doing business as an asset manager . "The staff found no evidence of fraud". In September 2005 Madoff agreed to register his business, but the SEC kept its findings confidential. During the 2005 investigation, Meaghan Cheung, a branch head of the SEC's New York's Enforcement Division,

3813-627: The board in December 2008 as the Madoff scandal began to come to light and scrutiny of the brothers' relationship with SIFMA and regulators increased. In addition, Bernard Madoff's niece Shana Madoff who was the compliance officer and attorney at Bernard L. Madoff Investment Securities from 1995 until 2008, was active on the Executive Committee of SIFMA's Compliance & Legal Division, but resigned her SIFMA position shortly after her uncle's arrest. She in 2007 married former assistant director of

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3906-499: The corruption of public officials is thought to be a serious problem in developing countries, and an obstacle to development. Edwin Sutherland 's definition of white collar crime also is related to notions of corporate crime. In his landmark definition of white collar crime he offered these categories of crime: One paper discusses some of the issues that arise in the relationship between private sector and corruption. The findings can be summarized as follows: Organi-cultural deviance

3999-405: The course of their occupation. In 2008, Christie Husted found corporate crime to be a complex dynamic of system-level processes, personality traits, macro-environmental, and social influences, requiring a holistic approach to studying corporate crime. Husted, in her 2008 doctoral thesis, Systematic Differentiation Between Dark and Light Leaders: Is a Corporate Criminal Profile Possible? , coined

4092-441: The economic cycle tends to generate specific kinds of leaders. Entrepreneurial leaders tend to be most visible at the bottom of an economic cycle, during a depression or recession. Entrepreneurial leaders are able to motivate their employees to innovate and develop new products. As the economy strengthens, there is a marked increased of bureaucratic leaders who standardise and operationalise the successes of entrepreneurial leaders. As

4185-443: The economic interests of mass consumers by introducing new products and more efficient methods of mass production. On another level, given the absence of political control today, corporations serve to destroy the foundations of the civic community and the lives of people who reside in them. Behavior can be regulated by the civil law (including administrative law ) or the criminal law . In deciding to criminalize particular behavior,

4278-504: The economy reaches the apex of the economic cycle, pseudo-transformational leaders are likely to emerge, promising the same, if not higher, rates of return in a booming or peaking economy. Often, these pseudo-transformational leaders engage in deviant practices to maintain the illusion of rising rates of return. Madoff investment scandal The Madoff investment scandal was a major case of stock and securities fraud discovered in late 2008. In December of that year, Bernie Madoff ,

4371-477: The end of 1974, the firm became Avellino and Bienes and continued to invest solely with Madoff. Avellino & Bienes, represented by Ira Sorkin , Madoff's former attorney, were accused of selling unregistered securities. In a report to the SEC they mentioned the fund's "curiously steady" yearly returns to investors of 13.5% to 20%. However, the SEC did not look any more deeply into the matter, and never publicly referred to Madoff. Through Sorkin, who once oversaw

4464-507: The end of each period, Madoff avoided filing disclosures of its holdings with the SEC, an unusual tactic. Madoff rejected any call for an outside audit "for reasons of secrecy", claiming that was the exclusive responsibility of his brother, Peter, the company's chief compliance officer . Concerns were also raised that Madoff's auditor of record was Friehling & Horowitz, a two-person accounting firm based in suburban Rockland County that had only one active accountant, David G. Friehling ,

4557-599: The equal protection of the laws. In English law , this was matched by the decision in Salomon v A Salomon & Co Ltd [1897] AC 22. In Australian law , under the Corporations Act 2001 (Cth) , a corporation is legally a "person". The concepts of crime and punishment, as they apply to individuals, cannot be easily transferred to the corporate domain. International treaties governing corporate malfeasance thus tend to permit but not require corporate criminal liability. Recently

4650-425: The field of criminology, believing there to be "a universal set of goals toward which all Americans, regardless of background and position, strive, chief among these is monetary success". Economic cycles result in observable patterns which are indicative of organi-cultural deviance. Organi-cultural deviance is likely to occur at different points in an economic cycle and system. The specific location of an economy in

4743-405: The figures—either Madoff was front running his order flow, or his wealth management business was a massive Ponzi scheme. This submission, along with three others, passed with no substantive action from the SEC. At the time of Markopolos' initial submission, Madoff managed assets from between $ 3 billion and $ 6 billion, which would have made his wealth management business the largest hedge fund in

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4836-559: The firm made markets ( quoted bid and ask prices) via the National Quotation Bureau 's Pink Sheets . To compete with firms that were members of the New York Stock Exchange (NYSE) trading on the stock exchange's floor, his firm began using innovative computer information technology to disseminate quotes. After a trial run, the technology that the firm helped develop became Nasdaq . At one point, Madoff Securities

4929-610: The former Nasdaq chairman and founder of the Wall Street firm Bernard L. Madoff Investment Securities LLC, admitted that the wealth management arm of his business was an elaborate multi-billion-dollar Ponzi scheme . Madoff founded Bernard L. Madoff Investment Securities LLC in 1960, and was its chairman until his arrest. The firm employed Madoff's brother Peter as senior managing director and chief compliance officer, Peter's daughter Shana Madoff as rules and compliance officer and attorney, and Madoff's sons Mark and Andrew . Peter

5022-617: The fraud in the investment management division and advisory division may have begun in the 1970s. However, Madoff himself stated his fraudulent activities began in the 1990s. Madoff's fraudulent activities are believed to have accelerated after the 2001 change from fractional share trades to decimals on the NYSE, which cut significantly into his legitimate profits as a market-maker. With fractional trades Madoff profited up to 12.5 cents per share with each trade handled by his firm, but following decimalization this bid ask spread between sellers and buyers

5115-579: The highly publicized and extremely harmful (to victims) scandals of Enron , WorldCom , Freddie Mac , Lehman Brothers , and Bernie Madoff . Company chief executive officer (CEO) and company chief financial officer (CFO) are required to personally certify financial reports to be accurate and compliant with applicable laws, with criminal penalties for willful misconduct including monetary fines up to $ 5,000,000 and prison sentence up to 20 years. The Law Reform Commission of New South Wales offers an explanation of such criminal activities: Corporate crime poses

5208-415: The historical tradition of sovereign state control of prisons is ending through the process of privatisation . Corporate profitability in these areas therefore depends on building more prison facilities, managing their operations, and selling inmate labor. In turn, this requires a steady stream of prisoners able to work. (Kicenski: 2002) Bribery and corruption are problems in the developed world, and

5301-430: The individual's dependence upon the organization for their basic needs. Organizations engaging in organi-cultural deviance use manipulation and a façade of honesty, with promises of meeting the individual's needs of self-actualization. The social forces such as the use of physical and psychological violence to maintain compliance with organizational goals within deviant organizations secure the individual's dependence upon

5394-806: The individual. In the 2011 paper, Using Gang and Cult Typologies to Understand Corporate Crimes , organi-cultural deviance was used to compare the cultures of: mafias, cults, gangs and deviant corporations, each of which was assumed to be a type of deviant organization. In these types of organizations, organi-cultural deviance was found to be present. In engaging in organi-cultural deviance, these organizations leverage four resources: information, violence, reputation and publicity. These types of organizations engaging in organi-cultural deviance were found to contain toxic leadership. Deviant organizations, engaging in organi-cultural deviance, were found to leverage their reputation through publicity to attract members. The combination of adverse psychological forces, combined with

5487-466: The inner circle of a money-making genius, and some were wary of removing their money from his fund, in case they could not get back in. In later years, even as Madoff's operation accepted money from various countries through feeder funds, he continued to package it as an exclusive opportunity. People who met him in person were impressed with his apparent humility despite his reported financial success and personal wealth. A scheme that targets members of

5580-416: The last several years, but did not find any violations or major issues of concern. In 2004, after published articles appeared accusing the firm of front running, the SEC's Washington office cleared Madoff. The SEC detailed that inspectors had examined Madoff's brokerage operation in 2005, checking for three kinds of violations: the strategy he used for customer accounts; the requirement of brokers to obtain

5673-460: The likelihood of white-collar crime. The researchers have found specific group dynamics involved in white collar crime are similar to the group dynamics present in gangs, organized crime organizations as well as cults. Moreover, the researchers have found that there are systems-level forces influencing the behaviors and cognitions of individuals. The subject of organi-cultural deviance was first taught in business management, leadership classes, and in

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5766-631: The local destruction the Madoff storm caused only when Hurricane Trump came along" in 2016. The New York Times reported that Madoff courted many prominent Jewish executives and organizations and, according to the Associated Press , they "trusted [Madoff] because he is Jewish." One of the most prominent promoters was J. Ezra Merkin , whose fund Ascot Partners steered $ 1.8 billion towards Madoff's firm. Most Ponzi schemes appeal to greed, but Madoff appealed to investors' fear of volatility. His "unusually consistent" annual returns of around 10% were

5859-509: The majority view that justice requires the intervention of the criminal law. But states depend on the business sector to deliver a functioning economy, so the politics of regulating the individuals and corporations which supply that stability become more complex. For the views of Marxist criminology , see Snider (1993) and Snider & Pearce (1995), for Left realism , see Pearce & Tombs (1992) and Schulte-Bockholt (2001), and for Right Realism , see Reed & Yeager (1996). More specifically,

5952-420: The markets were far too volatile even under the best of conditions for this to be possible. Later, Markopolos testified before Congress that this would be like a baseball player batting .966 for the season , compared to .300 to .400 for elite players, "and no one suspecting a cheat". In part, the memo concluded: "Bernie Madoff is running the world's largest unregistered hedge fund. He's organized this business as

6045-528: The organization for satisfaction of their basic needs. As the process of organi-cultural deviance escalates, the complacency to meet mid-level needs becomes a dependency on the organization to satisfy the lower needs of the pyramid, the individual's basic needs. In the paper Using Gang and Cult Typologies to Understand Corporate Crimes, Gendron and Husted found organizations engaging in organi-cultural deviance used coercive power, monetary, physical and/or psychological threats, to maintain their gravitational hold on

6138-407: The original federal charges, Madoff said that his firm had "liabilities of approximately US$ 50 billion." Prosecutors estimated the size of the fraud to be $ 64.8 billion, based on the amounts in the accounts of Madoff's 4,800 clients as of November 30, 2008. Ignoring opportunity costs and taxes paid on fictitious profits, about half of Madoff's direct investors lost no money. Harry Markopolos ,

6231-458: The previous 10 years of the S&P 500. The SEC investigation came right in the middle of Madoff's three terms as the chairman of the Nasdaq stock market board. The size of the pools mushroomed by word-of-mouth, and investors grew to 3,200 in nine accounts with Madoff. Regulators feared it all might be just a huge scam. "We went into this thinking it could be a major catastrophe. They took in nearly

6324-500: The principals being Frank Avellino, Michael Bienes, and his wife Dianne Bienes. Bienes began his career working as an accountant for Madoff's father-in-law, Saul Alpern. Then, he became a partner in the accounting firm Alpern, Avellino and Bienes. In 1962, the firm began advising its clients about investing all of their money with a mystery man, a highly successful and controversial figure on Wall Street —but until this episode, not known as an ace money manager—Madoff. When Alpern retired at

6417-435: The real need for its employees to survive (earn a living, avoid bullying) act as a type of organizational gravitational pull. The concept of organi-cultural deviance includes both micro (personal, psychological or otherwise internal forces exercising influence over an individual's behavior) and macro influences (group dynamics, organizational culture, inter-organizational forces as well as system pressures and constraints, such as

6510-602: The same year-to-date total return on the S&P 500-stock index had been negative 38%. Diana Henriques of the Times said that Madoff's victims could have made much more money in other investments But they were willing to give up those greater returns in exchange for the consistency of Madoff's returns. He made them feel safe. They all thought they were taking a conservative step. An unnamed investor remarked, "The returns were just amazing, and we trusted this guy for decades — if you wanted to take money out, you always got your check in

6603-557: The scam had been exposed, he said, "Doubt Bernie Madoff? Doubt Bernie? No. You doubt God. You can doubt God, but you don't doubt Bernie. He had that aura about him." The SEC investigated Madoff in 1999 and 2000 about concerns that the firm was hiding its customers' orders from other traders , for which Madoff then took corrective measures. In 2001, an SEC official met with Harry Markopolos at their Boston regional office and reviewed his allegations of Madoff's fraudulent practices. The SEC said it conducted two other inquiries into Madoff in

6696-511: The sole shareholder. In 1992, Bernard Madoff explained his purported strategy to The Wall Street Journal . He said his returns were really nothing special, given that the Standard & Poors 500 - stock index generated an average annual return of 16.3% between November 1982 and November 1992. "I would be surprised if anybody thought that matching the S&P over 10 years was anything outstanding." The majority of money managers actually trailed

6789-513: The stock index, and then placed put options on futures during the 1987 stock market crash . A few analysts performing due diligence had been unable to replicate the Madoff fund's past returns using historic price data for U.S. stocks and options on the indexes. Barron's raised the possibility that Madoff's returns were most likely due to front running his firm's brokerage clients. Mitchell Zuckoff, professor of journalism at Boston University and author of Ponzi's Scheme: The True Story of

6882-533: The stockings. Order flow is an issue that attracted a lot of attention but is grossly overrated." By 2000, Madoff Securities, one of the top traders of US securities, held approximately $ 300 million in assets ($ 531 million in 2023). The business occupied three floors of the Lipstick Building in Manhattan, with the investment management division on the 17th floor, referred to as the " hedge fund ", employing

6975-426: The study of corporate crime been included in coursework and degree programs directly related to criminal justice, business management, and organizational psychology. This is partly due to a lack of an official definition for crimes committed in the context of organizations and corporations. The social philosophical study of common crime gained recognition through Cesare Beccaria during the 18th century, when Beccaria

7068-565: The term organi-cultural deviance to explain these social, situational and environmental factors giving rise to corporate crime. Renée Gendron and Christie Husted, through their research conducted in 2008-2012, expanded the concept of organi-cultural deviance, in papers presented the Academy of Criminal Justice Sciences conference Toronto, Canada, the American Association of Behavioral and Social Sciences Annual Conference, Las Vegas, Nevada,

7161-446: The two married. A spokesman for Swanson said he "did not participate in any inquiry of Bernard Madoff Securities or its affiliates while involved in a relationship" with Shana Madoff. Madoff Securities LLC was investigated at least eight times over a 16-year period by the U.S. Securities and Exchange Commission (SEC) and other regulatory authorities. In 1992, the SEC investigated one of Madoff's feeder funds , Avellino & Bienes,

7254-402: The view that corporate cultures may encourage or accept deviant behaviors that differ from what is normal or accepted in the broader society. Organi-cultural deviance explains the deviant behaviors (defined by societal norms) engaged in by individuals or groups of individuals. Because corporate crime has often been seen as an understudy of common crime and criminology, it is only recently that

7347-466: The world even then. The culmination of Markopolos' analysis was his third submission, a detailed 17-page memo entitled The World's Largest Hedge Fund is a Fraud. He had also approached The Wall Street Journal about the existence of the Ponzi scheme in 2005, but its editors decided not to pursue the story. The memo specified 30 "red flags" based on a little over 14 years of Madoff trades. The biggest red flag

7440-592: Was doing." Suspecting fraud, RBC declined to invest with Madoff and also cut off professional contact with Tremont. The next major concern about Madoff's operation was raised in May 2000, when Harry Markopolos , a financial analyst and portfolio manager at Boston options trader Rampart Investment Management, alerted the SEC about his suspicions. A year earlier, Rampart had learned that Access International Advisors , one of its trading partners, had significant investments with Madoff. Markopolos' bosses at Rampart asked him to design

7533-593: Was front-running to achieve his gains. In 2001 Ocrant, editor-in-chief of MARHedge , wrote he interviewed traders who were incredulous that Madoff had 72 consecutive gaining months, an unlikely possibility. Hedge funds investing with him were not permitted to name him as money manager in their marketing prospectus . When high-volume investors who were considering participation wanted to review Madoff's records for purposes of due diligence , he refused, convincing them of his desire to keep his proprietary strategies confidential. By purportedly selling its holdings for cash at

7626-594: Was heralded as the Father of the Classical School of Criminology. However, corporate crime was not officially recognized as an independent area of study until Edwin Sutherland provided a definition of white collar crime in 1949. Sutherland in 1949, argued to the American Sociological Society the need to expand the boundaries of the study of crime to include the criminal act of respectable individuals in

7719-404: Was investigating a complaint that Bernard Madoff might be running "the biggest Ponzi scheme ever." In April 2006, Swanson began to date Shana Madoff. Swanson reported the relationship to his supervisor who wrote in an email "I guess we won't be investigating Madoff anytime soon." On 15 September 2006, Swanson left the SEC. On December 8, 2006, Swanson and Shana Madoff became engaged. In 2007,

7812-687: Was lying about or exaggerating his activities. While Madoff claimed to have purchased 123 call options for Procter & Gamble stock on April 16, 1991, Thorp later stated "only 20 P&G options in total had changed hands that day." Rob Picard of the Royal Bank of Canada (RBC), seeking low-volatility investments, was referred to Madoff in 1997 by employees of Tremont Group who were one of Madoff's key "feeder funds". When pressed for details of his investing strategy, Madoff "stuttered" and became evasive. Picard later stated: "right away I realized he either didn't understand it or he wasn't doing what he said he

7905-500: Was most likely a Ponzi scheme. Markopolos later testified to Congress that to deliver 12% annual returns to the investor, Madoff needed to earn an extraordinary 16% gross on a regular basis, so as to distribute a 4% fee to the feeder fund managers, whom Madoff needed to secure new victims, which encouraged the feeder funds to be "willfully blind, and not get too intrusive". Though Markopolos's findings were neglected by regulators he did persuade some professional investors. Joel Tillinghast,

7998-483: Was reduced to as low as one cent. In the 1980s, Madoff's market-maker division traded up to 5% of the total volume made on the NYSE. Madoff was "the first prominent practitioner" of payment for order flow , paying brokers to execute their clients' orders through his brokerage, a practice some have called a "legal kickback ". This practice gave Madoff the distinction of being the largest dealer in NYSE-listed stocks in

8091-412: Was reviewing Madoff's firm, raised questions to Swanson (Walker-Lightfoot's boss's supervisor) about unusual trading at a Bernie Madoff fund; Walker-Lightfoot was told to instead concentrate on an unrelated matter. Swanson and Walker-Lightfoot's boss asked for her research, but did not act upon it. In February 2006, Swanson was emailed by Assistant Director John Nee that the SEC's New York Regional Office

8184-677: Was run by his two sons was one of the top market makers on Wall Street, and in 2008 was the sixth-largest. Madoff's personal and business asset freeze created a chain reaction throughout the world's business and philanthropic community, forcing many organizations to at least temporarily close, including the Robert I. Lappin Charitable Foundation , the Picower Foundation , and the JEHT Foundation. Madoff started his firm in 1960 as

8277-480: Was sentenced to 10 years in prison, and Mark died by suicide exactly two years after his father's arrest. Alerted by his sons, federal authorities arrested Madoff on December 11, 2008. On March 12, 2009, Madoff pleaded guilty to 11 federal crimes and admitted to operating the largest Ponzi scheme in history. On June 29, 2009, he was sentenced to 150 years in prison, the maximum sentence allowed, with restitution of $ 170 billion. He died in prison in 2021. According to

8370-584: Was serving a sentence for a Ponzi scheme involving a carpet-cleaning company called ZZZZ Best . Other former convicts were also involved in the Fraud Discovery Institute; the rest of the team was composed of auditors . In September 2011, Barry Minkow was returned to prison after making false statements in the Fraud Discovery Institute's reports. Nonetheless, he managed to defraud the church at which he had been serving as pastor. In January 2014 he pleaded guilty to embezzling more than $ 3 million from

8463-409: Was that Madoff reported only seven losing months during this time, and those losses were statistically insignificant. This result produced a return stream that rose steadily upward with almost no downticks, represented graphically by a nearly-perfect 45-degree angle. Markopolos argued that anyone who knows the math of the markets would know that such a distribution "simply doesn't exist in finance," since

8556-531: Was the largest buying-and-selling " market maker " at the Nasdaq. He was active in the National Association of Securities Dealers (NASD), a self-regulatory securities industry organization, serving as the chairman of the board of directors and on the board of governors . In 1992, Randall Smith of The Wall Street Journal described him as: ... one of the masters of the off-exchange "third market" and

8649-403: Was the person responsible for the oversight and blunder, according to Markopolos, who testified on February 4, 2009, at a hearing held by a House Financial Services Subcommittee on Capital Markets . In 2007, SEC enforcement completed an investigation they had begun on January 6, 2006, into a Ponzi scheme allegation. This investigation resulted in neither a finding of fraud, nor a referral to

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