I neither understand finance well enough to grasp this situation, nor do I have any idea what “compound prior harm” means, so I can’t comment on this one.
Bernie Madoff is a stockbroker who ran a famous Ponzi scheme that came to light a few years ago, at the height of the financial crisis. Judging from the Wikipedia page, the fraud wasn’t a terribly complicated one: basically, he was taking investors’ money and hanging onto it rather than investing it, while fabricating (unusually consistent) paper investment returns for his clients and paying them out of pocket if they ever wanted to cash out.
Yes, I know who Bernie Madoff is, I’m just not clear on what are the implications of the quoted statement to the government. What does it mean? How was it false? Are there legal obligations to disclose something in such a case? What are they? What are the consequences (practical, not legal) of that lie? Who is harmed by the lie? Who is harmed, on the other hand, by the actual fact which you are lying about? Etc.
I just don’t have anywhere near enough context for any of this.
What does it mean? How was it false? Are there legal obligations to disclose something in such a case? What are they? What are the consequences (practical, not legal) of that lie? Who is harmed by the lie? Who is harmed, on the other hand, by the actual fact which you are lying about?
It means that Madoff was claiming he’d invested his clients’ money at an annual rate of return of… let’s see… a little under 20% (Wikipedia cites 10.5 to 15) when he’d actually had it in the bank at a RoR in the low single digits. Because of that, there would have been an increasingly large gap (probably around 10% annually, compounded over the life of his fund) between the figures he’d cited to his clients and the actual money he’d have available to return to them, and if and when enough of them decided to collect, they’d have found themselves short in proportion to that gap plus whatever Madoff took out for himself (a sum in the millions).
This is straightforward fraud: Madoff promised a service, deliberately failed to deliver, and pocketed compensation for it anyway. The harm done by Madoff extracting compensation is obvious (it’s basically theft); the harm done by him not doing his job is a little more complicated, but also substantial once you take into account opportunity cost. I don’t know the exact legal requirements.
If you don’t mind a bit of followup explanation: where does the lie to the government come into this? Like, clearly Madoff defrauded his clients and that’s terrible, but I’m still not clear on the role of the disclosure to government institutions (or lack thereof). Is it just that the government in this case is the channel by which one disclose information about operations to one’s clients, i.e. the government acting on behalf of the clients? Or is it something else...?
The SEC’s basically acting as an enforcement body and a standards organization in this case. Lying to them allowed Madoff to perpetuate his fraud, and perhaps more importantly to legitimize it; he wouldn’t likely have been able to manage billions of dollars if he’d been operating outside the regulatory framework. I’m not sure I’d call that intrinsically immoral, even with my deontology emulator on, but in this context I think I’d be comfortable saying that it acted to exacerbate the situation.
It looks like he’d tried to stay out of their sights as much as possible, though. Judging from Wikipedia, most of the investigation here was carried out by his competitors.
Bernie Madoff is a stockbroker who ran a famous Ponzi scheme that came to light a few years ago, at the height of the financial crisis. Judging from the Wikipedia page, the fraud wasn’t a terribly complicated one: basically, he was taking investors’ money and hanging onto it rather than investing it, while fabricating (unusually consistent) paper investment returns for his clients and paying them out of pocket if they ever wanted to cash out.
Yes, I know who Bernie Madoff is, I’m just not clear on what are the implications of the quoted statement to the government. What does it mean? How was it false? Are there legal obligations to disclose something in such a case? What are they? What are the consequences (practical, not legal) of that lie? Who is harmed by the lie? Who is harmed, on the other hand, by the actual fact which you are lying about? Etc.
I just don’t have anywhere near enough context for any of this.
It means that Madoff was claiming he’d invested his clients’ money at an annual rate of return of… let’s see… a little under 20% (Wikipedia cites 10.5 to 15) when he’d actually had it in the bank at a RoR in the low single digits. Because of that, there would have been an increasingly large gap (probably around 10% annually, compounded over the life of his fund) between the figures he’d cited to his clients and the actual money he’d have available to return to them, and if and when enough of them decided to collect, they’d have found themselves short in proportion to that gap plus whatever Madoff took out for himself (a sum in the millions).
This is straightforward fraud: Madoff promised a service, deliberately failed to deliver, and pocketed compensation for it anyway. The harm done by Madoff extracting compensation is obvious (it’s basically theft); the harm done by him not doing his job is a little more complicated, but also substantial once you take into account opportunity cost. I don’t know the exact legal requirements.
Ok, thanks. That makes sense.
If you don’t mind a bit of followup explanation: where does the lie to the government come into this? Like, clearly Madoff defrauded his clients and that’s terrible, but I’m still not clear on the role of the disclosure to government institutions (or lack thereof). Is it just that the government in this case is the channel by which one disclose information about operations to one’s clients, i.e. the government acting on behalf of the clients? Or is it something else...?
The SEC’s basically acting as an enforcement body and a standards organization in this case. Lying to them allowed Madoff to perpetuate his fraud, and perhaps more importantly to legitimize it; he wouldn’t likely have been able to manage billions of dollars if he’d been operating outside the regulatory framework. I’m not sure I’d call that intrinsically immoral, even with my deontology emulator on, but in this context I think I’d be comfortable saying that it acted to exacerbate the situation.
It looks like he’d tried to stay out of their sights as much as possible, though. Judging from Wikipedia, most of the investigation here was carried out by his competitors.
Understood. Yes, given this explanation I think I agree that lying to the SEC was immoral in this case.