COLLEGE OF MANAGEMENT IN TRENČÍN THE BANKRUPTCY CAUSES & CONSEQUENCES - PDF

Description
COLLEGE OF MANAGEMENT IN TRENČÍN THE BANKRUPTCY CAUSES & CONSEQUENCES Bratislava 2010 MBA Alexandra Blanco COLLEGE OF MANAGEMENT IN TRENČÍN THE BANKRUPTCY CAUSES & CONSEQUENCES Diploma thesis Study program:

Please download to get full document.

View again

of 46
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Information
Category:

Politics

Publish on:

Views: 20 | Pages: 46

Extension: PDF | Download: 0

Share
Transcript
COLLEGE OF MANAGEMENT IN TRENČÍN THE BANKRUPTCY CAUSES & CONSEQUENCES Bratislava 2010 MBA Alexandra Blanco COLLEGE OF MANAGEMENT IN TRENČÍN THE BANKRUPTCY CAUSES & CONSEQUENCES Diploma thesis Study program: Field of study: Workplace: Thesis advisor: Knowledge management Management College of Management, Bratislava Ing. Daniela Maťovčíková Bratislava 2010 MBA Alexandra Blanco Abstract in the state language V poslednom čase počúvame z kaţdej strany slovo bankrot. Uţ to nie je len slovo, ktoré sa pouţíva najmä v odborných ekonomických kruhoch, čoraz častejšie je súčasťou našich kaţdodenných ţivotov. Insolventnosť spoločnosti a následný bankrot môţe ovplyvniť nespočetné mnoţstvo faktorov. Nasledujúca práca bude riešiť situáciu, kedy bankrot vznikne na základe podvodu. Keďţe ľudská túţba zbohatnúť bez veľkej námahy je neobmedzená, čoraz častejšie sa ľudia stávajú obeťami podvodníkov. Hoci sa nám to môţe zdať neuveriteľné, aj monumenty ako Eiffelova veţa sa stali terčom podvodníka Victora Lustiga, ktorému sa ju takmer podarilo predať dokonca dvakrát. Táto práca venovala väčšinu pozornosti najkontroverznejšiemu podvodu súčasnosti, ktorý sa stal v Amerike. Hlavným protagonistom tohto podvodu je významná osobnosť, povaţovaná a váţená v rôznych odborných kruhoch Bernard Lawrence Madoff. Jeho príbeh je unikátny tým, ţe Bernard Madoff dokázal klamať svojich klientov bez odhalenia celé desaťročia. Odvrátená stránka spomínaného príbehu odhalila nedostatky v kontrole spoločností lákajúcich od klientov peniaze, ako aj neschopnosť úradov prísť na podvod. Omnoho znepokojúcejší je však fakt, ţe spomínané úrady mali dôkazový materiál k dispozícii a celý čas ho ignorovali. Významnú úlohu v odhalení tohto podvodu zohral Harry Markopolos, ktorý osem rokov pátral a informoval úrady o tom, ţe Madoffova spoločnosť klame svojich klientov, po celú dobu však bol ignorovaný. Ďalšia časť je venovaná najväčším podvodom, ktoré otriasli Slovenskou republikou. Medzi spomínané prípady patrí krach nebankových spoločností Horizont Slovakia, BMG Invest a Drukos, ako aj krach banky Devín. Cieľom tejto práce je poukázať na nebezpečenstvo, ktoré predstavujú spoločnosti fungujúce na princípe Ponziho schémy a tieţ demonštrovať, ţe aj inteligentní a obdivovaní ľudia dokáţu zneuţiť dôveru iných za účelom vlastného obohatenia. Na záver tejto práce sa pokúsime definovať niekoľko odporúčaní, ktoré by mali pomôcť v prevencii alebo k úplnému zastaveniu činností takýchto spoločností. Kľúčové slová : Podvod, bankrot, Bernard Lawrence Madoff, Ponziho schéma, finančná kríza. Abstract in English Lately we have heard from many sides the word bankruptcy. It is no longer a word that is mostly used in financial circles; it is more and more often a word of our everyday life. Insolvency of a company and its subsequent bankruptcy has many different causes. The following work will evaluate bankruptcy caused by fraud. Because the human instinct to become rich with the least possible effort is unlimited, more people become victims of tricksters. Even if it sounds impossible for us to understand, even a monument as The Eiffel Tower was misused. The famous scammer was Victor Lustig. He almost managed to sell it, even twice. This work focuses on the most controversial of all frauds of modern times, which took place in the USA. The main character of this fraud was a prominent person, respected and recognized in the elite Bernard Lawrence Madoff. The uniqueness of this story is that he was able to lie to his clients decades without it all was uncovered. The other side of this unfortunately showed the deficiencies in the control of such companies - companies that lure money from their clients in this context. We can see the ignoration from the mentioned official institutions, even though they had all the evidence in front of them. A significant role in the uncovering of this fraud belongs to Harry Markopolos, who for eight years investigated and reported, that Madoff s company is lying to his clients sadly, he was ignored all the time. The next part of this work is dedicated to the biggest frauds that took place in Slovakia. From the above mentioned cases we can name the crash of non-bank financial company Horizont Slovakia, BMG Invest and Drukos, as long as the collapse of Bank Devin. The goal of this work is to point out the dangers that represent companies that use the Ponzi scheme, and how intelligent and admired people are capable of abusing the trust of others for their own beneficiation. At the closing of this work we will try to define a few suggestions that should help in prevention or complete casements of such companies. Key words: Fraud, bankruptcy, Bernard Lawrence Madoff, Ponzi scheme, financial crisis. Contents List of tables 6 List of pictures 7 List of abbreviations 8 Thanks 9 1. Introduction and Definition of the Problem Literature review Description of methodology Bankruptcy Restructuring and debt-clearances proceedings Liquidation The most impressing frauds Victor Lustig and Charles Ponzi Bernard L. Madoff and Harry Markopolos Bernard L. Madoff Harry Markopolos Madoff s trial, jail & victims Recovery fund The most impressing frauds in the Slovak Republic Non-bank entities Devín Banka Recommendations 59 Resume in Slovak language 66 Library Release 72 Bibliography 73 List of tables Tab. 1 Tab. 2 Tab. 3 Tab. 4 Tab. 5 Tab. 6 Tab. 7 Tab. 8 Tab. 9 List of the most frequent causes of business bankruptcies 17 List of the top seven victims of Madoff.45 Recovery fund 47 Chronology of Horizont Slovakia and BMG Invest.50 Chronology of Drukos...52 Devín Banka the top shareholders...54 Chronology of Devín Banka...54 Devín Banka Earnings...55 Devín Banka yearly list of balance List of pictures Pic. 1 Map of Madoff s victims.45 7. List of abbreviations BLMIS Bernard Lawrence Madoff Investment Securities FINRA Financial Industry Regulatory Authority, Inc. FGG Fairfield Greenwich Group IRC s The International reply coupons NASD National Association of Securities Dealers, Inc. NASDAQ National Association of Securities Dealers Automated Quotations Systems PWHC PricewaterhouseCoopers SEC Securities and Exchange Commission 8. Thanks I would like to thanks to my thesis advisor for her accommodating approach to my requests about the topic. It took a while to sharpest the thesis to the final and without her rectification and advices I would not be able to write it. 9. 1. Introduction and definition of the problem There is a sad, but true fact of life and we have to face it everyday the bankruptcy. It is more than a financial term; we use it more and more often in everyday life. Generally, there are several types of bankruptcy. For example, personal bankruptcy or commercial bankruptcy, but we also have numerous cases in which the issues that influence the solvency of a company are caused solely by outside influences beyond the control of a company. For instance, an unpredicted nature phenomenon likes the dust from the Island Eyjafjallajökull volcano caused incalculable losses for aircraft and affiliated companies. However, certainly under the influence of the worldwide economical downfall we have to face targeted frauds that also lead to bankruptcy. Many companies that used to be the icons of financial markets such as Enron Company or Merrill Lynch have surprised the whole financial sector with a sudden and unexpected fall. One of the most popular ways used by swindlers that has caused many worldwide bankruptcies is based on the so-called Ponzi scheme. This diploma thesis will describe the basic premises behind the Ponzi scheme with its characteristics into the details, based on what the financial theories discuss and it will further use this theoretical information and describe how they have worked in real life example. It examine a recent and massive case that was spread widely in media and is considered to be the biggest fraud ever made in the stock market business: the rise and fall of one of the companies that had great credibility and trust both from the market and its clients, all on account of Bernard Lawrence Madoff former stock broker, investment adviser and non-executive chairman of the NASDAQ stock market. It will also bring you interesting and imposing information about the work of journalist Harry Markopolos, who as early as four years before the big bubble around Bernie Madoff investigated and blew in a book, using concrete hard evidence proving that Bernie Madoff s business is a fraud. Ironically the book was called Nobody would listen in this case almost a prophetic title. The contribution of this diploma work is to show how dangerous are the companies that are based on Ponzi schemes and it tries to describe and explain how even intelligent and famous 10. people misjudge, trust and believe in promises of incredible gains. Finally, it will give advices how to prevent or even stop these companies before they start or grow to a relevant scale, putting up a basic advice model that should help people to recognize and avoid such enterprises. The purpose of the study is to prove how dangerous are companies based on Ponzi scheme not only for their clients, but also for the whole economical system worldwide and especially in a country like Slovakia. In addition, it will explain how people can be easily manipulated to trust in such companies that inevitably end up in a bankruptcy. We will try to cover as much facts as possible that are directly connected to bankruptcy in order to provide the most valuable recommendations about the regulations on accounting, auditing and managing a company. Bernie Lawrence Madoff is very intelligent, bright and charming person, who was respected by people from high society. However he decided to misuse the trust that was given to him by innocent people that believed him, gave him all their life savings, pensions. He misused the trust even of charities that gave him their donations and prestigious schools invested into his fake funds. All of these mentioned victims lost everything and due to the consequences of the fraud many of them had to end their activities. Finally, this paper will provide personal opinions and concrete advices that should help people to avoid involvement in such companies and frauds. It will also speak about the regulations that should be enforced by competent institutions in order to prevent the growth of such companies. This is very important within a relatively small and fragile economy like the one of the Slovak Republic. 11. 2. Literature Review The purpose of this part is to provide a brief overview of all sources and information that were used as educational basis for this diploma work. The relevant books to the topic shall be discussed as well as many articles brought from the Internet. The first - theoretical part is divided into several chapters. The first chapter explains the situations when the company becomes insolvent. The information used in this section are based on books Konkurzné právo na Slovensku a v Európskej únii written by Milan Ďurica, Financial Management Theory and Practice written by Eugene F. Brigham, Louis C. Gapenski and Michael C. Ehrhardt, Podnikové financie written by prof. Ing. Karol Vlachynský, PhD. a kolektív and Zákon o konkurze a reštrukturalizácii s komentárom written by Branislav Pospíšil. All these sources provide information and deep explanation of the problem. The most important parts are restructuring and debt-clearance, the court decisionmaking process and practical information about bankruptcies across the European Union as well as aside it. Next part of the work is dedicated to the biggest swindlers in the past. We decided to include them into the work in order to show that the same scheme works over and over and people are still being trustful. First story is based on the books - The Man Who Sold the Eiffel Tower written by James F. Johnson and Floyd Miller. The author and his collaborator have done amazing work by describing Victor Lustig s strategy with the combination of the human nature. The second mentioned book is called Conned: Scams, Frauds, Swindles written by Hilary Bateson and James Morton. The following story is dedicated to Charles Ponzi. We based it on books The Great Bull Market written by Robert Sobel, Ponzi s scheme: The true story of a financial legend written by Mitchell Zuckoff and Ponzi: The Incredible True Story of the King of Financial Cons by Donald Dunn. To provide detailed overview of the story we also used articles published in the Huffington Post and The Washington Post. These sources provides essential information about Charles Ponzi s life, the step by step description how he discovered the scheme, how he kept working the scheme for so long. Also uncovers 12. all players in the game such as crooked lawyers, the banking regulators and so on as well as the ups and downs of Charles Ponzi s life. The main part is dedicated to Bernard L. Madoff, who became one of the most famous swindlers of the 21 st century. Since uncovering his fraud there were many articles written about him as well as interviews made with him. First book used Too Good to Be True - The Rise and Fall of Bernie Madoff is written by the investigative reporters who had a connection to the whistleblower Harry Markopolos - Erin Arvedlund. It provides an overview of Madoff s life and his carrier. The author takes a very deep look on his business from the beginning to the top and finally the fall. There are many interesting parts in this book. For example, Erin Arvedlund presents the facts that were obvious but nobody gave attention to them, providing a way for Bernard Madoff to survive for so long on the market and keep his fake empire growing and prestigious. Another books used are The Life and Lies of Bernie Madoff written by Andrew Kirtzman and Catastrophe: The Story of Bernard L. Madoff The Man Who Swindled the World written by Gerald Strober, Deborah Hart Strober. All those books helped us to bring you detailed facts behind the story. As was already mentioned we used also electronic sources mostly articles published in following newspapers and magazines: The New York Times, The Businessweek, The Wall Street Journal or the Financial Post. The significant role in the case of Madoff played the whistleblower - Harry Markopolos. He wrote a book called No one would listen. As the title suggest, it is a true financial thriller about the biggest fraud ever in American history. The author gave an amazing view on the reality of the business on the stock market: the ethics, the relationships or simple advices on how to survive with an honest face in this field. At the beginning, the author talks a bit about himself and his carrier, how he got where he is now, how certain life situations gave him the knowledge that helped him to uncover the fraud. He describes himself, as I am a quant, which is the slang term for a quantitative analyst. That basically means that I speak the language of numbers. Numbers can tell the entire story. I can see the beauty, the humor and sometimes the tragedy in the numbers. (p.9). The main part is concluded by the most interesting cases in the Slovak Republic. Those pages are based on many articles published in the newspaper like SME, Pravda, Hospodárske Noviny, Trend. 13. The last part of this work is dedicated to the recommendations. To be able to provide these advice we also used information from the book How to smell a Rat: the five signs of financial fraud, written by Ken Fischer and Lara W. Hoffmann was a basis document for the part dedicated to the recommendation at the end of this diploma work. The book gives very deep look on certain swindlers steps that helped prospective investors to avoid becoming a part of a scam. They use very recent examples in comparison with historical evidence on how certain swindlers work. Each section gives us detailed information on operations, provide inside information and give advices on how to avoid and protect oneself. 14. 3. Description of methodology The purpose of this diploma work is to find the most suitable recommendations for the defined problem the bankruptcy, its causes and consequences. Since the problem of bankruptcy is very wide, we decided to focus on cases where the bankruptcy was the cause of a fraud. Our research is based on collecting relevant information and defining the theoretical base of the knowledge from the field and related areas. In order to provide correct information we decided to use most of information from books written by experts and reputable authors in relation to this problem. In order to provide evaluated explanation of the problem that will help better understanding of the problem and its causes, we decided to divide the work into three main parts. The first part is based on theories and definitions that provide deep overview of bankruptcy and roles of all included players in the entire process. The following part is dedicated to the most famous swindlers and the biggest frauds in history of the United States of America and the Slovak republic. The work will be concluded by the most important part, where there will be recommended several alternatives on how to solve the problem. We will seek for such recommendations, which could be easily applied. We will focus primarily on the government and its position as far as improving the security of investments of common people is concerned as well as to advice these people how not be so trustful and recognize the swindlers. 15. 4. Bankruptcy The following pages will lead you through several different chapters. First of all we will provide you required theory about what bankruptcy is. Further, several stories about famous worldwide swindlers will provide a better view. In the main part you will read about Bernard L. Madoff presently the biggest swindler of the 21 st century and the whistleblower Harry Markopolos. At the end of this part we will discuss similar frauds that caused bankruptcies in the Slovak republic. In order to understand the problem first of all we have to talk a little about the theory of the bankruptcy. According to the New Penguin dictionary of business, the bankruptcy is defined as: Bankruptcy - a declaration by a court of law that an individual or company is insolvent, i.e. cannot meet its debts on the due dates. (Bannock & Davis, 2002) According to the situation that has led the individual or the company to the insolvency we distinguish the following types of bankruptcies: Certified bankrupt someone who has been officially declared bankrupt by a court of law Discharged bankrupt someone who has been declared bankrupt in the past but has obeyed the orders of the court and can now do business again Undischarged bankrupt someone who has been declared bankrupt and who is not yet allowed by the decision of the court to stop paying money back or to do business. Involuntary bankrupt when someone s creditors ask the court to make the person bankrupt. Voluntary bankrupt when someone asks the court to make them bankrupt. (Longman Business English Dictionary, 2003) Inflation, poor demand of services or goods or a wrong marketing strategy - all of those factors can lead companies into an end. According to the Dun & Bradstreet Inc. following situations are the most frequent causes of business bankruptcy. 16. Table 1: List of the most frequent causes of business bankruptcies Causes of failure Percentage of total Economic factors 37.1 % Financial factors 47.3 % Neglect, disaster and fraud 14.0 % Others factors 1.6 % Source: (Brigham & Gapenski & Ehrhardt, 1999) The entire process of a bankruptcy is much more difficult that it seems to be. There are also several ways how to solve this problem. For instance, each
Related Search
Similar documents
View more...
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks