Bernard Madoff’s case is one of the biggest financial crimes in history which affected millions of people and made hundreds of companies lose their finances. His history might seem rather simple. Madoff’s affair would not be possible without the carelessness of law agencies, the help of relatives and friends, banks, and several illegal structures. It was a well-organized fraudulent pyramid scheme that consisted of many financial levels but in fact, was very simple it is structure. Thus, many people could not accept the truth.
There were law agencies that failed Madoff’s process. Some of them are perfectly described in the film (2009), especially the role of the Securities and Exchange Commission (SEC). Hence, it is principal to use both critical sources and real people’s interviews in order to explain why almost all law agencies failed Madoff’s case.
- Federal Bureau of Investigation (FBI). It has an ability to investigate violations of the federal law of the country and ensure the safety of the state, the nation, and the President, including treasuring intelligence. FBI is known in the United States as a structure of conducting a general inspection of those who have applied for appointment to public service. The mission of the FBI is to protect and guard the United States against terrorism and foreign intelligence pressure and to enforce the criminal laws of the country. Actually, the FBI did nothing to prevent the crime. There was neither surveillance nor serious inspection at the office. This happened when the sons informed about “the father’s lie”.
- Federal Trade Commission (FTC). The FTC is a bipartisan agency with a goal to protect consumers and support competition. This commission was created as a structure against the trust, and it has also been authorized to contend with unfair and dishonest business practices, including deceptive advertising which defrauds consumers (Frederichs, 2010, p. 293). The agency also did not play any role in the case, because they had no idea that the business is built on false bills.
- Internal Revenue Service (IRS). It is a state agency of the Federal Government of the United States that collects taxes and monitors compliance with the law on taxation. Its purpose is to investigate tax frauds, especially in big corporations and business structures. As Frederichs (2010) notes, tax audits and investigations may accelerate the investigation of other types of corporate crimes when they find sufficient evidence of illicit income (p. 282). Unfortunately, the IRS did not find any illegal taxes, because it did not follow its principles. If the IRS had followed properly the mechanisms of Madoff’s financial empire, it would not have inflicted such damages to all the victims.
- Securities and Exchange Commission (SEC). As Frederichs (2010) suggests, SEC is an independent regulatory agency constituted of five commissions. It could not prevent Madoff’s scheme because it has limited legal liability. Furthermore, the agency lost many warnings (red flags). Actually, the agency did not find anything when it started to analyze the Ponzi scheme between 2006 and 2008 (Moyer, 2009). The agency lost prevention in order to monitor properly explaining it by the fact that he conducted a huge fraud at his firm, Bernhard L. Madoff Investment Securities LLC. Harvey Pitt comments this situation in The Madoff affair (2009), “I think it is clear that there were letters, and it is also clear that the SEC did look at him. What it is not clear is why the SEC was unable to conclude that he was conducting the Ponzi scheme we now know he was conducting”.
- National Association of Securities Dealers (NASD). The goal of the NASD is to monitor compliance with the rules of trade in the OTC market and the securities market companies that are not listed on the conventional exchanges. It is a self-regulatory organization is also responsible for the process of over-the-counter markets. The NASD also failed to detect Madoff’s fraud, because on the visible level all legal processes were issued, and no suspicion of securities occurred as well. Thus, Frederichs (2010) states that the highest level of authority in the corporation inspires many corporate crimes, and obviously these leaders are improbable to encourage investigation of such processes (p. 302).
- Auditor. He or she has a right to check the financial and economic activities of organizations and institutions on the basis of a contract that was signed with the company. The purpose is to conduct audits to confirm the reliability and accuracy of financial statements and reports (Frederichs, 2010, p. 302). Johansen (2010) specifies that the auditors turned a blind eye to clear incidences of bill manipulation (p. 90), so they are almost involved in the crime or tried not to take an active part in such huge financial scheme. According to the film (2009), David Friehling did not conduct a single audit of Madoff’s books despite being paid $14,000 per month in order to certify. Thus, David Friehling helped to perpetuate Madoff in his fraud, because he did not properly fix the incomes and expenses in the company.
- U.S. Postal Inspection Service (USPIS). The main purpose of the USPIS is to protect the U.S. Portal Service, its businesses, clients, and infrastructure by application of laws that protect the mail system of the country from illegal or unsafe use. It also has jurisdiction to identify frauds, money laundering, and, as Frederichs (2010) states, worker’s compensation frauds containing a postal element. Today it has jurisdiction over electronic frauds as well (p. 281). The USPIS did not play any role in the Madoff’s case, because they had neither written nor electronic evidence of a crime. They participated in the process when we received information from other sources.
- The Justice Department. This is the main law agency that controls the company. According to its site, the mission of the Department is to protect the U.S. interests according to the law and punish those guilty for unlawful behavior. In other words, it is the most reliable authority for civil rights. The Justice Department did not stop Madoff, because the SEC lawyers did not inform the public about the suspicious processes and, therefore, there was no reason to investigate.
There are many victims in this affair. The list of victims was so long that after the crime it has been grown for months. The victims included celebrities, businessmen, companies, and corporate objectives, as well as ordinary people who believed Madoff. At the same time, victims contributed to the process, reinforced it, and gave their money as a source for the company. Victims often played a role in the offense that contributed to their victimization. Thus, there are several types of victims who participated in Madoff’s case.
- Individuals are victimized by other individuals. Many friends and relatives were indirectly involved in the Madoff affair because they individually contacted with victims. Moreover, white collars individually talked with the customers, convincing them of the reliability of the company.
- Individuals are victimized by organizations. Madoff stole the money from many solid organizations, especially from the owner of a major league baseball team and thousands of wealthy retirees. The case of Thierry de la Villehuchet, a famous French aristocrat, is also described in the film (2009). It is a vivid fraud outside New York.
- Organizations are victimized by other organizations. In order to keep balance, the company borrowed money from other financial institutions, including charities. Interestingly, Madoff supported charities, and many organizations trusted him and could never suppose the fraud. He also used his Jewish name to court investments within the Jewish community (Hadassahthe Elie Wiesel Foundation, Steven Spielberg’s Wunderkinder Foundation).
- Individuals outside an organization may victimize organizations. Madoff’s actions cost his employees their jobs. Furthermore, one of his sons committed suicide because of Madoff. This is a chain reaction because many people were associated with each other.
The Available Sanctions
The most obvious goal of a sanctioning decision is to exact punishment for an offense. The punishment must exactly match the offense, so the punisher may have the right information about the nature of the crime, all the parties, and the socio-cultural context as well. Madoff should be punished as well because he stole the money and cheated many people. As it was described in the film, Madoff carried himself with such confidence that people trusted him in his every move. This allowed him to insist only on his own guiltiness. The second sanction is retribution. This is an attempt to restore social justice because Madoff ignored all basic social values. Moreover, he did not act kindly with his clients, thus, major companies refused to make a deal with him. The next possible sanction is deterrence, and it plays an important role as an example and prevention of other crimes. Also, incapacitation could paralyze Madoff, but his company serves as a center of his work. Thus, the detection of the company means the extinction of Madoff’s work. The main goal is to imprison for various periods of time, and Madoff will be in jail for the next 150 years. It is hard to punish one single company, because “corporations are metaphysical (real) persons” (Schlegel & Weisburd, 1992, p. 309), but in this particular case it was easy to imprison only one person because Madoff completely took the blame. Then, rehabilitation is also an important sanction, but in Madoff’s case it does not work well. He is a well-educated, smart and already senior person, thus, there is no sense for rehabilitation. One more possible sanction could be restorative justice. Perhaps, this is the most effective sanction. Since Madoff will be imprisoned to the end of his life, and he will not be reeducated anymore, it is possible at least to save the victims of white-collar crimes. It would also include a detailed assessment of the nature and extent of victimization. On the other hand, there are many victims in this process, so restorative justice could be delayed for years.
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Thus, investors judiciously decide to participate continuously in the Madoff affair because they expect to recover their investments. This simple formula forced the investors to pay huge sums, but then they have lost them forever. The Madoff affair has been one of the most scandal crimes for recent years, and, therefore, the punishment expressed the essence of the crime. Conversely, all the victims would never return the money, and only the restorative justice can partially help them in this situation.