In December 2008, Bernard Madoff revealed that the asset management arm of his firm, Bernard L. Madoff Investment Securities, was "just one big lie". In what he described as a Ponzi scheme, it's estimated he took his investors for a cool $65 billion over the course of nearly two decades. And he didn't just con fat-cat billionaires and celebrities (such as Zsa Zsa Gabor, Kevin Bacon, and Steven Spielberg); humbler individual investors, banks, and even charities lost money in the scheme. The scheme wasn't revealed until Madoff himself confessed his crimes. In March 2009, Madoff pled guilty to the charges against him, and he was sentenced to 150 years in prison the following June.

One reason that Madoff was so successful was that he was a highly respected, well-established, and esteemed financial expert -- his reputation was bolstered by the fact that he helped found the NASDAQ stock exchange and served a term as its chair. What's more, at the same time he was running his scheme, he was also running a legitimate business. He earned his investors' trust because whenever they requested a withdrawal, Madoff's investment company got their money to them promptly. In addition, unlike other Ponzi schemers, he didn't tempt investors with unbelievable returns. He reported moderate (albeit, suspiciously consistent) returns to his investors. Those returns became the advertising he needed to get more investors/victims.

Funding from sophisticated investors began to flow to Madoff. Madoff said he put up warning signs to potential investors who pursued him to invest their money. The warnings, that investing is risky and could lead to losses, were enough of a disclosure to get permission to take more money into the scheme.

Many large investment banks like UBS, Credit Suisse, and Banco Santander saw Madoff’s returns and wanted to invest. However, Madoff refused to disclose the means by which he was maintaining his consistent returns. The banks, according to Madoff, never pushed further for more information beyond the false return statements that they had received. In reality, Madoff was taking the money, sticking it in treasuries yielding 2%, and started printing false statements showing holdings in stocks yielding far more.

It's not unusual for tip-offs to help authorities build a case and eventually expose a Ponzi scheme. However, in the Madoff case, the Securities and Exchange Commission (SEC) failed to come up with any smoking gun, which might've been as straightforward as making Madoff provide proof of his holdings. According to some sources, any examinations the SEC conducted fell drastically short.

As discussed above, during Madoff’s Ponzi scheme, many large investment banks like UBS, Credit Suisse, and Banco Santander saw Madoff’s returns and wanted to invest. However, Madoff refused to disclose the means by which he was maintaining his consistent returns. The banks, according to Madoff, never pushed further for more information beyond the false return statements that they had received. In reality, Madoff was taking the money, sticking it in treasuries yielding 2%, and started printing false statements showing holdings in stocks yielding far more. The banks not pushing Madoff for more information BEST exemplifies what aspect of the fraud triangle?

A)Rationalization

B)Opportunity

C)Incentive

As discussed above, in interviews with Bernie Madoff discussing his infamous Ponzi scheme, Madoff revealed that as funding from sophisticated investors began to flow to him, he put up warning signs to potential investors who pursued him to invest their money. The warnings, that investing is risky and could lead to losses, were enough of disclosure to “get permission” to take more money into the scheme. Madoff warning his investors BEST exemplifies what aspect of the fraud triangle:

A)Rationalization

B)Opportunity

C)Incentive