How networks played a role in Madoff’s scheme

A little background: A well-respected financier, Bernie Madoff convinced thousands of investors to invest with him, promising consistently high returns. Madoff was an active member of the financial industry. He started his own firm in 1960 and helped launch the Nasdaq stock market. He sat on the board of National Association of Securities Dealers and advised the Securities and Exchange Commission (SEC). He was arrested in December 2008, even though there were multiple reports to SEC about suspicions about his practices for years. He was charged and convicted. Here’s how Madoff conned his investors out of $65 billion: – He used the money from new, incoming investors to pay off the promised returns to older ones. This makes the operation seem profitable and legitimate, even though there were no actual returns because there was no actual investment. Madoff pocketed the extra money. To avoid having too many investors reclaim their “profits,” he encouraged them to “reinvest” and earn even more money. He did not reveal his “investing strategies”. Madoff’s victims were not a random assortment of the well-off; he conned a segment of the wealthy Jewish community and several Jewish charitable organizations. Madoff did not just take anyone as a “client”; people needed recommendations and connections and Madoff turned many people away at first (“hard- to-get” strategy). 2. Read The NYT article carefully. 3. Using all the information you now have, discuss in a short essay format: a) how networks played a role in Madoff’s scheme; i.e., what networks (list them and explain briefly) and how he used these network connections and how these connections made this kind of fraud possible; b) what purpose did the “hard-to-get’ strategy serve (no psychological speculations, please!); c) what were the reasons behind the very slow fraud detection, despite several reports to the SEC? *Use Granovetter’s arguments and lecture material to explain the sociological significance of this story. Thus, do not simply retell the story; use Granovetter’s concepts relating to networks and fraud to analyze the story