Malcolm Tipler
Case study 3
How do Ponzi schemes and pyramid schemes differ? How are they similar?
“Both types of criminal activities have the same basic structure.” (Ferrell, Fraedrich, & Ferrell, L, p. 508). “Pyramid schemes illegal and hard to detect” (Ferrell, Fraedrich, & Ferrell, L, p. 508). The book says, ” the difference between a pyramid and a Ponzi scheme is that the perpetrator of the ponzi scheme asks individual to invest in something with an above average return.” (Ferrell, Fraedrich, & Ferrell, L, p. 508).
Why are white-collar criminals such as Madoff able to carry out their schemes for so long when similar types of fraud often collapse at an early stage?
According to the book Madoff’s fraud went so long without getting checked is because, “likely had to with his respectability and reputation for being a market genius” (Ferrell, Fraedrich, ; Ferrell, L, p. 511). It also states that,” white-collar crimes dupe their victims by establishing themselves as trustworthy and respectable figures.” (Ferrell, Fraedrich, ; Ferrell, L, p. 514). “Madoff was was an educated and experienced individual in a position of power, trust, respectability, and responsibility who abused his trust for personal gains.” (Ferrell, Fraedrich, ; Ferrell, L, p. 508).
What should be done to ensure large-scale fraud such as Ponzi schemes and pyramid schemes do not happen in the future?
According to the book, “the only way to prevent white-collar crime is to have internal controls and compliance standards that detect misconduct.” (Ferrell, Fraedrich, ; Ferrell, L, p. 514).
Other stuff they can do is,” individual investors, institutions, and hopefully regulators will exert more diligence in demanding transparency and honest from those who manage and/or solicit investments.” (Ferrell, Fraedrich, ; Ferrell, L, p. 514).
References:
Ferrell, O.C., Fraedrich, J., ; Ferrell, L. (2015). Business ethics: Ethical decision making
and cases. (10th ed.). Stamford, CT: Cengage Learning.