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The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud

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  • Hervé Stolowy
  • Martin Messner
  • Thomas Jeanjean
  • C. Richard Baker

Abstract

In this paper, we use the investment fraud of Bernard Madoff to inquire into the production of trust in the context of financial markets. Drawing upon empirical data related to U.S. individual investors (interviews and letters) as well as documentary material, we investigate the mechanisms through which investing with Madoff came to be seen as a trustworthy investment opportunity. We show how different types of information contributed to construct Bernard Madoff as a trustworthy investment manager and how Madoff avoided meeting demands for accountability by manipulating investors in face-to-face encounters. We shed particular light on the role of institution-based forms of trust which play a critical role in facilitating economic exchanges. More specifically, we suggest that the Madoff case illuminates how the provision of information can lead to an “illusion of trustworthiness” that is difficult to escape for investors. An element of such illusion, we suggest, is inherent to the functioning of financial markets more generally.
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Suggested Citation

  • Hervé Stolowy & Martin Messner & Thomas Jeanjean & C. Richard Baker, 2014. "The Construction of a Trustworthy Investment Opportunity: Insights from the Madoff Fraud," Contemporary Accounting Research, John Wiley & Sons, vol. 31(2), pages 354-397, June.
    • Handle: RePEc:wly:coacre:v:31:y:2014:i:2:p:354-397
    DOI: 10.1111/1911-3846.12039
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    Cited by:

    1. Oussama Ouriemmi, 2023. "The Legalistic Organizational Response to Whistleblowers’ Disclosures in a Scandal: Law Without Justice?," Journal of Business Ethics, Springer, vol. 188(1), pages 17-35, November.
    2. Hervé Laroche & Véronique Steyer & Christelle Théron, 2019. "How Could You be so Gullible? Scams and Over-Trust in Organizations," Journal of Business Ethics, Springer, vol. 160(3), pages 641-656, December.
    3. Ouriemmi, Oussama & Gérard, Benoît, 2023. "Control dynamics in rogue trading: Sovereignty and exception-to-the-rule attitudes in the contemporary financial sphere," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 91(C).
    4. Matthew Bamber & Santhosh Abraham, 2020. "On the “Realities” of Investor‐Manager Interactivity: Baudrillard, Hyperreality, and Management Q&A Sessions†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 1290-1325, June.
    5. Hervé Stolowy & Yves Gendron & Jodie Moll & Luc Paugam, 2019. "Building the Legitimacy of Whistleblowers: A Multi‐Case Discourse Analysis," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 7-49, March.
    6. Yvonne Joyce, 2020. "Building Trust in Crisis Management: A Study of Insolvency Practitioners and the Role of Accounting Information and Processes," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1622-1657, September.
    7. Aziza Laguecir & Bernard Leca, 2018. "Strategies of visibility in contemporary surveillance settings: Insights from misconduct concealment in financial markets, Critical Perspectives on Accounting," Post-Print hal-01914996, HAL.
    8. Roberts, John, 2015. "The ‘subject’ of corruption," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 28(C), pages 82-88.
    9. Ikseon Suh & John T. Sweeney & Kristina Linke & Joseph M. Wall, 2020. "Boiling the Frog Slowly: The Immersion of C-Suite Financial Executives into Fraud," Journal of Business Ethics, Springer, vol. 162(3), pages 645-673, March.
    10. Pelger, Christoph & Grottke, Markus, 2015. "What about the future of the academy? – Some remarks on the looming colonisation of doctoral education," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 26(C), pages 117-129.
    11. Laguecir, Aziza & Leca, Bernard, 2019. "Strategies of visibility in contemporary surveillance settings: Insights from misconduct concealment in financial markets," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 62(C), pages 39-58.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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