The Research About Madoff Ponzi Scheme 

The main claim in this report will be that:” Madoff Ponzi scheme was difficult to be detected and recognized by the U.S. Securities and Exchange Commission (SEC) and Financial agencies due to the lack of enough expertise within the Agencies”. The main figure is Bernie Madoff because his Ponzi scheme is the one with the most money stolen from various companies and people. The intelligence report will be Financial intelligence (FININT) because Ponzi Scheme is a financial fraud. Ponzi scheme in shortly is “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks” (, n.d.).

Source analysis

For the support of the claim the article of Henk van de Bunt: “Walls of secrecy and silence” will be used what is written there is about how illegal undertakings can stay hidden by the law enforcement agencies (Van De Bunt, 2010). For the counter proof of the argument A journal article ”Madoff : A Flock of Red Flags. The Journal of Wealth Management” will be utilized for the activities that were made by Madoff to cover his leads (LHABITANT, 2009). The book of Sarna will be used for the counter-arguments and it will reveal the people and the agencies that managed to detect some of the fraud of Madoff (Sarna, 2010). The article of Drew will show a particular fund agency that did not want to collaborate with Madoff. (Drew, 2010) The article of Vinod will give a proof about the connection between Bernie’s niece and ex lawyer from SEC (Vinod, 2008).The book of Robert Dover will be used as reference point about how the intelligence cycle is involved in the counter argument and in the conclusion part (Robert Dover, 2013). All of the literature is obtained through Google Scholar where it is considered to be academic and peer-reviewed.

Research findings

For an explanation of the claim, the story of Madoff scheme will be analyzed to demonstrate how difficult it is to catch that kind of illegal doings even though there are a lot of red flags on the horizon. Bernie Madoff was charged for financial fraud activities on 11 December 2008 by the Securities and Exchange Commission for a roughly 50 billion dollars (Van De Bunt, 2010, p. 436). What helped him in the beginning was that he did not register himself as an financial advisor because he considered his job as a broker; therefore, with that he was not forced to reveal almost any information from his financial dealings (Van De Bunt, 2010, p. 439). What contributed for the hiding of the scheme in Madoff case was the annual returns of his stock company between 10-14 percent and never below the 6 percent (Van De Bunt, 2010, p. 441). Madoff justification of the trading with the stocks was the he used a strategy that was called split strike strategy which basically reduce volatility and delivers continually returns (Van De Bunt, 2010, p. 442).The Audit of the Madoff BMIS had been done by a small audit company called Friehling and Horowitz. What is interesting here is that they were approved by SEC, even though the auditors were without any history in their database (LHABITANT, 2009, p. 93). What made Madoff almost invisible for SEC and his members was that he never mentioned the name of his company BMIS or his own name in the track records of the feeder funds which made him even invisible for final investors who were not cognizant of where and in who they invest their funds. (LHABITANT, 2009, p. 94) According to the article of Henk van de Bunt Madoff was questioned by the SEC investigators and he was caught in contradicting his points but what they did was to believe in his version without having any doubts that there a things that might go wrong (Van De Bunt, 2010, p. 445). From an intelligence point of view, this could be considered as vetting Madoff company and himself as well. The most obvious reason why the authorities did not manage to catch Madoff and his scheme was that he surrender himself to them and it was because of the Financial Crisis in 2008 which triggered a lot of investors to withdrew their funds from Madoff company and basically to expose his fraud. (Van De Bunt, 2010, p. 436).This is a proof which demonstrates the lack of knowledge and capabilities of those two agencies.

The counter argument in this report will try to analyze the red flags which were suspicious in Madoff pattern, and that there were financial institutions and bankers that were aware about Madoff illegal activities. Even though it was difficult to be recognized there were people from the financial districts primarily that managed to recognize and tried to stop Madoff scheme. People like the financial investigator Harry Markopolis, alleged Madoff long time before the exposure of the scheme (Sarna, 2010, p. 163). What Markopolis did was to start a campaign against Bernie with the goal to convince U.S. Securities and Exchange Commission that his financial activities are not legitimate (Sarna, 2010, p. 163). Furthermore, in 1999 he wrote a letter to the office of the SEC that Madoff is running the world largest Ponzi Scheme (Sarna, 2010, p. 163). There were several banks that did not want to work with the Madoff company because of the suspicion they had. Hedge fund due diligence Askia LLC advised their clients to do not invest in Madoff business again due to a variety of red flags according to them (Drew, 2010, p. 67). Chris Addy, the founder of Montreal-based Castle Hall Alternatives, that inspects hedge funds for people looking for a potential place to invest their money, was suspicious about the hierarchical structure of Madoff BMIS that involves broker-dealer. (Sarna, 2010, p. 163).What the chairman of SEC managed to recognize and detect in Madoff scheme was the connection between the former employee of SEC Eric Swanson and Bernie niece Shana Madoff that was extremely concerning for him (Vinod, 2008, p. 3). The Financial Regulatory Authority (FINRA) serves as a defense agency for SEC. Moreover, what they did was to investigate more than 19 complaints towards Madoff they did not inquired investment deals because Madoff agency was registered as a broker until 2006. What FINRA found out was regulatory failures which are suspicious for their job (Sarna, 2010, p. 165). FINRA investigation in 2007 discovered that there are some money laundering commissions that Madoff made in London (Sarna, 2010, p. 165).The biggest enemy of Madoff Markopolis was the guy that had the most accurate evaluation of all of Madoff illegal deals what he did was to write a report consist of 375 pages of testimonies and evidences about Madoff fraud (Sarna, 2010, p. 166). With that report he managed to orchestrate almost every part of the intelligence cycle without the feedback part due to the external resolution of the Madoff case which was the Financial Crisis in 2008 (Robert Dover, 2013, p. 78).


From an intelligence perspective it can be concluded that there was a well-obtained collection of the information about Madoff. What was not done well was the Process and Analyzing of the Intelligence cycle due to the lack of collaboration between the Financial institutions and SEC: When Markopolis showed the report almost no one turn him attention, moreover it is because the lack of financial knowledge in the SEC. The defensive agency of SEC FINRA managed to catch money laundering dealings of Madoff but still not enough to prove his Scheme which is a good example that apart from the lack of knowledge this report will recommend a collaboration and more people like Markopolis inside SEC who can understand how financial frauds and deals works. That is why the main claim in this report is that these two agencies did not managed to recognize and detected Madoff scheme, furthermore the biggest proof for that is how Madoff surrender himself to the authorities due to the Financial Crisis in 2008. 

01 August 2022
Your Email

By clicking “Send”, you agree to our Terms of service and  Privacy statement. We will occasionally send you account related emails.

close thanks-icon

Your essay sample has been sent.

Order now
Still can’t find what you need?

Order custom paper and save your time
for priority classes!

Order paper now