Blog 8 Ponzi Scheme

Time passes with lightning speed, the module has come to an end by the time I am writing this last blog. In this blog, I am going to discuss about Ponzi scheme which is related to the ethic issue in business. Ponzi scheme has happened over and over again around us and every time it packaged the idea very well and perfect, but it seems too good to be true for me. I recall that one of the famous Ponzi scheme that happened back in my country, Malaysia about few years ago and it has been collapsed last year. The name of the scheme is called “JJPTR” and the meaning behind of it is simply means “saviour of ordinary people”. They were so many people invested their money in it and it was so famous by the time. However, the result was pretty clear that many of those investors lost their money when the organisation faced collapse.

So why is there many people still fall for the trap even so many cases had happened? I personally think that it I because the Ponzi scheme is so attractive and the best selling point is to “get rich quick”, with an irrational rate of return up to 30% or even up to 50% with an extremely low risk. Thence, the so called “investor” would invest their money in it and hoping for a crazy return in a short period of time. However, it is not appropriate to fully blame on the investors because the directors behind the scheme were too brilliant and competent to cover up the scheme and making it looks flawless.

Speaking of Ponzi scheme, I had to mention the largest scheme ever which found by Bernie Madoff, the Madoff investment scandal. He defrauds the investors by misleading a message saying that the money is invested in shares and securities. However, the truth behind it is that the money was not invested in the market, instead Madoff used the capital from new shareholders to pay returns for the previous shareholders yet keeping the rest of money as profits for the company and himself. Similar to other Ponzi scheme, the game will just keep repeating and repeating to the point that when the new shareholders’ capital is unable to repay for the returns of the previous shareholders, hence the party will stop and leading the organisation to collapse and game over. In this case, Madoff revealed the truth behind his investment company was actually a Ponzi scheme when he was unable to repay the returns for new shareholders in year 2008. The total amount of the fraud was estimated at $65bn and he later sentenced to jail for 150 years. Well, this is so long and he could probably pass away in the first few.

After a few paragraph of a short intro Ponzi paragraph, you might wonder what is it to do with the business ethic? Here come a few important points how Madoff investment scandal erodes the business ethic and the first one is definitely fraud conducted by Madoff. Madoff and his fellow employees from the investment company had conducted fraud by misleading the investors and results in breaking the business ethical responsibility which is not desirable. The unfavor act causes the investors to losses their hard earned money which is not in line with the business ethic.

Furthermore, the second business ethic issues concern with Madoff investment scandal is the misrepresentation of its business where Madoff was deceiving the investors by telling them that his company was actually making profits by investing in shares and other securities. A business with ethic is supposed reveal its real affairs instead of misrepresenting to attract investors. In addition, Madoff had also committed money laundering which would erode business ethics and consider as crime at the same time. He was covering up the illegal revenue generates from the Ponzi scheme under his investment company to hide from Government.

Last but not least, organisations must follow and apply the business ethic to maximize stakeholder’s value and avoid themselves from any unwanted unimpressive events because in the end, the harm that they bring will come to themselves as well.