Accounting Fraud Examination By: Wagner
October 12, 2011
Introduction As we look back on the first decade of the 21st Century, we see that Corporate America and the Financial Markets were riddled with corruption and fraud. At the beginning of the decade we saw the likes of Enron and WorldCom become insolvent due to accounting frauds of epic proportions. The one case that stands out amongst all of them is the Bernard Madoff case, which is considered to be the largest fraud case of all time. “Madoff managed to lure billions of dollars away from huge charities, as well as wealthy individuals in both the United States and Europe by getting them to invest in his hedge fund. He did so by claiming extraordinary returns (generally
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(Gregoriou et al, 2009). It is easy to see why people had no problem giving him their money to invest with returns like those. Mr. Madoff had a surprising simplistic approch to investing, he called it a split-strike conversion, better know to some as a collar or bull spread. 1. “Buy a basket of stocks highly correlated to the S&P 100 index. 2. Sell out-of-the-money call options on the S&P 100 with a notional value similar to that of the long equity portfolio. This creates a ceiling value beyond which further gains in the basket of stocks are offset by the increasing liability of the short call options. 3. Buy out-of-the-money put options on the S&P 100 with a notional value similar to that of the long equity portfolio. This creates a floor value below which further declines in the value of the basket of stocks are offset by gains in the long put options” (Gregoriou et al, 2009). As illustrated below.
Exhibit 2: Track record of Fairfield Sentry Ltd, one of the Madoff split-strike conversion strategy feeder funds.
(Gregoriou et al, 2009).
To intice new and continued investments from clients, he promised certain clients annual amounts up to at least 46% per year. He also told them that his fee would be approximately $0.04 per share commission on the stocks he traded for them. Contrary to these promises, he would use investor funds to meet redemption requests from
This paper will assess my ability to maximize my personal return on investment with an allocation of $1,000,000. The overall goal of this exercise is to obtain the highest return possible within the next 12 months. I am limited to the following asset classes for allocation of all investments:
Bernie Madoff began his career as an investment broker in 1960, where he legally bought and sold over-the-counter stocks not listed on the New York Stock Exchange (NYSE). From the 1960’s through the 1990’s, Madoff’s success and business grew substantially, mainly from a closed circle of known investors and friends through word of mouth. In the 1990’s Bernard L. Madoff Investment Securities traded up to 10 percent of the NASDAQ on any given day. With the success of the securities business, Madoff started an illegal money-management business, promising his investors consistent returns from 10-12 percent, unheard of returns at the time, which should have tipped off most investors that something was amiss.
I strive to provide my clients with the best possible investment advice and service by employing proven investment strategies and techniques in order to achieve superior investment returns over the long term. I keep my business simple and straightforward in order to ensure that clients understand and easily participate in our ongoing
This Fund is targeting the following annual return for Limited Partners; class A Shares will have a 5% per annum, plus a limited share of profits, on invested capital. Class B shares will have approximately 10% - 15% per annum. However, these anticipated returns (which is not a guarantee of performance) is based on good faith assumptions
Chuck Whitman is a degree holder in finance from DePaul University. Before the establishment of ICM, he worked as a portfolio executive for quite a few wealth management companies with the main objective of gaining as much awareness and experience about the industry and its operational techniques as possible. This enthusiasm to learn is what has led him to successfully establish two of the most well-known establishments in the country. Under to his excellent supervision, ICM group scored the 4th rank in the Wealth management business sector in
Madoff required a $100,000 minimum to invest, was by invitation only, and made each client feel like they were his only client (Ferrell, Fraedrich, & Ferrell, 2018). He was a highly successful business man who was respected and trusted for his knowledge of investments. Madoff had clients begging him to invest their money. The reason, he claimed he could make 10 to 12 percent on returns for investors no
In July 1989, Noel and Tucker give Madoff $1.5 million to manage and follow up the in January 1990 with an additional $1 million. In November 1990, Fairfield Greenwich starts the Fairfield Sentry Limited Fund, its $4 million entirely managed by Madoff. "Once they created Fairfield Sentry to invest exclusively with Madoff, that is when things really started to accelerate," recalls Sherry Cohen, Walter Noel's former assistant.
This report has been prepared for James Brown who has $20,000 to invest. In this report I will analyse Hallensteins Glasson and determined if this is a good option for James if he wants quick capital gain.
““The name of the game, moving money from your clients pocket to your pocket”, Mark stated. “But if you can make your clients money at the same time it’s advantageous to everyone, correct?” “No, Mark replied…Okay, first rule of Wall Street-nobody and I don’t care if you are Warren Buffet or Jimmy Buffet- knows if a stock is going up, down or sideways, least of all stock brokers. But we have to pretend we know.”” (8)
One must pretend to know the broad and yet differentiated world of banking and equity portfolios without bothering to actually learn about them. Use words such as ‘instability’, ‘hedging’, and ‘derivatives’ to inspire awe and trust among those who discuss these activities with you. Of utmost importance to Step Two, one must invest in only certain types of products to assure that one’s portfolio remains inflexible and susceptible to crashing.
An investment firm with the name of J.D.Williams, Inc. helps many of its clients invest over $120 million for the last 40 years. We have many personal investors helping many individuals with their investments. We create personalized plans for our clients depending on their needs. Our company has multiple methods to help its clients with investments. We use many different approaches when it comes to assessing and making an appropriate plan for the investment.
Eventually, his scheme reached a staggering 50 billion dollars under his management. It came to an end after market conditions led to a considerable amount of redemptions when investors started to take their money back.
Professor Mattison gave Tyler and Jessica $100,000 of fictional money to invest any way we wanted. With our $100,000 we initially bought T-Mobil, Sony, Nike, and Chipotle stock. We bought 519 shares of T-Mobil stock for $38.82 per share, 788 shares of Sony stock for $25.35, 27 shares of Nike stock for $110.85, and 27 shares of Chipotle stock for $110.85 per share. After we presented the second time Professor Mattison said to diversify our portfolio. We sold 519 shares of T-Mobil for $39.54 per share and 27 shares of Chipotle for 734.16 per share to buy some more diverse investments. Selling those investments gave us about $40,300 in cash. With that cash we agreed on buying $14,917.20 worth of the Vanguard Global Equity Fund, $4,247.68 worth
How would you hedge risks on July 26 using a short-selling strategy? What problems arise with the short-sale strategy?
This section of the discussion turns to the creative structuring aspect of the problem. The returns to the equity investor seem skimpy. Students should be challenged to look for a way to improve the returns, rather than just reject the deal.