Madoff Case Study

ISSUES IN ACCOUNTING EDUCATION American Accounting Association Vol. 29, No. 1 DOI: 10.2308/iace-50597 2014 pp. 271–285

The Madoff Debacle: What are the Lessons?

Srinivasan C. Ragothaman

ABSTRACT: This paper describes the implementation of a ‘‘Ponzi scheme case study’’ in auditing classes at the undergraduate and the Master’s level. This instructional case is

based on the much-publicized Madoff Ponzi scheme. The case exposes students to

several auditing-related concepts, including: (1) fraud auditing; (2) ethical reasoning and

utilitarian principles; (3) affinity fraud and Ponzi schemes; (4) internal control evaluation;

(5) governance issues; (6) the Securities and Exchange Commission (SEC)

investigations; (7) investment strategies and terminologies; and (8) regulation. The

case provides students with an opportunity to assume the role of an external auditor and

participate in some active learning exercises. About 170 accounting majors participated

in this case project during a three-year period at a Midwestern university. Students who

worked in groups were genuinely engaged in the learning process, and they came up

with several red flags associated with the Madoff fraud and suggested many new internal

controls. This case provides a hands-on learning experience to students that could be

relevant for them in their future career in public accounting. Student opinion surveys

conducted about the learning outcomes of this project indicate strong student

engagement, active learning, and satisfaction.

Keywords: Ponzi scheme; fraud risk factors; affinity fraud; control environment; utilitarian ethics; professional skepticism.

CASE INTRODUCTION

T he Federal Bureau of Investigation (FBI) arrested Bernard L. Madoff (hereafter, Mr.

Madoff ) on a rainy morning in December 2008, based on tips from his two sons. They

confiscated dozens of checks, totaling $173 million, that were made out by him to his close

friends, key employees, and family members. Mr. Madoff was charged with multiple felonies,

including securities fraud, investment advisor fraud, mail fraud, and wire fraud. The U.S. District

Court Judge in New York City released him on a $10 million bond, gave orders to put electronic

bracelets on him, and confined him to his Manhattan apartment. It was a disappointment for the

prosecutors, who wanted him jailed. However, the prosecutors got their wishes when the judge also

ordered Mr. Madoff and his immediate family members to not sell or transfer any personal assets.

Srinivasan C. Ragothaman is a Professor at The University of South Dakota.

Comments received at the Effective Learning Strategies Forum of the American Accounting Association Annual Meeting held in Denver in August 2011 and from Angeline Lavin, Nolan Goetzinger, Pearl Nielsen, the editor, and an associate editor are appreciated. This manuscript has benefitted from substantial comments offered by two anonymous reviewers. The usual disclaimer applies.

Editor’s note: Accepted by William R. Pasewark

Published Online: August 2013

271

The FBI confiscated the passports of Mr. Madoff and his wife, Ruth. A federal judge froze the

assets of Bernard L. Madoff Investment Securities LLC (BMIS) and a receiver was appointed to

handle the case (Henriques 2011).

Overview of Bernard Madoff Investment Securities LLC

After his high school graduation in 1956, Mr. Madoff attended The University of Alabama for

a year, where he was a member of a Jewish fraternity. He transferred to Hofstra University in 1957

and graduated with a degree in political science from Hofstra in 1960. Mr. Madoff and his wife held

several small jobs in the early years, including installing sprinklers, babysitting, and performing

lifeguard duties in Manhattan (Henriques 2011). He started his investment business in 1968 with a

capital of $5,000, which he and his wife had saved during the previous six years.

Mr. Madoff’s business grew slowly in the initial years. When he got a chance to become a

market maker on the National Association of Securities Dealers Automated Quotations (NASDAQ)

in 1984, he grabbed the opportunity. His eldest son, Mark, had just finished his M.B.A. at Columbia

University and was eager to enter the family business. While Mr. Madoff looked after his

investment management and advisory business, he put Mark in charge of the market maker end of

the business. BMIS directly executed orders from retail brokers. About the same time, Mr. Madoff

invested in computer equipment and software to automate the order system (Henriques 2011). Peter

Madoff, his brother, spearheaded the computerization project and successfully developed a fast,

automated system to handle customer orders. This automated trading system pioneered by BMIS

brought fame to the investment firm and added to the mystique of the name: Bernard L. Madoff. By

2008, BMIS was the sixth largest market maker on the NASDAQ.

BMIS paid a small commission to retail brokers for order flow. Mr. Madoff compared this to

stocking manufacturers paying for the racks that display their products in supermarkets. Some

academics have argued that this practice of paying for order flow is not ethical, as it causes the

broker to violate his or her fiduciary responsibility to obtain the best execution price for the

customer. The New York Stock Exchange (NYSE) did not like this Madoff business practice and

dubbed these payments ‘‘bribes’’ or ‘‘kickbacks.’’ The NYSE argued with the regulators that paying

for order flow is illegal and that the practice should be banned. However, the regulators eventually

sided with Mr. Madoff and the practice was declared legal (Henriques 2011).

BMIS was governed by a small, closely knit board of directors. Mr. Madoff was the founding

Chairman of BMIS and retained that position until his arrest in 2008. Brother Peter Madoff was the

Managing Director and the Chief Compliance Officer. Peter’s daughter, Shana Madoff, served as

the compliance attorney for the investment firm (Henriques 2011). In addition, Mr. Madoff’s two

sons (Mark and Andrew) served as the lead officers in the ‘‘market maker’’ division of the firm. The

chief financial officer, Frank DiPascali, was a long-term associate of Mr. Madoff. In short, the

management of BMIS was dominated by family members and friends.

Mr. Madoff was elected as the chair of the National Association of Securities Dealers (NASD) in

1990 and held that prominent post for three years. As chair of the NASD, Mr. Madoff vigorously

championed the cause of transparency. He was a founding member of the International Clearing

Corporation in London. He portrayed himself as a person of unimpeachable integrity. His (now

defunct) website used to say: ‘‘In an era of faceless organizations owned by other equally faceless

organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the

financial world: The owner’s name is on the door. Clients know that Bernie Madoff has a personal

interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that

has always been the firm’s hallmark.’’ His fame grew far and wide. By 1993, feeder funds had started

investing heavily with Madoff. They were impressed with his steady returns. Some feeder funds did

not tell their investors that they were investing with Mr. Madoff. The managers of some of these

272 Ragothaman

Issues in Accounting Education Volume 29, No. 1, 2014

feeder funds rationalized that they were investing only a small portion (10 to 15 percent) of their

portfolio with Madoff. Other feeder fund managers invested substantial portions of their portfolio

with Madoff. For example, Fairfield Greenwich Advisors invested $7.5 billion with BMIS, which was

53 percent of assets under its management. These feeder funds were paid a finder’s fee for bringing

investments to BMIS. Feeder funds also received substantial commissions from their investors. Mr.

Merkin, who managed three Madoff feeder funds, was alleged to have collected $470 million in fees

and commissions for bringing in $2.4 billion to BMIS (Chew 2009). Several hedge fund managers

also invested with BMIS. When it was all over, Mr. Madoff had cheated his investors to the tune of

approximately $20 billion through his Ponzi scheme (see: http://www.madofftrustee.com).

Mr. Madoff was on the Board of New York City Center, an innovative cultural institution

supported by the Madoff couple for decades (Henriques 2011). He served as the Chairman of the

Board of Directors of the Sy Syms School of Business at Yeshiva University and as the Treasurer of

its Board of Trustees. He moved in the upper echelons of society with aplomb and quickly

established himself as a prominent philanthropist. His family foundation handed out sizable

donations to various noble causes: cancer, theater, lymphoma research, education, hospitals, and

other non-profit institutions. It appears that charlatans are often schizophrenic.

Mr. Madoff owned opulent mansions in New York, Palm Beach, the French Riviera, and

London (Kravitz 2009). His massive Montauk, New York, beach house alone is valued at $8.75

million. His Palm Beach and London homes were in the name of his wife exclusively, and other

mansions were co-owned by the couple. He and his wife also co-owned an $8 million dollar luxury

apartment in Manhattan (Kravitz 2009). Mr. Madoff owned a luxury boat nicknamed ‘‘Bull’’

stationed in Miami, as well as a yacht on the Mediterranean. He had acquired fancy cars, expensive

watches, exclusive country club memberships, Savile Row suits, and other luxury items. He owned

a Brazilian-built Embraer Regional Jet with a price tag of $29 million (Kravitz 2009). Mr. Madoff

had a lavish lifestyle befitting a king. While under house arrest, he tried to mail jewelry and watches

worth a million dollars to his family before he was stopped by the authorities.

Madoff Clientele

Mr. Madoff initially targeted rich people in his own community. People were kept waiting if

they wanted to invest with Madoff. Not everyone was allowed to invest. It was an honor and a

privilege to invest with BMIS. Mr. Madoff was an insider and a pillar of the community and, hence,

people trusted him too quickly. He soon started promising a steady return of 10 to 12 percent each

year for his clients. These returns were guaranteed both in up and down markets. Mr. Madoff

promised positive and steady returns—always. A 10 percent return appeared modest when house

prices were going up 20 percent or more every year. The Internet and real estate bubbles made a 10

to 12 percent return look reasonable and feasible. Mr. Madoff advertised that he was using a so

called ‘‘fool-proof’’ investment strategy—the split-strike conversion scheme or collar trade

(Henriques 2011). Under this scheme, Mr. Madoff claimed he purchased 35 to 50 Standard &

Poor’s (S&P) 100 stocks, sold a call option (upside exposure) on the S&P 100 index, and bought a

put option (downside protection) on the S&P 100 index (Henriques 2011). Several analysts who

tried to replicate this strategy came to the conclusion that it would not generate steady returns of 10

to 12 percent over several years. It did not pass the ‘‘sniff’’ test. To secure a net return of 12 percent,

Madoff had to earn at least 16 percent so that he could pay a 4 percent fee to feeder fund managers

who brought in the investors (Markopolos 2005). Smart investors should have been skeptical about

these high levels of promised returns; perhaps their trust in Madoff blinded them.

Mr. Madoff’s clientele spread far and wide over the years. Many of his clients shared Madoff’s

religious affiliation—they were Jewish. His client list included prominent people in the

entertainment, business, and cable news industry. Celebrity Madoff investors included Steven

The Madoff Debacle: What are the Lessons? 273

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Spielberg, Kevin Bacon, Kyra Sedgwick, Jeffrey Katzenberg, Mort Zuckerman, Larry King, Elie

Wiesel, and others (Henriques 2011). Several other investors were well-to-do retirees who were

living in Florida, Arizona, Nevada, and Southern California. Many of them, unfortunately, did not

appear to properly diversify their investment. They trusted Madoff with their retirement funds. The

eight largest investors with Madoff had invested a whopping $21.42 billion. Exhibit 1 provides the

details.

Desiring steady returns, several charitable foundations also invested their funds with Mr. Madoff,

the famed New York philanthropist. Many Jewish charitable organizations were severely burnt by

their trust in Madoff (Szep 2008). A few of them invested 100 percent of their corpus with BMIS. For

example, the Chais Family Foundation invested all of its money with Madoff. Its annual distribution

to various causes was approximately $12.5 million. This foundation had to fire all of its employees

and shut down. The Robert I. Lappin Foundation invested all $8 million of its corpus with Madoff,

and it was also forced to close down. The Carl and Ruth Shapiro Family Foundation, a Boston-based

organization, estimated its loss exposure at $145 million, which represents between 40 percent and 45

percent of its total assets (Szep 2008). Yeshiva University invested $110 million in Madoff

investments, which was roughly 10 percent of its entire endowment. Mort Zuckerman, who owns the

New York Daily News, reported that his charitable trust could lose $30 million, its entire endowment, due to Madoff shenanigans. The Elie Wiesel Foundation for Humanity and the Wunderkinder

Foundation run by Stephen Spielberg both had substantial amounts of their corpus invested with

BMIS. New Jersey Senator Frank Lautenberg entrusted a substantial portion of his family’s charitable

funds to Madoff and was exposed to heavy losses. Charities typically distribute 5 percent of their

investment annually to various recipients. Clients came from affinity groups and, hence, it was easier

for them to trust Mr. Madoff. Charities are typically satisfied with an annual income of 5 percent and

seldom seek the refund of their corpus. Thus, Mr. Madoff could pay them 5 percent per year even if he

made no real investments and could perpetuate the Ponzi scheme for 20 long years!

Shenanigans at Bernard L. Madoff Investment Securities

Professionals who sold Madoff investments included lawyers, accountants, bankers, brokers,

and even doctors. Many of these veterans thought Madoff had a system to make money.

Salespeople for Madoff investments in Europe were well trained and spoke multiple European

languages. They were wealthy and well connected. A large proportion of Madoff’s business came

from well-to-do European investors. Mr. Madoff only had two dozen people working for him in the

U.S. hedge fund business and another 28 working for him in his London office (Henriques 2011). A

key employee in accounting assisted Mr. Madoff by creating an elaborate phony paper trail and by

mailing falsified account statements to customers on a regular basis. His employees, including the

sales professionals, were well compensated. They were paid much above the industry norms. Key

employees were paid substantial bonuses, as well. Perhaps such exceedingly generous payments

should have raised some eyebrows.

Peter Madoff served as the Chief Compliance Officer and Senior Managing Director at BMIS

from 1969 to 2008. Peter was in charge of developing compliance policies and procedures and

overseeing their implementation. He created a comprehensive compliance manual and annual

compliance reports overseen by competent investment professionals. However, it was all an illusion

created with the fake filings and fictitious documentation. In June 2012, the Securities and

Exchange Commission (SEC) filed a criminal complaint against Peter Madoff in the U.S. District

Court for the Southern District of New York alleging:

that in addition to creating false compliance materials, Peter Madoff created false broker-

dealer and investment advisor registration applications filed by BMIS. He also failed to

implement and review required policies and procedures, and falsified the firm’s books and

274 Ragothaman

Issues in Accounting Education Volume 29, No. 1, 2014

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The Madoff Debacle: What are the Lessons? 275

Issues in Accounting Education Volume 29, No. 1, 2014

records. Peter Madoff was richly rewarded for his misconduct, pocketing tens of millions

of dollars through salary and bonuses, fake trades, sham loans, and direct, undocumented

transfers of investor funds to himself from the bank account that BMIS used to perpetrate

the Ponzi scheme. (SEC 2012)

Peter Madoff was sentenced to ten years in jail for his role in the Madoff fraud in December 2012.

The chief financial officer, Frank DiPascali, was in charge of maintaining the accounting

records and financial management at BMIS. A 33-year veteran at BMIS, Frank was the chief

lieutenant of Mr. Madoff. Frank was also the ‘‘director of options trading’’ at the firm. Every three months, BMIS would mail quarterly statements to the firm’s investors. Many of these statements

showed investments in blue chip companies. These statements always showed a positive return of 3

to 4 percent every quarter. In earlier years, if investors requested a liquidation of their investments, a

check for the balance was promptly mailed to them. Since most of the investors were individually

very wealthy, the refund requests were sporadic. In addition, some investors were charitable

organizations and were not seeking the return of their original investment. Mr. Madoff, his brother,

and Frank DiPascali formed a tight-knit group that engineered this massive fraud and kept it secret

for a long time, to the detriment of thousands of gullible investors.

BMIS claimed to be a private fund and did not register with the SEC. Hence, it was not filing

financial information with the SEC on a regular basis for many years. BMIS, however, was audited

by Friehling & Horowitz, a small CPA firm in New York City. This accounting firm operated out of

a 13 feet by 18 feet office in uptown New York (Abkowitz 2008). The CPA firm consisted of three

people, including a secretary. Jerome Horowitz, the senior accountant at the firm, retired in 1991

and moved to Florida. The only active accountant at the firm, David G. Friehling, was a past

president of the Rockland County chapter of the New York State Society of Certified Public

Accountants and sat on the chapter’s executive board. David Friehling, a 49-year-old accountant,

apparently worked sporadically, according to a nearby worker in the office building (Abkowitz

2008). He was often seen driving a luxury Lexus. Mr. Friehling essentially attested for 17 years that

BMIS had a clean audit record. He collected a $250,000 audit fee for just signing the audit report,

and performed no audit procedures. Friehling & Horowitz did not submit itself for peer review

during the last 17 years (Abkowitz 2008). The firm had been consistently telling the New York

State CPA Society that they had not done any audits during those 17 years and, therefore, were not

subjected to any peer review. Mr. Friehling was also not registered with the Public Company

Accounting Oversight Board (PCAOB). The Madoff Trustee, Irving Picard, sued JPMorgan Chase

in December 2010. Picard alleged that the Madoff banker had known that Friehling had neither

registered with the PCAOB nor subjected himself to the American Institute of Certified Public

Accountants (AICPA) peer review as early as 2006. The Office of the Comptroller of the Currency

(OCC) is also unhappy with JPMorgan Chase and is faulting the bank for not conducting due

diligence and for failing to report suspicious activity at BMIS.

Fairfield Greenwich Group invested a staggering $7.5 billion with BMIS (see Exhibit 1). In

2008, the Fairfield Fund announced on its website that it was managing $14 billion in assets. More

than 95 percent of this $14 billion came from Europe, Asia, and the Middle East. Hence, a little

more than 50 percent of the funds were invested with one individual (Mr. Madoff ) by Fairfield

managers. As a feeder fund, it was Fairfield’s fiduciary duty to do due diligence about BMIS before

investing. It appears that Fairfield failed to perform this duty and did not exhibit enough

professional skepticism. Of course, Fairfield was receiving substantial fees from its own clients and

from BMIS (Henriques 2011).

276 Ragothaman

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Red Flags

The SEC received multiple complaints against Mr. Madoff over the years (Scannell 2009).

Whenever the SEC made inquiries about the trading practices at BMIS, Mr. Madoff used his charm

and manipulative ways to explain away his dealings to the SEC inspection teams. While some of

these complaints were anonymous, several were credible and had professional names associated

with them. The earliest complaint was in 1992 and was directed at an associate of Mr. Madoff, Mr.

Avellino (Berenson 2009). Avellino and Bienes initially had set up an accounting firm in

Manhattan in 1977 and soon shifted their focus to raising funds for Mr. Madoff. By 1992, they had

raised $441 million from 3,200 clients and had entrusted these funds to Madoff (Berenson 2009).

What caught the attention of SEC investigators was the promise made by Avellino and Bienes that

they would pay 13.5 to 20 percent annual returns to their clients. This generous promise prompted

the SEC to wonder whether Avellino and Bienes were running a Ponzi scheme. When Avellino was

questioned by SEC investigators, he told them that the money has been entrusted to Mr. Madoff

(Berenson 2009). At that time, Madoff’s firm was an influential brokerage house on Wall Street.

Once Avellino assured the SEC investigators that he would return the money to investors and paid a

small fine to the SEC, the federal investigators concluded the investigation. Avellino and Madoff

had been connected for a long time; Mr. Avellino had worked for Mr. Madoff’s father-in-law since

1958 as an accountant. The SEC failed to ask the right question in 1992—Is Mr. Madoff (not

Avellino) running a Ponzi scheme?

Harry Markopolos filed complaints against Mr. Madoff multiple times and put his professional

name on the line. He complained to the Boston office of the SEC, suggesting that Madoff was either

front running or deceiving his investors by running a Ponzi scheme in 2000. As an example, front

running would occur if a stockbroker learns that a large retirement fund has a limit order in to

purchase a certain stock, and the broker uses this private information to buy the same stock just

before the retirement fund’s large order is executed. The SEC has banned front running. In an article

published in Barron’s, Arvedlund (2001) wondered how Madoff was getting such steady returns. She was also critical of the secrecy associated with the Madoff methods to generate the returns. A

long memo was sent by Markopolos in 2005 to the SEC detailing why he considered BMIS a fraud.

Markopolos (2005) listed 29 red flags in support of his allegation that Madoff had been committing a

serious fraud. A few of his red flags are discussed below. He pointed out that BMIS reported only

seven small monthly losses in 174 months (14.5 years). This defies logic. This is equivalent to a

major league baseball player hitting a 0.960. There were not enough index put option contracts in

total in the market to hedge the way Madoff said he was hedging. Several investors believed that Mr.

Madoff subsidized down months. Other investors believed that Mr. Madoff could time the market

perfectly because of his insider status. This is incredulous. There was a lot of secrecy associated with

BMIS operations, and only family members knew the Madoff investment strategy. The feeder fund

(Fairfield Sentry) took extraordinary pains to hide the fact that the real money manager was Mr.

Madoff. Sometimes the best advice financial advisors can offer their clients is to be conservative and

diversify their investments. Many of the financial advisors failed to offer this advice.

The Aftermath

Within a few weeks of his house arrest, Mr. Madoff’s customers had confessed that their loss

exposure totaled several billion dollars. A CNN (2008) business story reported that several

prominent Madoff investors, including Royal Bank of Scotland, BNP Paribas, Banco Santander,

HSBC, and others, announced billions in expected losses. A few weeks later, the court-appointed

receiver reported that he had recovered a sum of $1.1 billion from several Madoff bank accounts

(see: http://www.madofftrustee.com). Some of the big accounting firms were staring at potential

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lawsuits. Even though they were not the auditors of BMIS, the big accounting firms were the target

for the trial lawyers because of their role in auditing the feeder funds (Dugan and Crawford 2009).

Mr. Madoff pled guilty to 11 felony charges (securities fraud, investment advisor fraud, mail

fraud, wire fraud, money laundering, false statements, and others) in March 2009. He was awarded

the maximum possible jail sentence of 150 years in July 2009 and was asked to pay a restitution of

$170 billion (Henriques 2011). Mark Madoff (Mr. Madoff’s eldest son) committed suicide in

December 2010. Frank DiPascali pled guilty to ten felony charges and is awaiting sentencing. He is

cooperating with the government in the investigation. David Friehling pled guilty to felony charges

against him and lost his CPA license in July 2010. His sentence has been postponed multiple times,

as he is also cooperating with the government. The auditor’s son, Jeremy Friehling, committed

suicide in November 2012. The SEC punished nine employees in November 2011 for their

negligent roles in multiple Madoff investigations without firing any of them. These sanctions

included pay reductions, suspensions, and counseling memos. In November 2012, Irwin Lipkin,

former controller at BMIS, pled guilty to falsifying books and records. The Madoff Recovery

Initiative (see: http://www.madofftrustee.com) reports that as of April 2013, ‘‘the SIPA Trustee has recovered or entered into agreements to recover more than $9.32 billion.’’

Based upon the reading of this case and other materials suggested by the instructor, answer the

following questions.

Case Questions

(1) What are the red flags (fraud risk factors) that are present in this case? Red flags should be

grouped under three categories: pressures/incentives, opportunities, and (ethical)

attitudes/rationalizations. Please refer to AU-C Section 240 (AICPA 2012).

(2) There are multiple approaches available to make ethical decisions. Describe Utilitarian

Theory, Rights Theory, and Justice Theory. Who are all individuals and groups affected

by the Madoff Ponzi scheme, and how are they affected?

(3)a What were the weaknesses in the ‘‘control environment’’ of Bernard L. Madoff Investment Securities LLC?

(3)b What organizational controls, including internal controls, should be put in place to

prevent another Madoff fraud from occurring again? Suggest some regulatory controls

that can deter another Madoff fraud.

(4) Investors, the auditor, feeder funds, the Financial Industry Regulatory Authority, Inc.

(FINRA), SEC inspectors—all should have exhibited professional skepticism. What do

you understand by the phrase ‘‘professional skepticism’’? Describe it in detail. (5) Why did the SEC miss the fraud, even after receiving several complaints?

(6 ) Go to the SEC website or Google it to find and read the Markopolos complaint dated

November 7, 2005 (‘‘The World’s Largest Hedge Fund is a Fraud’’—19 pages long), against Bernie Madoff. Please summarize the key points in the complaint in one or two

pages of your own writing.

Possible Discussion Questions

(7) Why did no one blow the whistle from inside the Madoff investment firm for more than

20 years?

(8) Why did the Madoff Ponzi scheme continue for so long? Why was it not discovered

earlier?

(9) Is ‘‘paying for order flow’’ ethical? What is ‘‘front running’’? Is it ethical? (10) The concept of materiality requires professional judgment. Define the concept of

‘‘material misstatement’’ and the concept of ‘‘material investment.’’ Are the investments

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Issues in Accounting Education Volume 29, No. 1, 2014

made ( percentages reported in parentheses) by the following people/groups with Madoff

material from their individual perspectives? Steven Spielberg (2 percent of his wealth); Chais Family Charitable Foundation (100 percent of its corpus); Fairfield Greenwich

Advisors (53 percent of assets under its management); René-Thierry Magon De La

Villehuchet (90 percent of his wealth); and Yeshiva University (10 percent of its total

endowment). Give your reasons.

REFERENCES

Abkowitz, A. 2008. Madoff’s auditor . . . doesn’t audit? CNNMoney. Available at: http://money.cnn.com/ 2008/12/17/news/companies/madoff.auditor.fortune/index.htm

American Institute of Certified Public Accountants (AICPA). 2012. Consideration of Fraud in a Financial Statement Audit. AU-C Section 240. New York, NY: AICPA.

Arvedlund, E. 2001. Don’t ask, don’t tell. Barron’s (May 7). Arvedlund, E. 2009. Too Good to Be True: The Rise and Fall of Bernie Madoff. New York, NY: Portfolio

Hardcover.

Berenson, A. 2009. 1992 Ponzi case missed signals about Madoff. The New York Times (January 17). Chew, R. 2009. Madoff feeder Merkin charged by Cuomo. Time (April 6). CNN. 2008. Banks face huge losses from $50B ‘‘scam.’’ Available at: http://www.cnn.com/2008/

BUSINESS/12/15/madoff.arrest.exposure/index.html

Dugan, I. J., and D. Crawford. 2009. Accounting firms that missed fraud at Madoff may be liable. The Wall Street Journal (February 18).

Henriques, D. 2011. Wizard of Lies: Bernie Madoff and the Death of Trust. New York, NY: Times Books, Henry Holt and Company.

Kravitz, D. 2009. How much does Madoff still have? Washington Post. Available at: http://voices. washingtonpost.com/washingtonpostinvestigations/2009/01/madoffs_money.html?hpid¼topnews

Markopolos, H. 2005. The world’s largest hedge fund is a fraud. Scribd. (November). Available at: http:// www.scribd.com/doc/9189285/Markopolos-Madoff-Complaint

Scannell, K. 2009. Madoff charges dug for years to no avail. Wall Street Journal (January 5). Securities and Exchange Commission (SEC). 2012. SEC vs. Peter Madoff, Complaint in the U.S. District

Court for the Southern District of New York (June). Available at: http://www.justice.gov/usao/nys/

madoff/20120629infopetermadofffinal%20%28Signed%29%20.pdf

Szep, J. 2008. Charities hit hard as Madoff losses mount. Available at: http://www.reuters.com/article/2008/

12/15/us-madoff-charities-sb-idUSTRE4BE6TP20081215

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