Section 1: Fraudulent financial reporting is the premeditated and calculated falsification or omission of financial information/documents such as: balance sheets, income statements, etc. The ultimate goal for a firm to falsify financial reports is to improve their profitability and ultimately their performance of the firm. By firms falsifying and omitting information from their financial reports, they are misrepresenting themselves to their investors. If a firm looks as if they are performing well, then more people will want to invest in the firm. The people who are being hurt at the end of the day are not the people at the top of the firm, CEOs and management, the people who are being hurt are the investors that will untimely lose their investments and the employees who work at the firm.
There are many
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Madoff cheated thousands of investors of billions of dollars throughout more than a decade through his company Bernard L. Madoff Investment Securities LLC. (Interesting side note: I chose to write my ethics paper on Madoff because my roommate in Barcelona is friends with Bernie Madoff’s granddaughter). Madoff was able to cheap investors out of billions of dollars through a Ponzi scheme. A Ponzi scheme, according to Investopedia definitions, is “a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by a later investor.” To simplify that definition, you can look at the movie Wolf of Wall Street. In the movie, employees were selling penny stock or nonexistent stock for more than they were worth. People were investing a lot of money into these penny or nonexistent stocks and in return the company would pocket the investors’ money. The first investors would then later get their money from someone else who invested with the firm after they did and so