According to the author, doing business needs honesty, and one should be as truthful as possible to build trust with the clients. In the Ponzi scheme, Bernie Madoff used to get money from investors by promising that they would get interested in their money. However, he would pay investors using money collected from other investors instead of investing the money in other projects (Stanwick & Stanwick, 2014). It was just a matter of time before he was overwhelmed by the debts, ending up in prison. According to the author, it is highly unethical to do business in a dishonest way as it does not only have a negative effect on the one doing the business but also on the customers. The customers will waste their time investing in a project that will only lead to the loss of their money.
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Trust is extremely important in business transactions. Greed also plays a role in some business transactions. Discuss how these two concepts were intertwined in this case.
Trust is extremely important in business transactions. In addition, it is important to avoid greed in business transactions as it will affect the reputation of the business. In this case, Madoff conducted the business with greed. He was craving quick and easy money. He ended up conducting the Ponzi scheme, which he used to steal money from clients. He could get money from one investor and use the same to pay other investors. He lied to his clients that he was investing their money, and he would pay them interest. This was very untrustworthy to his clients, who trusted him with their money. He stole a lot of money from the clients out of greed. He further used to pay retirement and other benefits using false payroll records. He and his friends were found guilty of a number of untrustworthy business operations and stealing money from clients. In fact, according to the case, he had stolen a whopping $50 billion by the time he was taken to prison.
Describe a Ponzi scheme. Find several examples of other Ponzi schemes that have occurred in recent years.
This is a scheme whereby investors are promised above-average returns for their money. People give their money to the scheme in anticipation of good interest. However, the Ponzi scheme does not make any real investment with the money received. Instead, Madoff uses that money to pay other investors, while he keeps most of the money to himself. In other words, the scheme is a cycle whereby the owner collects money from one investor and uses the same to pay other investors rather than to make any real investment. In other words, it is a pyramid.
In this case, it appears that Madoff had many friends and family members who were involved in the fraud. Speculate about how likely it is that Madoff’s own sons, who were employees of the firm, knew nothing of the fraud as they stated.
Many of Madoff’s friends and family members were part of the frauds he conducted. Surprisingly, his sons, who were also employees of the firm, had no idea of such proceedings. Possibly, the frauds were conducted in great conspiracy, secrecy, and organization such that no one outside the circles would know about them. The sons were treated just like employees and not as partners, thus they knew nothing about the fraud.
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Explain the ethical issues associated with running a family-owned business. Are these issues present at Madoff’s firm?
Every business should have a code of ethics that guides all its operations. A family business should also have its own ethics that should guide it. For instance, in a family business, all members need to be treated as partners and should be made aware of all the happenings in the business. Profit-sharing should be well defined and should be based on contributions, among other factors. These ethics lacked in Madoff’s firm, thus his sons were totally ignorant about the fraud.
Stanwick, P. A., & Stanwick, S. D. (2014). Understanding business ethics (2nd ed.). Thousand Oaks, CA: Sage.