Ponzi Scheme, Feeder Fund, and Fairfield Greenwich
Bernie Madoff
Watch the following video The Madoff Affair, Frontline (55 min.), then provide a brief answer to the following questions
You may conduct further research on these cases, if you’d like.
(Be familiar with the questions so that you can answer them as you watch the video.) (Number your responses.)
What is a Ponzi scheme?
What is a feeder fund?
How did Fairfield Greenwich make its money?
Is it customary for a feeder fund to be able to keep all client fees?
What effect did this fee arrangement with Madoff Securities have on other fund managers around the world?
How did the Fairfield Greenwich fund “take Madoff global”?
What was the condition Mr. Madoff imposed on people marketing his investments? Why do you think he did this?
When investors received their statements, what responsibility did they have to review and understand them? What signs could they have picked up on to alert them to potential problems?
What kind of “due diligence” did the feeder funds, such as Fairfield Greenwich, do? What didn’t they do? Why were they sued by their clients?
Starting in 2001, whistleblower Harry Markopolos alerted the SEC three times to the likelihood that Bernard Madoff was running a Ponzi scheme. Why do you think the SEC didn’t act on this information until 2006?
After the SEC cleared Bernard Madoff in its 2006 investigation, Harry Markopolos took his evidence to The Wall Street Journal, which did not publish it. What reasons can you think of as to why?
To what extent do you think the SEC did or did not do its job?
What was the final straw that uncovered the Madoff Ponzi scheme?
Make sure to:
Please answer the question fully and concisely in your own words. Be sure to use standard English, spelling and grammar. Your answer should be at least 300 words.
Justify your position with facts as support. If necessary, conduct further research.
Include in-text citations, and list your references at the bottom of the assignment.
Chapter 15 Assignment
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Institution
Course Code and Title
Instructor
Date
Ponzi Scheme
A Ponzi scheme is a type of fraud where investments are set up like they have an assured chance to make returns, but the investments made by earlier investors are used to pay new investors before they lose their money.
Feeder Fund
A feeder fund is a collection of investment finances that are sourced from a master fund.
How Fairfield Greenwich Makes Money
Fairfield Greenwich made their money through being a feeder fund for Madoff, where they availed funds for investing and received profits (PBS, 2021).
Feeder Fund Keeping Client Fees
Feeder funds do not customarily keep client fees, which was the motivating factor for Fairfield Greenwich to engage in business with Madoff (PBS, 2021).
Effect of Madoff Securities Fee Arrangement
Fairfield Greenwich had an arrangement with Madoff not to ask for any fees, which caught the attention of fund managers who sought new clients to invest in this new investment opportunity (PBS, 2021).
Fairfield Greenwich Take Madoff Global
Fairfield Greenwich helped Madoff acquire investors from many other countries in the Middle