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Fraud charges and corporate culture: the Madoff trial

Every company has a culture. For years, IBM was known for its button-downed image, complete with crisp white shirts for most employees. Steve Jobs, wearing his signature black turtlenecks, took Apple to unprecedented heights of popularity cultivating a completely different image.

But culture is more than style. It is also ways of doing business. And sometimes those ways of doing business can land employees in trouble.

A case in point is the current trial in federal court in New York of five former employees of Bernard Madoff. Madoff was arrested in 2008 on investment fraud charges and sentenced to prison after pleading guilty to running a massive Ponzi scheme. But he has repeatedly insisted that he acted alone, not with others' help.

Despite that denial, federal prosecutors have succeeded in getting guilty pleas from Madoff's brother and several employees of the Madoff firm. Now they are after five more employees.

Testimony in the current trial, however, paints a picture of a firm in which employees were kept ignorant of many aspects of the firm's work.

In his opening statement at the trial that got underway last week, a lawyer for one of the former employees said that the firm's culture was such that Bernard Madoff was like the Wizard of Oz. And, like the firm's clients, the employees were completely unaware of a need to pull back the curtain to look for fraud. 

Indeed, the firm's culture discouraged doing that. 

Lawyers for other former employees made similar points and added others. One employee who is on trial, for example, argues that he worked in the broker-dealer part of the business, doing legitimate work. This work, he contends, was not connected with the fraud in the investment-advisor part of the business.

In short, the Madoff firm had a complex culture and it is not fair to tar all who worked there with the same fraudulent brush.

Source: Bloomberg, "Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury," Erik Larson, Oct. 17, 2013

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