Friday, October 26, 2012

Madoff Scheme

The serious ethical issues in the Bernard Madoff Ponzi scheme all center around lying.  Lying is defined as “marked by or containing falsehoods” (Lying, 2012).  Madoff fabricated an investment securities firm and deceived his investors as well as the legal system.  The lies compelled Madoff to commit more unethical actions including misrepresentation and corruption.  He misrepresented how the company conducted its business practices (Clark & McGrath).  He corrupted his staff by coercing his employees into creating false documents to corroborate the lies (Clark & McGrath).  

The fact that the full nature of what was going on at the Madoff Investment Securities firm was not found out he confessed to his crimes proves that even though he was doing something wrong he was doing it right.  From what I have gathered, he used his successful reputation in the financial community to smooth any exterior concerns and convince investors and regulators to trust him and the firm that bore his name (Clark & McGrath).  To complicate matters, Madoff did in fact run a legitimate business at the same time which eliminated some suspicions (Clark & McGrath). 

There is also some research that suggests that the Securities and Exchange Commission did not do due diligence when auditing the Madoff Investment Securities firm (Clark & McGrath).  The success of this scheme is in large part due to the lackadaisical enforcement of regulations in financial corporate culture.  This may not have been possible to prevent, but if the necessary parties had conducted the proper audits and more extensively investigated tip-offs and suspiciously consistent investment returns this could have been stopped sooner.  Corporate culture has silently consented to shady business practices by not enforcing and updating the practices and codes on the books.  The culture revolves around profit not ethical practices.     

If I were an employee in this company and the scheme came to my attention I would have to report what I found to my superiors and if they choose not to act then I would report this information and any evidence to the regulating body responsible for our industry.

Here is my decision making process.  The first step in the ethical decision making process is to look at the facts in the situation.  The facts here are that someone, namely Madoff, is scheming people and organizations out of billions of dollars for self-profit and doing it through the banks and a false investment securities firm.  He is lying and stealing on a large scale. 

The next step says to look at my ethical values.  As an employee I would know what my professional code and business code of ethics say about ethical financial practices.  Lying and stealing are certainly against anything that I stand for and they are illegal.  It is important to me not to be a part of a scheme or allow others to continue committing these crimes.  I also know that people, charities and other stakeholders, including the government will be affected negatively.  I could also go a prison for knowingly committing financial crimes. 

Next I have to consider the available alternatives.  In this case, I do not believe there are many alternatives.  I could either go along with the scheme and potentially go to jail or report the crimes and release myself of any wrongdoing or responsibility and avoid criminal charges brought against me.  This scheme is not justifiable and goes against my ethical values as well as my professional code of ethics/conduct.  The final step asks me to make a decision.  The only ethical choice would be to do as I said previously and report the findings to my superiors and/or regulating bodies in my industry.  Ethically, I could not participate once the nature of the scheme and crimes came to my attention.  


Clark, J., & McGrath, J. (n.d.). Bernard Madoff's and Allen Stanford's Ponzi Schemes. Retrieved October 25, 2012, from How Stuff Works:

Lying. (2012). Retrieved October 26, 2012, from Merriam-Webster:


  1. Hi Krystina,

    Your decision making process is very similar to my own. I could not just continue to participate in the fraudulent, illegal, unethical activity. You are correct in your assessment of the lack of numerous alternatives. There are only a few, either you tolerate it or you don’t. The extent to which you follow either one of these alternatives involves more variables. Issues like who you will report the crimes to and what steps you will take to remove yourself from the unethical behavior are all dependent on the depth of your ethical value system. Someone might consider just quitting the job. Another person might report it to their supervisor, while yet another person might send a memo to the Securities and Exchange Commission, as mentioned in the readings. The level of risk and consequence involved comes into play in the decision making process. I am willing to assume that all people consider their own personal well being when debating the alternative choices in an ethical situation. We consider ourselves as one of the stakeholders that are affected by the decision and make our decisions partially based on how it will affect us as individuals. This is why being ethical sometimes requires a lot of courage and self-sacrifice.


  2. Hello! Your post brings up some more thoughts I have regarding the SEC and responsibility for reasoning behind why things like this are not only able to happen, but for the time table of how long they go on. It is my belief that people are probably in cahoots on most of this, and that they themselves are doing something unethical so if they refrain from saying anything, then the less attention they are bringing to themselves personally and will be able to continue with their own lives. It is unfortunate that there is not a functionality within the SEC and the government to investigate such things like this, as they eventually affect a really large population severely. It also makes me think of what a big deal congress made about Barry Bonds and his whole steroid problem. Sure, it invalidates his time during baseball but I'm troubled to learn that our government is more concerned about the integrity of baseball than global financial stability and truth.