The Case Of Bernie Madoff And ENRN

Submitted By amorelerose
Words: 933
Pages: 4

Megan Farinella
BUS 340
10 December 2014
The events surrounding both Bernie Madoff and ENRON led to disaster. Bernie Madoff, a ponzi schemer, swindled his investors out of 65 billion dollars and lost up to 50 billion dollars. He secured himself in prison for the rest of his life when, at 71 years old, he was sentenced to 150 years in prison for 11 felony counts including securities fraud, wire fraud, and perjury. ENRON followed suit with faking people into believing that everything was okay. In fact, in The New York Times in 2002, journalists Keith Eichenwald and Diane Henriques compared ENRON to that of the Titanic; beautiful and peaceful on deck with the crew in the hull of the boat trying desperately to patch up the holes to try to prevent sinking. On the outside, ENRON was considered the darling of the stock industry in the new millennium. What the public eye was unaware of was the crumbling financial foundation that those higher up in the company were working day and night to hide. Both of these schemers most likely subscribed to the profit maximization ethical theory. Profits were of the utmost importance to these two frauds, and they were willing to do anything to gain more and more until, finally, their schemes fell out from underneath them. Profit maximization typically lends itself to the Laissez Faire theory of capitalism, stating that society and the economy would be much better off if everyone was allowed to work toward their own personal, selfish goals. The versions of profit maximization utilized by Bernie Madoff and ENRON, however, were very skewed. Instead of viewing this ethical theory as a way to support the economy, they merely participated for themselves. There was no thought of how they were actually harming society through their actions. Bernie Madoff, throughout his full criminal career, managed to move around 170 billion dollars through his principle account. He used money from new investors to pay off the old, and kept the excess for himself. He was not contributing to society through his actions, but causing chaos in the economy and distrust in big businesses, which, in turn, hurt the economy as well. His problem became very apparent when his investors requested back a total of 7 billion dollars and he only had somewhere between 200-300 million dollars on hand. His family turned him in and, as stated earlier, he was sent to prison for 150 years, the maximum sentence allowable, for his 11 counts of felony. ENRON became infamous by recording the expected profits from assets as actual profit instead of waiting until receiving actual profits from the assets. This meant that, if they had a windmill that they projected would produce 80,000 dollars in profits over its lifetime, they would record the 80,000 dollars as actual profit immediately instead of allowing it to file through from potential profit to actual profit. This gave the books that they shared with the public false numbers and, in the eyes of the public, large amounts of reported income that were mainly improperly journalized. When they finally fixed their books in 2001, ENRON showed that they had actually taken 586 million dollars in losses rather than the originally reported profits. This caused an uprising in the stock market as well as a large loss of trust in stock corporations. In comparing these two major downfalls to the business world to those that have properly utilize profit maximization, it is important to understand the full definition of profit maximization. According to Emily Northrop in her 2013 American Economist article titled “The accuracy, market ethic, and individual morality surrounding the profit maximization assumption,” the difference between profit maximization and profit making in the business world is merely the