Business Model: Bernie Madoff Scandal

When looking at Madoff’s business model, his investments, his books, and overall his whole operation Markopolos saw the red flags and did the math and found out that Madoff was in fact committing fraud. At the start he was not certain without a doubt that Madoff was scamming these people but none the less with what he found he filed a report with the SEC, he said what he had found and although he did not have concrete evidence he wanted to have them investigate, his report was ignored. Over the years he gathered more evidence and more certainty and filed reports 4 more times. All of these were in essence ignored, at one point a case was opened, and later closed, without investigation 11 months later. With all of the evidence and all the investigation

Madoff along with other financial scandals of the time; Enron in 2001 and the Lehman Brothers in 2008, all led to major reform. After the Madoff scandal the Security and Exchange Commission (SEC) has revamped the way tips and complaints are handled, by creating a “centralized information technology system for tracking, analyzing, and reporting on the handling of the tips and complaints.” If this had been in place back in 1991 or anytime there after till he was caught, Markopolos’ tips would have led to his investigation. Another very important change in the workings of the SEC is the corporation with those on the inside. In order to promote those inside a fraudulent company to report the fraud the SEC has created agreements that will be entered into with inside tipsters. Related to this is the Dodd-Frank Act, this is a program to protect whistleblowers “and prohibits retaliation by employers against individuals who provide the Commission with information about potential securities violations.” This is a very important addition, because it gives real motivation for people to come forward in order to save their own necks and allows people to do so without fear or retaliation. In addition to influencing whistleblower programs, and tips, Madoff’s scandal also influenced the way that companies are

In 2009 in response to Madoff’s scandal the SEC created new regulations to help protect those who invest money, in hopes of preventing anything like this happening again. Among these new regulations are surprise exams, and companies and financial advisors must “hire an independent public accountant to conduct an annual "surprise exam" to verify those assets actually exist,” this is an important step in order to avoid false assets as in the Bernie Madoff case. In the Madoff case, an auditor named David Friehling was hired by Madoff’s company and misrepresented the company helping the scam continue, in order to avoid unethical behavior by auditors the SEC has added regulations. Among these are requiring companies to have audits preformed in order to make sure they are in compliance using “a Public Company Accounting Oversight Board-registered public accounting firm.” By requiring this the SEC can confirm that the auditors and accountants are reputable and ethical. In addition to all of these the SEC has gone further and has upped the requirements and regulations of those who work as accountants or other similar “Back-Office” jobs. Not only have all of the new regulations and changes been implemented as a result of the Bernie Madoff Ponzi Scheme, but in order to try and prevent anything similar again, the SEC continues to hire the best people