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Principles of Financial Literacy

Principles of Financial Literacy

Earl Jones is a Canadian non-practicing investment advisor. He was born in Montreal on June 24, 1942. His worked at Montreal Trust Company from which no one can imagine he could become a fraud later in life. In 1979, he started his own investment advising business, but did not register as a financial adviser with any securities regulator, which surely contributes, to his criminal behavior. “He was charming, generous and when it came to suggesting that friends and family invest with him, he was totally convincing. So convincing, that for more than decades Earl Jones managed to run a Ponzi scheme that swindled 158 investors out of $50 million.” (CBC 2010).

It was reported that he promised Bernard Madoff returns to prospective client. He never invested a penny of the money he had been collecting from his clients. He collected $50.3 million and never invested a penny. He spent $13 million to finance a lavish lifestyle and paid back $37 million to maintain the illusion of the 8% return he had promised. 158 people were victim of his Ponzi scheme; including his real brother and sister-in-law, who lost $1million (Huges 2010).

It is something to be thought that he ruined the lives of hundreds of lives by taking away their retirement and investment funds. Elderly people were mostly conned by him, people including his real brother and sister-in-law. His brother Bevan Jones and his sister-in-law Frances Gordon were hurt and no longer speaking to him (Huges 2010). His wife Maxine Jones who was given legal papers stating she has no interest in the four properties held jointly or in her name alone which were bought by herself and Earl Jones while they were married. She had to file a divorce not due to all the frauds he did and is the biggest victim affected (Sutherland 2012).

Jones punishment did not fit his crime. Some of his victims did get closure to the outcome, while others are still struggling. In comparison to the punishment given to Bernard Madoff Jones sentence does not seem appropriate. Their crimes are the same while Bernard is sentenced to jail for 150 years meaning till he dies while it’s not the same in Jones case as he is only given 11 years of imprisonment (Huges 2010).

As we can conclude from Jones’ story, using four major theories of “white-collar crimes’ reasons”, this individual was simply greedy (Raver 2007). The way he scammed people and moreover, the goals Jones pursued by committing the crime tell us that he was pushed by simple greed to deceive his friends and even family members. The theory of “Rational choice – Greed” provides us with the following explanation: “One view of white-collar crime is that greedy people rationally choose to take shortcuts to acquire wealth, believing that the potential profits far outweigh future punishments.” In addition, these people believe that they will not be caught at all because they are too clever. In our case, Jones certainly was ruled by similar thoughts because otherwise he would not have spent $13 million for the lifestyle he wanted to have (Raver 2007).

It is possible that we can combine Greed theory with another one, more sophisticated but yet more dangerous for white collars. It is the theory called “Rationalization/Neutralization View”. The theory states that people calm their consciousness (well, if they have one) with such thoughts as “no one is getting hurt”, “and they have plenty and won’t even notice what is taken”, and so on. In other words, such people think they do not commit any crime at all, well, at least in commonly accepted terms (Raver 2007). They do not kill or assault anyone so the crime is not the crime at all. Jones could have had such thoughts in his head, taking money from 158 people. He might have calmed down himself saying that nothing extraordinary was happening and that no one would get hurt. However, Earl Jones was wrong.

As for the Ponzi (pyramid) scheme, used by Jones, it is not new and rather easy to reveal the scam using clear head. The history knows several Ponzi schemes that differ in realization but similar in the essence. People give the money by free will hoping that correctly placed investments would assure tremendous returns. Jones knew this scheme very well, he was prepared to use his charm and eloquence to convince future victims in both his extraordinary investor’s skills and unbelievable availability of his venture (Raver 2007).

It was the “thing” of Mr. Jones. He managed to convince only a few people to invest in his “business”. Then, it was only the matter of skill to give money of new investors to the previous investors and use the rest as he wished, not spending a dime on real investments. It was a good old Ponzi scheme in action. Earl Jones was greedy, self-calming fraud who considered himself too smart and skilful to get caught. As we can see, he was very wrong (Raver 2007).

Another example of Madoff’s legacy is in the following text. The article named SEC Chief Mary Schapiro to Step Down written by Jennifer Liberto from CNNMoney (Liberto 2012) submitted on Money.cnn.com on November 26, 2012 11:23 AM ET describes the future relief of duties for Mary Shapiro, the head of the U.S. Securities and Exchange. According to Liberto, Shapiro “down from her post Dec. 14.” Shapiro was appointed the SEC chairman in January 2009 when the agency was experiencing difficult times and criticized for not being effective enough to prevent the events leading to the crisis in financial area. The article says that President Obama replacing Mary Shapiro with Elisse Walter. Walter is a democrat and had an experience of such work in 2008 appointed by President George W. Bush. Liberto (2012) stated that SEC has been a target for criticism lately: the agency missed the Bernard Madoff Ponzi scheme and lacked supervision of various companies such as Lehman Brothers, for example, one of the figurants of financial crisis of 2008. However, Liberto (2012) says, “the agency under Schapiro has beefed up its enforcements against financial firms that have broken rules.”

The article is well written and clear for any reader interested in the topic. The language was clear and easy to understand. The author did not use the unclear term so there was no need to look for their definitions additionally. It was well edited and free from typos and mistakes. The article flowed from the beginning until the end continuing the story. The author provided a little of background information regarding the major figure from the article but it was sufficient to understand the role of this person in the article and her importance. The story was meaningful and helpful for those who are interested in political environment of today. The main figure in the article played and plays an important role in financial circles so information was rather important and timely provided. The author used various sources to support the arguments and gave direct links to the information in body of the article. The only citation was properly referenced and the author was stated in the text. The author of the article was not biased – she was providing the set of facts and arguments regarding the assessment of the main figure’s activities, nothing more. The reporter probably should have added more interested sides providing their arguments (more opinions from the opposition and supporters of Shapiro) however, at least two sides were clear as well as their evaluation of SEC chairman work.

The article is informative and provides enough information to understand the significance of the news without additional research. It provides several arguments supported by evidence that include such names as Goldman Sachs, Lehman Brothers, Bernard Madoff that are rather famous and known by non-professionals in the financial and/or political area. It makes this article so understandable and easy to read. Liberto made the right move making the article short. Additional extended analysis of the Shapiro activates would make it dull and not interesting. Financial reports would be also unnecessary. The article is bias-free and provides pros and cons of the Shapiro’s work during the chairmanship in SEC. The substantial numbers (multi-billion, $550 million, $150 million, etc.) add weight to the article and make it more profound and serious.

The explored article is “2009 CSI Computer Crime and Security Survey Comprehensive Edition,” by Sara Peters (Peters 2009). There were surveyed 443 sources (corporations, government organizations, educational and financial institutions, etc.) in the U.S. in order to obtain comprehensive picture regarding the state of things in the area of computer crime and security. The key findings of the report are as follows:

The losses have decreased from $289,000 to $234.000 per each respondent. However, they are still bigger that in the previous years. The number of various frauds and problems has increased substantially: financial – for about 8%; malware infection – for more than 13%; denial of service – for more than 8%; password sniffing – for more than 8%; and website defacements – for more than 7%. The number of wireless exploits, at the same time, has dropped for about 7% along with instant messaging issues – for about 14% (Peters 2009, p. 2).

Financial fraud is still one of the most expensive types of attack – it brings to its initiators about $450,000 in average. However, the surveyed year showed that wireless exploits and personality information theft are even more “profitable” – $770,000 and $710,000 respectively (Peters 2009, p. 15). Due the serious increase of incidents, the number of respondents outsourcing security functions decreased for about 11%. It means that respondents try to eliminate the possible source of security breach.

The financial ratios have changed substantially for this period, according to the respondents. Thus, Return of Investment ratio (as a security metric) increased for more than 20%. Net Present Value and Internal Rate of Return have decreased through. Finally, more than 50% of respondents claimed their readiness and desire to comply with the Health Insurance Portability and Accountability Act (HIPAA) in order to protect the confidentiality of information according to the high standards of this act (Peters 2009, p. 26).

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