Bernie Madoff Fraud Triangle

A critical review if Bernie Madoff’s fraud led to the development of Fraud triangle. Psychologists observed the behavioral trend across fraud offenders and established three pillars that informed their actions. The concept of Fraud triangle was born and built much on Madoff’s creativity and crime. The case of Bernie Madoff shocked the world and elicited heated debate on the internal control measures of financial institutions and stock market regulators towards mitigating fraud. The underlying facts in the case of Madoff are a replication of other previous fraud offenders but the magnitude of his victims’ losses attracted the attention of global media. Although Madoff is serving a jail term, his fraud scheme presented the height of sophistication that circumvented all available financial crime prevention measures (Walter ).American renowned financial and economic regulatory measures showed no loopholes that could have allowed Madoff to run such an unprecedented Ponzi scheme without notice, but it happened. The case has therefore attracted scholarly discussions to establish the possible cause of such crime.

In December 11,2008m Bernie Madoff was arrested and later charged with counts of fraud. He successfully masterminded a Ponzi scheme that helped him milk huge sums of money from unsuspecting investors. Despite the overwhelming risk associated with financial market, many questions have been raised concerning Madoff’s motive among other such fraudsters. The Wall street success is a function of the diverse input of several stock brokers. However, the spirit of greed has always brought untold suffering to some investors through fraudulent financial experts like Madoff that are out to manipulate and swindle the public. A critical review of the case of Madoff and the series of interviews that are reflected in “the hoax” expreses the practicality of the triangle of fraud. While Madoff was just an ordinary person, the effective combination of the three pillars of fraud triangle aided him to execute extraordinary economic crime of 21st century.

A case study of Madoff exposes a unique characteristic that is common among fraudsters. Although a lot of research has been done to establish watertight fraud prevention, it simply can’t be stopped. A study has therefore been shifted towards the core behavioral traits and motives of such large scale fraudsters as Madoff. A brief history of Madoff portrays him as a successful stock broker and financial analyst with wealth of experience. However, the irony of his case arises from the loose financial market regulatory authorities that provided such a conducive environment for him to carry out such magnitude of fraud. According to the Fraud triangle, greed and dishonesty are not the only factors that result into fraud; instead, there is a complex interaction of factors that facilitate the act. For instance, not all dishonest people undertake fraud. Lazy supervision is an instrumental tool that fraudsters are able to convert to their advantage and execute such missions unnoticed. No wonder, Madoff successfully carried out such a mass fraud at the glare of financial market regulators and incessant warning from the Wall street journal experts (Ruth).

An interaction between the fraudsters’ personality and the immediate environment therefore play a key role in their action. Madoff was a renowned reflection of stock market success and won the trust of many investors of top reputation and global presence. A personality of a leading US financial analyst and investment expert, his actions were aided by otherwise less strict oversight measures towards such corporate leaders. While psychologists establish that there is no single identifiable personality trait that can tell one as a fraudster, Sound governance could have managed Madoff’s action. The fact is that each person is a potential fraudster given specific circumstances.

Crime and psychology experts therefore provided a vivid description of the triangle of fraud that characterized Madoff’s case. Three major pillars of the triangle are; opportunity, pressure, and rationalization. A criminologist, Dr. Donald Cressey did much of research on fraudsters and established an interaction of the three legs of fraud triangle in which the case of Madoff fit. There must be an opportunity that necessitates dishonest action, pressure or an incentive to defraud, and the rational logic formed in the mind of the fraudster. In that regard, many people may display greed or dishonesty but must blend the three to successfully mastermind fraud.

According to the triangle, one must have a motivation derived from the prospects of financial gain, real or perceived pressure to sustain personal status, power or money, and absence of control measures that may tamper with the fraud scheme. Despite firms’ attempt to take employees through trait tests, the incentive of faking to secure the job negates the accuracy of its outcome. However, in-depth analysis of Madoff’s circumstances and the three factors shows a near factual relationship with fraudsters. Madoff first appeared as an ordinary investment expert with exceptional skill, rich experience, and financial accomplishment (Walter). He was therefore able to lure such big banks as HSBC, personalities, among other high profile entities, both locally in the US and the UK. In that regard, he was able to display a genuine character of success that was driven by self-denial and cheating in an effort to sustain the myth of his potency. A common case of fraud as noted with Madoff emphasizes the fact that institutional insiders of top management are the perpetrators of such crime. While Madoff was the owner of Bernard L. Madoff Investment Securities LLC , and an influential member of the stock market, he proceeded with fraud since he was in a position  of unwritten responsibility but utilized that to hoodwink authorities and get away with his schemes for some time.

The video reaffirms the fact that Madoff had felt his personality threatened by the massive losses he had made but was under the pressure to cover up and display consistent success. He was therefore able to manipulate returns and coarse potential investors to deposit funds on his account for personal gain. The overwhelming trust and popularity Madoff had acquired through his association with big banks and individuals gave him the charm to protect himself from suspicion of many, and this constitute the opportunity aspect of the fraud triangle (Ruth). Madoff history reflects the pursuit of American dream and successful achievement which he capitalized on to learn the psychology of his victims and develop a foolproof leeway to swindle unsuspecting investors. In fact, sometimes, Madoff would turn down offers from multinationals to authenticate his integrity, performance and competence, and hence, display trust that helped extend his fraud tentacles oversees. The ignorance of victims provides even further incentive for the culprit.

While Madoff is serving a life jail term, understanding of the fraud pillars unveils more about his Ponzi scheme, and the need for public-private partnership towards managing such fraudsters.

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