AUGUST 2023
Finance Monthly. Editor’s Note Dear Readers, We welcome you to another captivating issue of Finance Monthly. As always, our goal is to bring you the latest happenings, insights, and narratives from the complex yet intriguing world of finance. This month, we’ve assembled an array of thought-provoking topics that will not only enlighten you but challenge your perspectives. One of the more zeitgeist subjects that we’ll delve into this month is “Greedflation.” It’s a neologism that has been making rounds in financial circles lately, reflecting a dynamic that is shaping our economies in ways we couldn’t have imagined. We unpack this concept for you, its implications, and why it’s becoming a key concern for economists and investors alike. We then shift gears towards a technological revolution that’s been slowly but surely transforming our financial departments - artificial intelligence (AI), and more specifically, OpenAI’s ChatGPT. As AI permeates finance, we delve into how it’s reinventing the landscape, with a special focus on ChatGPT’s capabilities. Environment, Social, and Governance (ESG) investing continues to shape the investment world, and we are here to keep you updated. This month’s issue includes an in-depth analysis of ESG investing trends, the challenges and opportunities it presents to both investors and corporations, and its overall impact on sustainable development. Lastly, we take a deep dive into the Bernie Madoff story. This detailed retrospection takes a closer look at one of the largest financial frauds in U.S. history. It provides an opportunity to learn from past missteps and reinforces the importance of transparency, ethical conduct, and oversight in finance. We hope that our mix of content this month provides you with a broader understanding of the financial ecosystem, enlightening you on trends, technologies, and practices that are shaping the industry. Your engagement and feedback are what fuel us to bring you the stories that matter. Stay curious, stay informed. Mark Palmer Editor editor@finance-monthly.com Follow us on Instagram Financemonthly Find us on Facebook Finance Monthly Stay Connected www.linkedin.com/finance-monthly Tweet us @Finance_Monthly Universal Media Ltd PO Box 17858, Tamworth, B77 9QG United Kingdom 0044 (0) 1543 255 537 Copyright 2023 Published by Universal Media Ltd The views expressed in the articles within Finance Monthly are the contributors’ own, nothing within the announcements or articles should be construed as a profit forecast. All rights reserved. Material contained within this publication is not to be reproduced in whole or part without the prior permission of Finance Monthly. Circulation details can be found at www.finance-monthly.com Monthly Finance 3
Finance Monthly. Contents 4 CONTENTS THE MONTHLY ROUND-UP News You Can’t Afford to Miss 6. SPECIAL FEATURES The Bernie Madoff Story Leadership Insight from Alba Contreras Rodriguez, Founder of FONS LLC 18. FRONT COVER FEATURE 14. HOW ChatGPT AND GENERATIVE AI WILL REINVENT FINANCE DEPARTMENTS 26.
Finance Monthly. 5 Contents 26. 54. 18. THE BERNIE MADOFF STORY Augean Acquires FIS Passenger Secures a £15M Investment from Growth Partner The Restructuring of R-Logitech’s €200M Bond 72. TRANSACTION REPORTS 74. Alba Contreras Rodriguez Leadership Insight from Founder of FONS LLC BANKING & FINANCIAL SERVICES BUSINESS An Interview With Judy Knight, Founder of Thumbprint Coaching, Inc. Counting What Counts Measuring and Modelling a Sustainable Business 44. The Bank of England’s Forecasting Models are Under the Microscope, But What Does That Mean for the Industry? Unveiling the Power of Fairness Opinions Safeguarding Equity in Corporate Transactions 34. 38. FINTECH AWARDS SPECIAL FEATURE FinTech Innovation Firm of the Year An Interview with Brian Reaves, Founder & CEO of Factris 68. INVESTMENT Investing in ESG Funds A Guide to Socially Responsible Investing 60. 76. What is Greedflation? ECONOMY What is Greedflation? 54. 48.
Finance Monthly. 6 THE MONTHLY ROUND-UP News You Can’t Afford to Miss The Monthly Round-Up 40% OF C-SUITE LEADERS WILL INVEST $10M+ IN ARTIFICIAL INTELLIGENCE TO TRANSFORM TAX DEPARTMENTS By effectively leveraging data and harnessing the power of technology like artificial intelligence (AI), corporate tax departments can drive even greater value for the broader business. That’s according to the latest edition of the annual KPMG LLP report, “Tax Reimagined 2023: Perspectives from the C-suite,” which shows that when tax departments are armed with the right technology and talent with the right mix of skills, they will be recognized as a strategic powerhouse. The findings from the report, which features insights from 500 C-suite executives at organizations with $1 billion or more in revenue, indicate three primary trends: 1. A strong willingness to embrace AI – more than half are already using AI in their tax departments 2. Increasing ESG pressures to address tax transparency 3. A sharp increase in the willingness to turn to alternative sourcing arrangements, like outsourcing or co-sourcing, to leverage the skills and technology investments of third-party providers. With external factors like the uncertain economy, the ever-changing international and domestic legislative and regulatory environment, as well as the rapidly evolving technology landscape, the clock is ticking for tax departments to prioritize investments in emerging technology and talent, or risk being left behind. KEY FINDINGS: Artificial intelligence – the next frontier for tax departments • 59% of surveyed leaders are already using emerging AI technology in their tax or finance department to make workflows more efficient and reduce the strain on existing talent. • Of the 41% who aren’t yet using AI, all are interested in doing so. • 100% say the proliferation of artificial intelligence will change their tax department’s human capital strategy. Willing but unprepared – when tax comes face-toface with ESG • 95% of respondents are willing to disclose their total tax contributions, however 85% of those say they are not currently prepared to do so. • As regulatory bodies in the US and abroad begin to require greater tax transparency, a surprising 62% of C-suite leaders estimate it will be at least five years before their organizations are mandated to disclose their total tax contributions. • 40% say the greatest risk to disclosing their organization’s total tax contributions is giving away competitive intelligence.
Finance Monthly. 7 The Monthly Round-Up Measured speed – the 21st century business currency • 94% of respondents say they have become more willing to outsource or co-source their tax function over the past year (co pared to 43% in 2022 and 65% in 2021). • Nearly all (99%) executives would consider an alternative sourcing model to leverage the technology expertise, tools and skills of a third-party provider. • Of those willing to leverage a third-party provider, 73% admitted to having a tough time recruiting talent with the technology-minded skillsets needed for the future. Convergence of tax and tech – the anatomy of the modern tax professional • Most leaders still prefer to hire tax experts who can learn technology (54%), in line with 2021 and 2022 findings. • This year, slightly more expressed a willingness to hire technology experts who can learn tax (46%), than in years past (43% in 2022 and 41% in 2021). • 47% say data analysis is the most important skill needed to ensure the tax department operates at its full potential. • Almost half (47%) say that revamping the perception of a tax career is their top method to attract new talent. “Tax transparency is becoming an increasingly important part of the ESG conversation,” said Greg Engel (@Greg_Engel_KPMG), Vice Chair – Tax, KPMG LLP. “With mandatory tax disclosures on the rise, companies must act now to prepare. Embracing AI tools may be the solution to help companies make sense of their vast amounts of data to avoid the risks of having their tax story potentially told for them. Embracing technology is essential for companies to stay ahead of the curve.” “As technology and innovation continue to transform the tax landscape, talent is more critical than ever,” said Rema Serafi (@RemaSerafi), National Managing Principal – Tax, KPMG LLP. “The modern tax department requires a convergence of skills to understand the tax technical landscape, operate cutting-edge technology and analyze complex data. A tech-first mindset blended with tax skills is the winning formula to unlock the full potential of tax departments in the digital age. “AI will create a corporate reality of the ‘haves’ vs. the ‘have nots’ between those who adopt the technology to transform their tax departments and those who get left behind,” said Brad Brown (@Brad_Brown_ KPMG), Chief Technology Officer – Tax, KPMG LLP. “KPMG has been investing in AI for more than a decade. By putting AI technology in the hands of our professionals, we’re changing the game in how we serve and deliver for our clients.”
8 Finance Monthly. The Monthly Round-Up M&A DEALS PLUNGE AS TOUGHER CONDITIONS THAN EXPECTED SPOOK MARKETS NORTH AMERICA STUCK IN GRIP OF PERSISTING SLOWDOWN Global M&A suffered a record decline in the first half of 2023 as interest rate rises and economic uncertainty hit financing, according to research on completed deals from WTW’s Quarterly Deal Performance Monitor (QDPM)1. Run in partnership with the M&A Research Centre at The Bayes Business School, the WTW data reveals activity for deals valued over $100 million slowed significantly around the world during the first half of 2023, with a total of 280 deals completed compared to 441 during the same period in 2022. This represents a 37% drop in volume and the lowest figure for the first half of a year since 2009. The challenging macroeconomic conditions are acutely evident in the North American market, where volumes fell for an unprecedented sixth consecutive quarter from a near all-time high of 173 deals in the third quarter of 2021 to just 61 deals between April and June 2023. In addition to the low number of M&A deals, acquirers that completed transactions in 2023 also underperformed the market by -2.1pp (percentage points). This represents a marked decline following the positive performance of +4.4pp in the second half of 2022. However, despite the continued volatility, global M&A still achieved an overall positive performance of +1.4pp for the last 12 months. Jana Mercereau, Head of Corporate M&A Consulting, Great Britain at WTW, said: “A perfect storm of higher inflation, interest rates, capital costs and greater regulatory scrutiny, combined with major geopolitical headwinds and a banking crisis, have triggered a steeper dropoff in M&A activity than anticipated by the market. “Buyers have had to shift gears to adapt to a more cautious M&A environment, although deal conversations have continued throughout this period of uncertainty. With these disruptive trends expected to continue into the second half of 2023, potential buyers will be kickM&A QUARTERLY ANALYSIS
9 Finance Monthly. The Monthly Round-Up ing the tyres a bit harder as they seek deals to address strategic priorities, expand into new markets and fill capability gaps.” The deal performance during the first six months of 2023 would have been substantially worse if not for the Asia-Pacific region, where buyers continue to outperform the rest of the world. APAC acquirers outperformed their regional index by +10.9pp. With 72 deals closed in H1 2023, the region still saw a 25% drop in volume compared to H1 2022 (96 deals). In contrast to the APAC region, North American acquirers underperformed their index between January and June by -5.9pp, while dealmakers from Europe underperformed their regional index by -8.3pp. The WTW data also shows: • Only three mega deals closed in the first half of 2023 compared to 12 deals in H1 2022. • Performance of acquirers in North America for the second quarter of 2023 at -10.3pp is the second worst on record, exceeded only by the same quarter in 2020, at the height of the Covid-19 pandemic. Acquirer performance in Europe during the last three months is the worst on record at -10.8pp. • Asia Pacific buyers have now achieved a positive performance for eight consecutive quarters. To put this in context, buyers in North America and Europe have only recorded two and one positive quarters respectively during the same period. • Intra-regional deals have increased for three successive quarters (compared to cross regional deals) and intra-sector deals also experienced a big jump from 57% in the first quarter of 2023 to 67% in the latest quarter (compared to cross sector deals), indicating a clear trend of buyers seeking deals closer to home. Mercereau said: “When inflation stabilises and credit markets re-open, we expect deal appetite to increase considerably fuelled by pent-up demand with digital transformation, portfolio rebalancing and ESG issues continuing to be key drivers. “Larger deals will remain tough to pull off due to increasing anti-trust and regulatory pushback. Instead, companies are more likely to pursue small to midsize deals, which are easier to complete than megadeals and lower risk in today’s difficult financing environment. But in the race to acquire - whatever the size of deal - due diligence that is faster, deeper and better focused, combined with a plan for successful integration, will prove even more critical in a volatile market.” M&A YEARLY ANALYSIS VOLUME (NUMBER) ALL DEALS
10 Finance Monthly. The Monthly Round-Up ROBOTS CAN BE EXCELLENT INVESTORS A robot can select the best private equity (PE) funds, new research from Saïd Business School at the University of Oxford has shown. According to the study, such technologies can choose the best PE funds by reading fundraising prospectuses. The machine used within the study selected funds that generate returns that are 5% higher each year compared to average funds. In the paper, Limited Partners versus Unlimited Machines; Artificial Intelligence and the Performance of Private Equity Funds, a team of researchers led by Ludovic Phalippou, Professor of Financial Economics at Oxford Saïd, shows that the quantitative information that investors pay significant attention to during their due diligence process, such as PE firm reputation and past performance, is ultimately unrelated to PE fund performance. In contrast, investors do not seem to react to the qualitative information in fund prospectuses, but that information can be used by a robot to predict returns. Ludovic commented: ‘It is the first time that artificial intelligence is shown to be able to select investments based on dense, and technical documents that are written exclusively for highly specialized and large institutional investors; and the robot beat most of these large professional investors. That’s a world premiere.’ FINANCIAL SERVICES LEADERS BELIEVE AI HAS A FUTURE IN THE SECTOR Exclusive data from Kin + Carta, the global transformation consultancy, has revealed that the overwhelming majority of financial services leaders believe AI has an intrinsic role in the sector. At the recent FWD23 summit hosted by the consultancy, whose clients include Santander, 80 senior leaders from the UK’s largest financial services brands were asked: “What will help your organisation harness the power of AI and unlock innovation?”. A huge 98% of the C-suite and VP-level respondents believe that they won’t need to convince others that AI “is the future” of financial services. Meanwhile, 30% said “moving past the hype cycle and realising actual value” would help their organisation harness the power of AI. Other findings from the survey showed that half (50%) of the attendees see that “identifying AI use cases” would help them implement AI, with: 34% want these “use cases” to demonstrate how AI can transform customer experience While 16% wanted to see the true value of AI to understand where it can support business operations. Phil O’Neill, director of financial services at Kin + Carta Europe commented on the findings: “Financial services is no stranger to disruption, but unlike previously, there seems to be a sense of common thinking across the sector - AI is here to stay. “But we are not there yet. As the survey results suggest, we need to be moving beyond the hype and actually prove the use cases and value the application of AI can deliver. Only then, with the right data foundations in place, will we see the more profound applications of AI come to the fore. “Industry leaders can see the positive impact that AI will have on financial services but only if we think pragmatically, build tools responsibly, and understand limitations, will we reach that AI mecca where it is actually making a worthwhile difference.”
11 Finance Monthly. The Monthly Round-Up Fintex Capital, a fintech investment firm dedicated to alternative credit, has provided a funding line to Go Car Credit, the specialist motor finance lender. This will support Go Car Credit originating c.£4m per month of car loans as part of a new long term lending relationship. This additional funding line enables Go Car Credit to expand its responsible lending, allowing more people to buy the cars they need for work and family life. Go Car Credit’s thorough, data-based underwriting supports consumers across the credit spectrum. In the current economic climate, Fintex Capital remains committed to lending to businesses that combine best-inclass underwriting with responsible lending practices and strong customer service, such as Go Car Credit. This transaction is one of multiple facilities Fintex has recently closed as it continues to expand its lending business with opportunities across the capital stack. Mark Giles Chief Executive Officer, Go Car Credit, said: “We are delighted to work with Fintex, who share our approach to data science and excellence, thereby increasing our capacity to grow in our target markets. Robert Stafler Chief Executive Officer, Fintex Capital, said: “Fintex is delighted to partner with Go Car Credit, one of the leading players in specialist motor finance. We were very impressed by the quality of their underwriting, which leverages technology to responsibly lend to all types of consumers. We look forward to supporting Go Car Credit on their growth journey FINTEX CAPITAL ENTERS LONG TERM PARTNERSHIP WITH GO CAR CREDIT TO SUPPORT £4M OF MONTHLY ORIGINATIONS PARTNERSHIP WILL GROW GO CAR CREDIT’S LOAN BOOK THAT STANDS AT C. £60M TODA Robert Stafler, CEO of Fintex Capital
Finance Monthly. 12 The Monthly Round-Up LIBERIS LAUNCHES CASHBACK FOR GREEN - A FUNDING INITIATIVE THAT REWARDS SUSTAINABLE SMES Liberis, a leading global embedded finance platform, is reinforcing their commitment to responsible and sustainable investment practices by developing Cashback for Green, responding to the growing appetite from their SME customers for green funding solutions. With 91% of SMEs agreeing it is important to be sustainable, and 42% of this group struggling to do so from a lack of guidance, the scheme has come at a crucial time for business owners looking to reduce their impact on the environment. Developed in conjunction with Liberis’ strategic partners, the initiative will see small businesses being offered the opportunity to receive cashback on their factor fee if their funding is used for green investments and purchases. Supporting SMEs to gain both a competitive edge and prepare for a low-carbon future, Cashback for Green has been designed to encourage small and medium business owners to make green investments that they may otherwise postpone. From sustainable supply chains and transport, to energy efficiency and educational programmes, there are a range of green investments that business owners can devote their funding to. These opportunities will allow business owners to demonstrate their commitment to being more environmentally responsible, and revolutionise how they approach green funding. Liberis will be supporting SMEs both in their future success and in reducing their environmental impact, with their long-term goals including a £1m contribution per year towards green initiatives. The sustainability market is growing exponentially, and small businesses that prioritise both sustainability and eco-friendly practices are highly sought after by consumers. Additionally, they’ll be able to meet government regulations as new sustainability laws are introduced for businesses. Cashback for Green will go live in July, and Liberis’ customers will be able to apply via online channels. Small businesses will claim their funding offer, and will then be supported by Liberis to navigate green investments and claim cashback. The initiative is expected to be a gamechanger for SME owners who want to create positive environmental change whilst growing their businesses, and is backed by Liberis’ partners, which includes financial services, payments and FinTech companies. Rob Straathof, CEO of Liberis said: ‘Throughout our conversations with global SMEs, the market demand for impactful green funding solutions is a growing priority. With Cashback for Green, we’re encouraging SMEs to make more sustainable investments, as well as highlighting the impact and benefits of implementing these green practices. We are truly committed to supporting SMEs towards a greener future, and collectively combatting the effects of climate change.” Cashback for Green will be available in all markets Liberis operates in, and as they expand globally with financial partners who align with their environmental values.
Taxation Awards2023 FM WINNERS EDITION COMING SOON Click here or visit www.finance-monthly.com for more information Year upon year, the Finance Monthly Taxation Awards recognise and celebrate excellence across the increasingly diverse and dynamic tax industry – highlighting firms and individuals who work diligently to provide essential tax services. Monthly Finance
How ChatGPT and Generative AI Will Reinvent Finance Departments ChatGPT and generative artificial intelligence (AI) are revolutionary technologies poised to transform the field of corporate finance. These groundbreaking tools streamline the workload for finance professionals, releasing them from laborious tasks like constructing complex spreadsheet models for forecasting, manually classifying expenses, and many other duties that need to be repeated monthly or quarterly. With remarkable proficiency, generative AI, like ChatGPT, not only analyzes financial data to uncover valuable insights into trends, patterns, and anomalies, but also aids in assessing credit, market, and operational risks. Additionally, ChatGPT has the potential to automate specific processes such as invoicing and reporting, serving as an ultimate productivity booster. Recognizing the immense potential of AI, personnel in finance departments need to embrace this transformative tool and integrate it into daily operations. By doing so, they position themselves as strategic operators and decision-makers operating in finance. Written by Ankita Panwar Special Feature 14 Finance Monthly.
ChatGPT and generative AI: Liberating finance personnel The advent of ChatGPT and generative AI signifies a profound transformation within corporate finance departments. These technologies are currently being implemented in the hedge funds Man Group and Citadel. As reported by Bloomberg, employees at these companies report using ChatGPT to create and edit code, parse research, and help with other forms of mundane work. Because ChatGPT is an opensource model, privacy and security concerns limit its application for trading and investing tasks, but financial experts are finding it helpful in improving efficiency in other areas. Another manual task that generative AI can handle well is the know your customer (KYC)/ anti-money laundering (AML) processing. By leveraging the capabilities of ChatGPT, banks can automate and enhance these critical processes. Through the analysis of vast amounts of customer data, including personal information and transaction history, ChatGPT can effectively identify potential compliance issues, aiding in the mitigation of financial crime risks and ensuring regulatory compliance. ChatGPT also has the ability to verify customer identity, cross-reference customers against sanction lists, and flag suspicious transactions. This integration of AI technologies reduces the likelihood of errors and improves the overall accuracy of compliance checks, enabling banks to operate more efficiently and effectively in their efforts to combat financial crime. Finance Monthly. Special Feature 15
The next area in which ChatGPT and AI operate seamlessly is the creation of superior financial forecasting models. With their advanced analytical capabilities, these technologies provide executives with more accurate and comprehensive information for decision-making. By leveraging the power of ChatGPT and AI, finance professionals can gain deeper insights into market trends, identify potential risks, and make informed strategic choices that drive the success of their organizations. Instead of instilling fear that finance jobs will be replaced, the integration of ChatGPT and AI empowers human employees to concentrate on their unique strengths. Rather than being preoccupied with repetitive tasks, finance professionals can allocate their time and expertise to critical areas that require human judgment, such as action items, strategic planning, and urgent business-partner approval requests. This human-centric approach ensures that the strengths and abilities of finance professionals are harnessed effectively, leading to more impactful contributions within their organizations. Risks of ChatGPT While ChatGPT and generative AI offer significant advantages, it is crucial for finance departments to acknowledge and mitigate the potential risks associated with their implementation. One primary concern is security protocols. It is essential that companies carefully determine the data they want to make available to ChatGPT, given that it is owned by another entity (OpenAI) and accessible publicly online. To safeguard proprietary information, companies need to establish clear guidelines regarding data usage and access and familiarize employees with these protocols. Using ChatGPT without an enterprise contract also presents security risks. Without proper agreements with OpenAI or other competing companies like Anthrpic, there is a higher likelihood of proprietary data leaks. This recently occurred at Samsung, where an employee uploaded sensitive code to ChatGPT, prompting concerns about the potential exposure of uploaded information to other ChatGPT users. As a result, Samsung banned employees from using ChatGPT and is also working on developing its own proprietary generative AI in-house, which is not an option for most companies. To address these security concerns, companies can establish enterprise contracts to ensure the security and confidentiality of their valuable information. To manage the risks of using generative AI, it is important to develop best practices that are widely published within companies and regularly updated. If companies ignore or simply forbid employees to use generative AI, those employees will figure out ways to use it anyway. Rather, taking a proactive approach encourages employees to use ChatGPT responsibly fosters transparency within the organization and helps prevent the unauthorized use of unregulated AI tools. By creating and sharing comprehensive guidelines, companies can ensure that employees understand the proper use and limitations of ChatGPT, Through the analysis of vast amounts of customer data, including personal information and transaction history, ChatGPT can effectively identify potential compliance issues, aiding in the mitigation of financial crime risks and ensuring regulatory compliance. 16 Finance Monthly. Front Cover Feature
including troubleshooting techniques to address errors and misinformation. Company-level actions to benefit from AI To fully capitalize on the potential of ChatGPT and generative AI, it’s critical for finance department leaders to adopt a proactive approach that encompasses various company-level actions. First and foremost, it is important to dispel any fears employees may have regarding AI. Instead of perceiving AI as a threat to job security, encourage employees to embrace these technologies as tools that enhance their capabilities and productivity. By communicating this positive message, companies can foster a culture of innovation and empower their workforce to embrace the transformative power of ChatGPT and AI. Second, to remain competitive in today’s rapidly evolving landscape, it is vital for CEOs to prioritize the implementation of ChatGPT and generative AI. This strategic integration ensures that organizations remain at the forefront of technological advancements and benefit from the full potential of these tools. By championing the adoption of ChatGPT and AI, CEOs demonstrate their commitment to driving innovation and positioning their companies for long-term success. Third, it is crucial to establish policies that encourage the use of generative AI throughout the organization. By publishing and sharing these policies, organizations can create a framework that supports responsible and effective use of AI technologies. Furthermore, it is essential to continuously test, review, and update best practices to adapt to the evolving nature of generative AI. CEOs should directly oversee these efforts, ensuring that the integration of generative AI is well-managed and aligned with the organization’s strategic objectives. Reimagining the future ChatGPT, and more broadly generative AI, represents a transformative force within corporate finance departments, empowering professionals to become strategic partners and decision-makers. As its applications evolve, the technologies can offer a competitive advantage for organizations that leverage it to improve efficiency, enhance customer service, analyze data, provide recommendations, detect fraud, identify compliance issues, among other uses. It is essential for finance leaders to navigate the risks associated with generative AI, such as security protocols and the need for proper training and oversight, and directly manage their implementation to maintain a competitive edge. By embracing this revolutionary technology, finance departments can reinvent themselves, thrive in the era of automation and AI, and seize the opportunity to shape the future of corporate finance. About the Author: Ankita Panwar is a seasoned finance leader and has a breadth of intensive finance experience across companies like Snowflake, Sequoia Capital, and WorldQuant. An alumna of the Indian Institute of Technology Kanpur and the Chicago Booth School of Business, Ankita focuses on strategic and operational excellence driven by finance. For more information, contact pwr.ankita@gmail.com Finance Monthly. Front Cover Feature 17
Bernard Lawrence Madoff, better known as Bernie Madoff, is a name that will forever be associated with one of the most infamous financial scandals in history. The story of Bernie Madoff captivated the world with its mixture of wealth, power, deceit, and ultimately, downfall. THE STORY Early Life and Career of Bernie Madoff Bernie Madoff was born on April 29, 1938, in Queens, New York. The son of a plumber and a housewife, Madoff’s humble beginnings gave no indication of the financial empire he would later create. Growing up in a lower-middleclass neighbourhood, he attended Far Rockaway High School. Despite not being a standout student, Madoff possessed a natural affinity for numbers and developed an early interest in the stock market. This passion for finance led him to study business at Hofstra University, where he graduated in 1960 with a degree in political science. Childhood and Education Madoff’s childhood was marked by an average upbringing in a working-class neighbourhood. His parents instilled in him values of hard work and perseverance, which would later play a role in his rise to prominence in the financial world. During his high school years at Far Rockaway, Madoff showed promise as a math student and developed an early fascination with the stock market. This interest would shape his future career and ultimately lead him down a path of both unimaginable success and notorious infamy. BERNIE MADOFF Special Feature 18 Finance Monthly.
After graduating from Hofstra University, Madoff wasted no time in starting his career on Wall Street. In 1960, he founded his own investment firm, Bernard L. Madoff Investment Securities LLC. Finance Monthly. Special Feature 19
20 Finance Monthly. Special Feature As a teenager, Madoff would spend hours poring over financial newspapers and studying market trends. He would often engage in deep discussions with his friends about the latest investment strategies and the potential risks and rewards of various stocks. This insatiable curiosity and thirst for knowledge set him apart from his peers and foreshadowed his future as a financial mastermind. After graduating from high school, Madoff’s parents encouraged him to pursue higher education. He enrolled at Hofstra University, where his passion for finance only intensified. He immersed himself in his studies, devouring textbooks on economics and attending seminars led by renowned professors. It was during this time that Madoff first began to formulate his own investment theories and strategies. Entry into Wall Street After graduating from Hofstra University, Madoff wasted no time in starting his career on Wall Street. In 1960, he founded his own investment firm, Bernard L. Madoff Investment Securities LLC. It started as a small operation, but little did the world know that it would soon become a financial powerhouse. Moving swiftly up the ranks, Madoff earned a reputation for his investment strategy, which allegedly yielded consistent and impressive returns, even in times of market volatility. It wasn’t long before his firm attracted the attention of wealthy clients, eager to capitalize on his apparent financial expertise. Madoff’s success on Wall Street was not solely due to his investment acumen. He was also known for his charismatic personality and ability to build strong relationships with his clients. He would often host lavish parties and events, where he would charm potential investors with his wit and charm. This combination of financial prowess and interpersonal skills propelled Madoff to the pinnacle of the financial world. As his reputation grew, so did his client base. High-net-worth individuals and prominent institutions flocked to Madoff’s firm, eager to entrust their fortunes to his seemingly infallible investment strategies. The allure of consistent and impressive returns proved irresistible, and Madoff’s empire continued to expand. However, behind the scenes, Madoff was engaged in a massive Ponzi scheme, using new investors’ money to pay off existing investors. This elaborate fraud went undetected for years, as Madoff skilfully manipulated financial records and misled regulators. The collapse of his scheme in 2008 sent shockwaves through the financial world and resulted in significant losses for countless individuals and organizations. The story of Bernie Madoff serves as a cautionary tale, highlighting the devastating consequences of unchecked greed and the importance of thorough financial oversight. It is a reminder that Madoff’s success on Wall Street was not solely due to his investment acumen. He was also known for his charismatic personality and ability to build strong relationships with his clients.
21 Finance Monthly. Special Feature even those who appear to be financial geniuses can be capable of unimaginable deceit. The Rise of Bernard L. Madoff Investment Securities LLC Around the late 1970s and early 1980s, Bernard L. Madoff Investment Securities experienced a period of exponential growth. Madoff’s investment strategy, which he dubbed a “split-strike conversion strategy,” seemed to be working like magic. The firm’s assets under management soared, and its influence in the financial world expanded. During this time, Madoff’s firm attracted a wide range of clients, ranging from celebrities to philanthropists to pension funds. The aura of exclusivity surrounding his investment services created an air of prestige, as people clamoured to become part of Madoff’s exclusive circle. The firm’s reputation seemed unblemished, with Madoff consistently delivering steady returns to his clients. Many considered him a financial wizard, capable of generating profits even when markets were in turmoil. His strategy was seen as a closely guarded secret, known only to a select few. Growth and Success As his investment firm flourished, Madoff himself became a prominent figure on Wall Street. He served as the chairman of the NASDAQ stock exchange, further solidifying his reputation as a financial genius. The success of his firm was seemingly unstoppable, and Madoff revelled in his newfound wealth and influence. With his growing influence, Madoff expanded his operations, opening offices in major financial centres around the world. He hired a team of talented professionals who shared his vision and commitment to success. Together, they developed innovative investment strategies that attracted even more clients. Madoff’s firm became known for its exceptional customer service, providing personalized attention to each client’s unique financial goals. The firm’s success was not only attributed to Madoff’s investment strategy but also to the strong relationships he built with his clients. He took the time to understand their needs and aspirations, ensuring that their investments aligned with their long-term objectives. As the firm’s assets under management continued to grow, Madoff invested heavily in cutting- edge technology and research capabilities. This allowed his team to stay ahead of market trends, giving them a competitive edge in the industry. Madoff’s dedication to staying at the forefront of the financial world was evident in everything his firm did. High-profile Clients and Reputation Madoff’s firm attracted not only individual investors but also institutional clients. The trust placed in him by high-profile organizations, such as universities and charitable foundations, further solidified his reputation as a trusted financial advisor. Word of mouth spread about the impressive returns Madoff Madoff’s investment strategy, which he dubbed a “split-strike conversion strategy,” seemed to be working like magic. The firm’s assets under management soared, and its influence in the financial world expanded.
22 Finance Monthly. Special Feature consistently delivered. Investors were drawn to the stability and reliability of his investment strategy, especially during times of economic uncertainty. Madoff’s firm became a safe haven for those seeking consistent growth and financial security. Madoff’s reputation as a financial genius extended beyond the investment world. He was often sought after for his insights and expertise, regularly appearing on television and speaking at prestigious conferences. His charismatic personality and ability to simplify complex financial concepts made him a captivating speaker, further enhancing his reputation. However, behind the scenes, something far more sinister was unfolding. Madoff’s success was built on a foundation of lies and deceit, as he ran one of the largest Ponzi schemes in history. The very same firm that had once been praised for its innovation and success would soon become synonymous with fraud and betrayal. The Ponzi Scheme Unveiled Little did Madoff’s clients know that beneath the polished exterior of his empire lay a massive Ponzi scheme that would eventually unravel and send shockwaves throughout the financial world. Red Flags and Suspicion The first indications that something was amiss emerged in the early 2000s. Several financial experts and analysts started questioning the consistency of Madoff’s investment returns and the lack of transparency surrounding his strategy. Despite these raised eyebrows, the allure of Madoff’s success and the fear of missing out kept clients pouring their money into his fund. It wasn’t until the global financial crisis of 2008 that the Ponzi scheme couldn’t be sustained any longer. The 2008 Financial Crisis and Madoff’s Downfall When the financial markets were in turmoil and investors panicked, many sought to withdraw their investments from various funds, including Madoff’s. It was during this period that Madoff’s house of cards finally collapsed. Unable to meet the withdrawal requests, Madoff confessed to his sons that his investment firm was merely a Ponzi scheme—a fraudulent operation that relied on new investments to pay off existing clients. This revelation sent shockwaves through the financial world and left countless investors devastated. Legal Proceedings and Conviction The exposure of Madoff’s Ponzi scheme was only the beginning of the legal and judicial saga that would unfold in the years to come. The Trial Madoff was arrested on December 11, 2008, and faced federal charges for securities fraud, investment advisor fraud, and other related offenses. The trial, which began in 2009, captivated the world’s attention as the full extent of Madoff’s crimes was laid bare. During the trial, Madoff pleaded guilty to all charges, sparing both himself and his victims from a prolonged courtroom battle. The revelation that he had defrauded investors out of billions of dollars sent shockwaves through the financial community and further damaged the trust that had already been eroded during the 2008 financial crisis. The allure of Madoff’s success and the fear of missing out kept clients pouring their money into his fund.
23 Finance Monthly. Special Feature Sentencing and Prison Life In June 2009, Madoff received his sentence—a total of 150 years in federal prison. He was sent to the maximum-security federal prison in Butner, North Carolina, where he would spend the remainder of his life. Behind bars, Madoff led a life stripped of the opulence and extravagance he had become accustomed to. The man who once orchestrated a massive Ponzi scheme now contended with the harsh realities of prison life, surrounded by individuals he had once deceived. Impact on Victims and Financial Regulations The fallout from Madoff’s Ponzi scheme was felt far beyond the confines of Wall Street. The ripple effects of his crimes extended to the lives of countless individuals and the broader financial landscape. The Human Cost of Madoff’s Fraud The list of Madoff’s victims was extensive and far-reaching. They encompassed retirees, charities, and even longtime friends and associates. Many lost their life savings, their homes, and their sense of security—all due to the actions of one man. The emotional toll inflicted by Madoff’s fraud is immeasurable. Families were torn apart, livelihoods were destroyed, and trust in the financial system was shaken to its core. The human cost of his actions cannot be understated. Changes in Financial Oversight and Regulations The Madoff scandal served as a wakeup call for regulators and lawmakers. It exposed weaknesses in the oversight and regulation of the financial industry, prompting a revaluation of existing practices and the implementation of stricter regulations. Financial institutions and regulatory bodies alike were forced to confront the need for increased transparency and accountability. Measures were put in place to prevent similar fraudulent schemes from occurring in the future, with a renewed focus on investor protection and risk management. The Legacy of Bernie Madoff Bernie Madoff’s story serves as a cautionary tale—a reminder that sometimes, even those who appear to be at the pinnacle of success can be harbouring dark secrets. His name will forever be synonymous with greed, deception, and the devastating consequences of financial fraud. The Bernie Madoff scandal not only shattered the lives of his victims but also forced society to question the integrity of the financial system as a whole. It serves as a stark reminder that trust is a fragile commodity— one that must be continuously safeguarded. During the trial, Madoff pleaded guilty to all charges, sparing both himself and his victims from a prolonged courtroom battle.
Today, we have the pleasure of sitting down with Alba Contreras Rodriguez ,the founder of FONS LLC (Focus on Solution). Alba’s journey from Venezuela to the United States and her successful career in various industries led her to pursue her passion for coaching. Alba is an expert in executive and team coaching, helping leaders and organizations excel in times of transition and transformation. Alba, thank you for joining us today. Please share an overview of your personal journey and how you found Focus on Solution Coaching. I was born and raised in Venezuela and moved to the United States right after High School to learn the English language. My childhood dream was to become an architect and later shifted to a STEM path in business administration and computer & information sciences, opening the door to a successful career in various industries. After graduation at 21, I moved back home and started working as a systems programmer and analyst. I later worked for General Motors, KPMG management consulting, and Ford Motor Company. Ford offered me an international assignment at corporate headquarters in Michigan. They sponsored me to become a USA citizen and return to school to get my MBA at the University of Michigan Ross School of Business. In 2017, after 23 phenomenal years with Ford, I decided to retire early to pursue my next career. I launched FONS LLC, which stands for Focus on Solution, to pursue a new path by following my passion or calling. I was motivated by several key lessons: the importance of focusing on the humans in any transformation; knowing myself and being confident in defining my path; learning to become a CEO, and being a lifelong learner. To become a successful coach, ALBA CONTRERAS RODRIGUEZ, MBA, PCC Founder of FONS LLC Leadership Special Feature 26 Finance Monthly. www.focusonsolution.com | info@focusonsolution.com
I attended a coaching school, got trained and certified by the International Coaching Federation (ICF), and became a team coach practitioner credentialed by the European Mentoring and Coaching Council (EMCC). FONS provides Executive, Team, and Group coaching for leaders and organizations to excel and enable transitions and transformations focused on human readiness. The name of your company, “Focus On Solution” (FONS), speaks to a positive and forward-thinking approach. How does this philosophy inform your methods in executive and team coaching? My coaching approach is grounded in empathy, intuition, and trustbuilding, which describes me as a spiral lighthouse coach – I am all about getting the holistic 360 view and finding the connection between the BEING and the DOING. It is all about deepening the learning and creating a grounded harbor of trust, safety, and connection. I encourage my clients and teams to think beyond their comfort zone and expand their horizons by focusing on the ecosystem and interdependencies. My coaching philosophy and methods allow me to help my clients Finance Monthly. Leadership Special Feature 27
Contents 28 Finance Monthly. Leadership Special Feature navigate VUCA (Volatile, Uncertain, Complex, Ambiguous) business environments and deliver results while improving their well-being. I am a thought partner, accountability partner, and sounding board for my clients. My coaching programs are focused and tailored to the goals and challenges of the individuals, teams, and their stakeholders. My clients trust me to help them build self-awareness and develop new attitudes to be more effective leaders and teams through reflection, experimentation, and action. You’ve been recognized as one of the top coaches in Detroit by Influence Digest. What unique strategies or techniques do you offer your clients to ensure your services stand out? With my extensive experience in various industries for over 30 years as a corporate executive, management consultant, and credentialed coach, I am a coach who understands the power of coaching in transforming leaders and organizations. My purpose is to help leaders and teams recognize and achieve their highest potential to serve better and add value to their stakeholders. I understand the responsibility and how it feels to be in their shoes. My Focus on Solution Programs©, for individuals, teams, or groups, use a structured, flexible process and set of tools based on the needs of the client(s) and mainly focuses on their BEING, not only on their DOING. The program’s main components include honoring confidentiality, building a relationship of trust, gathering data through assessments and 360 interviews, identifying the areas of development and focus, and cocreating a coaching plan to deliver the expected goals and success metrics. The coaching sessions have an agenda of the client’s needs; the work outside the sessions is about reflection, practice, experimentation, and learning. You offer a Team Coaching service. What, in your experience, are the key benefits an organization can gain from investing in team coaching? And what are the benefits of team coaching over individual coaching? Team Coaching is a powerful and effective process that enhances the performance of the individual members, the leader, and the team as a collective, impacting the immediate business and broader organization. Eighty percent of organizations operate almost wholly in teams, and today’s world is complex and changing rapidly. Today’s challenges need collaborative teams, and organizations need qualified team coaches and leaders who can create connections on multiple levels to develop a sustainable and prosperous workplace. Integrating Team Coaching into an organization can: • Enable teams to adapt and navigate the challenges of today’s hyper-complex and fast-changing world • Help team members think beyond themselves and their team to consider the organization’s larger objectives as a whole • Facilitate teams to work with each other and every stakeholder across the organization • Develop greater clarity of purpose, better processes of decision-making, communicating, and organizing work Today’s challenges need collaborative teams, and organizations need qualified team coaches and leaders who can create connections on multiple levels to develop a sustainable and prosperous workplace.NNN
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