Ethical Obligations and Decision-Making in Accounting 2nd Edition by Steven Mintz, Roselyn Morris

Exercise 18

On February 26, 2009, the SEC accused Robert Allen Stanford of executing a “massivePonzi scheme” over the last decade, in which he and his cohorts misappropriated funds and made more than $1.6 billion in “bogus” loans to Stanford and his bank – the Stanford International bank. The agency also accused Stanford of falsifying financial statements to investors who bought $8 billion worth of certificates of deposit with promised large returns that turned out to be too good to be true. Numerous interviews with former Stanford employees and testimony provided in court documents indicate that over time, top managers surrounded themselves with a team of friends, family and acquaintances who had little financial experience, but were as close-knit as the small Southern towns from which several of them came. The S.E.C. said these ties created an environment that left “no independent oversight" over the assets of his bank. As many as 17 lawsuits that were brought by former investors for money lost in the alleged $8 billion Ponzi scheme were consolidated into a multidistrict litigation in Texas federal court.  Stanford wasindicted in June2009, for his alleged role in defrauding thousands of investors through the sale of fraudulent certificates of deposit in his Bank. He and some of his top corporate officers are accused of lying to investors about the rates of return they could expect on their investments. As of February 2010, Stanford had pleaded not guilty and remained in custody in a Houston-area lock up, where various reports say he recently came out on the losing end of a prison brawl with a broken nose, black eyes, and other injuries.[i]

??Evaluate the ethics of a person who commits a Ponzi scheme including Kohlberg’s stages of moral development using the Stanford and Madoff cases and with reference to the discussion about ethical behavior in Chapters 1 - 3.

Step 1 of 2

Ethics:

Ethics is the set of some moral values and principal that differentiate right and wrong morally.

Kohlberg’s model of moral development:

It is a theory on moral development explained by Kohlberg in three stages. This theory helps to know the moral development of an individual. The meaning of morals is different for different people.