With regard to the second element, ‘opportunity’, it seems clear that Madoff took
advantage of his position as head of the company, which gave him more chance to
commit a crime without being questioned. Madoff had enough management power and
authority to design the level of internal control and corporate governance in such an
advantageous way for himself. Firstly, it is obvious that the typical segregation of duties in Madoff’s hedge fund was missing (Fuerman, 2009). Normally, an investment
manager should have segregated duties in his capacity as a manager of assets, a
broker who executes trades, a fund administrator who calculates the net asset values
and a custodian who has custody of assets. However, BMIS’s hedge fund performed all
four of these functions without any distinct separation, which led to a very low level of
internal control. Secondly, the corporate governance of BMIS had all the key players
being the Madoffs with his brother as the chief compliance officer, his nephew as the
director of administration, his sons as directors, his niece as the general counsel and
rules compliance attorney (Fuerman, 2009). Thirdly, Madoff approved of and insisted on
using a solo auditor. The auditing company that Madoff hired was Friehling & Horowitz,
as mentioned before, a firm consisting of only three employees and one office, and was
extremely small despite the scale and scope of BMIS’s activities.