Bernie Madoff - Reassessing His Motivation One Year Later

Narcissistic Personality - Bernie Madoff - Reassessing His Motivation One Year Later

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June 29, 2010 will mark the one year anniversary of Bernie Madoff's 150 year jail sentence for defrauding investors of billions of dollars. Much has been written about how the former Chairman of the Nasdaq stock store was able to perpetuate his fraud without indispensable regulatory or investor scrutiny. However, few have properly discussed the motivation behind Madoff's Ponzi scheme.

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Narcissistic Personality

Many reporters have recommend that Madoff was plainly motivated by monetary greed. Somehow, this explanation doe not ring wholly true. Madoff's speculation project certainly was not structured to maximize behalf for his firm. In fact, Bernard L. Madoff speculation Securities Llc did not even fee management fees that were former in the business, despite the fact that it was providing clients with jaw-dropping, 15% annual returns. If Madoff's speculation ruse was purely established for personal gain, he could have made more money from it.

Other pundits have pointed to a psychological explanation for Madoff's behavior. He has been labeled with a series of linked diagnostic terms such as psychopath, sociopath, and narcissist. These characterizations lie in sharp unlikeness to those of Madoff's friends and associates who described him as honest, generous, and big-hearted.

While I believe that these colleagues probably did not know the real Madoff, I think that classifying him as a psychopath, although it may be accurate, takes the focus off of an foremost ethical lesson: many seemingly normal habitancy slide down the slick slope of unethical conduct until they end up in prison. It normally commences with a minor ethical transgression and finally grows into an unruly monster.

Many of the key firm scandals of the up-to-date past have exhibited these same characteristics. In the case of Enron, management resorted to "earnings management", a nebulous term that is often used by those committing accounting fraud, in order to meet behalf expectations. The firm manipulated mark-to-market accounting rules in order to identify income early. However, because future income was recognized early, there would finally be less income to meet expectations in subsequent accounting periods. Thus, the same qoute prolonged to occur for Enron management. This led to more and greater accounting irregularities that compensated for the impact of past income management and growing investor expectations. Though this income management seemed modest at first, it swiftly blossomed into a horror that led to the company's downfall and great misery for management, employees, and shareholders.

A similar pattern occurred with Worldcom. Many of the company's problems appear to have started when its Ceo, Bernie Ebbers, was over-extended in his personal firm ventures. Because he had secured funding for these ventures by pledging his Worldcom stock holdings, he could not afford to have the share price of the firm drop. Accordingly, he also resorted to income management to make Worldcom's financial situation appear more suitable than it was. Revenues were inflated. Costs were capitalized in order to under-report expenses. Accounting irregularities prolonged and grew until the Sec filed fraud charges and WorldCom declared bankruptcy.

We may never know what motivation led to Bernie Madoff's gigantic Ponzi scheme. At his sentencing nearly a year ago, he did not discuss this issue. However, based on similar corporate frauds of the past, one can theorize that problems may have commenced when Madoff used money from new clients to pay the speculation returns that his current clients expected. These legal and ethical violations may have seemed minor to Madoff at first. He may have believed that he would make up this shortfall from future trading returns. However, these returns did not materialize and the fund shortage kept growing larger and larger. Eventually, he reached a point of no return where he must have realized that he would never be able to pay all of the amounts due to his investors and could not unwind the mess he had created.

Like many of these scandals, there was a point early on where Madoff could have admitted to clients that he did not perceive the speculation returns he had promised and dealt with the consequences. Granted, his reputation would have suffered and he would have had to concede that he failed to reach his promised returns. Instead, by exterior up his failures, these friends have suffered financial devastation, many charities are in ruins, and Madoff is in prison. Nearly one year down - only 149 years left to go.

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