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Madoff aides used 'avalanche of lies' to hide fraud: prosecutor
By Joseph Ax
NEW YORK Tue Mar 4, 2014 5:51pm EST
http://www.reuters.com/article/2014/03/04/us-madoff-employees-idUSBREA2328720140304
(Reuters) - Five former aides of infamous swindler Bernard Madoff used an "avalanche of lies" to help him carry out his decades-long Ponzi scheme, each with a specific role to ensure that investors, auditors and regulators were kept in the dark, a prosecutor said on Tuesday in the closing phase of their trial.
Portfolio managers Annette Bongiorno and Joann Crupi, computer programmers Jerome O'Hara and George Perez and back-office director Daniel Bonventre spent years hiding the fraud from the outside world while collecting millions of dollars in salary and perks, Assistant U.S. Attorney John Zach told jurors.
"Day after day, year after year, these defendants pulled off an avalanche of different lies that enabled Madoff Securities to steal billions of dollars from investors," said Zach, whose closing argument in the five-month-long trial was expected to last much of Wednesday as well.
Madoff's worldwide fraud cost his clients an estimated $17 billion in principal losses. Madoff, who said he acted alone, was arrested in December 2008 and pleaded guilty in March 2009. He is serving a 150-year prison sentence.
The five former employees say they were duped by Madoff into believing his investment advisory business was legitimate. Their lawyers will deliver closing arguments after the prosecution.
On Tuesday, the prosecutor discussed the specific allegations against each defendant in turn.
He focused his attention first on Bonventre and Bongiorno, two of the earliest employees at Bernard L. Madoff Investment Securities LLC, who both chose to testify in their own defense during the trial.
Bonventre was in charge of overseeing the firm's general ledger, as well as the bank account that was the "beating heart" of the fraud, Zach said, and siphoned money from the account to prop up the firm's failing brokerage business.
His testimony that he had no idea Madoff was operating a fraud, simply cannot be credited, Zach said.
Bongiorno, meanwhile, did not deny that she registered thousands of backdated false trades in customer accounts. But she said on the witness stand she was only following orders from Madoff and did not realize there was anything wrong with it.
"To hear her tell it, she didn't pay any attention to anything going on at Madoff Securities," except for the millions of dollars going into her own investment accounts, Zach said. "She was not testifying truthfully."
He held up a box full of index cards that listed fake trades to be entered into accounts and told the jury that it was kept on her desk at the firm.
Zach said that both aides profited handsomely from the fraud, with Bonventre sending his son to private school and Bongiorno purchasing a Bentley sedan, among other luxuries.
Crupi, Zach said, helped deceive auditors from the U.S. Securities and Exchange Commission and from outside accounting firms while employing fake trades in her own account to avoid taxes.
And O'Hara and Perez, the computer programmers, designed corrupt programs that generated doctored documents to conceal the fraudulent activity.
"They essentially were the oil that made the fraud work," Zach said.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Editing by Grant McCool)
http://www.reuters.com/article/2014/03/04/us-madoff-employees-idUSBREA2328720140304
Ex-Madoff aide pleads ignorance, naivete at U.S. fraud trial
By Joseph Ax
NEW YORK Thu Feb 27, 2014 5:56pm EST
http://www.reuters.com/article/2014/02/27/us-madoff-employees-idUSBREA1Q2CS20140227?feedType=RSS&feedName=businessNews
(Reuters) - Ponzi scheme. Treasury bond. The Standard & Poor's 500 index. The collapse of Lehman Brothers.
Those were among the subjects that Annette Bongiorno said on Thursday she did not understand, despite spending more than 40 years as one of the key employees at Bernard Madoff's investment firm.
Bongiorno is one of five former Madoff workers on trial in federal court in Manhattan for abetting his fraud, which fell apart in December 2008, costing investors an estimated $17 billion in principal losses.
Facing questions from a government prosecutor about her alleged role in concealing Madoff's multibillion-dollar fraud, Bongiorno did not deny that she entered thousands of backdated trades in customers' accounts, sometimes years after they had purportedly occurred.
But she said, again and again, that she was simply following Madoff's orders, knew next to nothing about Wall Street and had "no clue" that anything she had done was illegal.
"All the trades were backdated," she said. "I did what I was told."
Also on trial are former director of operations Daniel Bonventre, portfolio manager Joann Crupi and computer programmers Jerome O'Hara and George Perez.
Bonventre and Bongiorno have taken the witness stand in their own defense, betting that the jury will accept their claims that they were duped by Madoff into believing the business was legitimate. All five defendants have said they were unaware that Madoff, who pleaded guilty and is serving a 150-year prison sentence, was running a Ponzi scheme.
During her testimony, Bongiorno said she believed Madoff was trading stock in bulk and then deciding later how to divvy up the transactions among his customers, a practice she thought was permissible.
Assistant U.S. Attorney John Zach repeatedly showed Bongiorno documents on which she had plotted out backdated trades to enter into customer accounts, though no trading actually happened.
"You were the one who wrote all these trades in?" Zach asked.
"Yes," Bongiorno replied.
"And your testimony is that for every single one of these trades, Mr. Madoff told you what to do?" he asked, sounding a skeptical note.
"Yes," she answered.
Upon Madoff's arrest, Bongiorno said, she had to ask another employee what a Ponzi scheme was. And under questioning from Zach, she said she couldn't explain the difference between a stock and a bond and struggled to define the S&P 500.
At one point, Zach showed Bongiorno documents indicating that sales of Lehman Brothers stock were entered into her account in October 2008, a month after the investment bank collapsed, but backdated to August.
"Do you remember what happened to Lehman Brothers in September 2008?" Zach asked.
"No, but I guess you're going to tell me," she said.
Zach then showed Bongiorno several front-page newspaper articles from that month about the financial crisis and questioned her about the timing of the backdated trades.
"That didn't raise a red flag for you?" he asked.
"If I was told to do it, I did it," she said.
Zach also sought to demonstrate that Bongiorno used proceeds from the fraud to finance a luxurious lifestyle, showing the jury photographs of her Bentley sedan and the high-end condominium in Boca Raton, Florida, where she planned to purchase a $6.5 million home.
The trial, which began more than four months ago, will resume on Monday and is expected to end in March.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Joseph Ax; Editing by Eddie Evans and Douglas Royalty)
http://www.reuters.com/article/2014/02/27/us-madoff-employees-idUSBREA1Q2CS20140227?feedType=RSS&feedName=businessNews
Madoff victim fund receives over 9,000 claims, extends deadline
By Jonathan Stempel
NEW YORK Fri Feb 21, 2014 12:09pm EST
http://www.reuters.com/article/2014/02/21/madoff-payout-idUSL2N0LQ1IB20140221
NEW YORK, Feb 21 (Reuters) - More than 9,000 claims from people who say they were defrauded by Bernard Madoff have been submitted to a $4.05 billion fund set up by the U.S. government, and victims of the swindler's Ponzi scheme were given two more months to seek compensation.
Richard Breeden, a special master who oversees the Madoff Victim Fund, and U.S. Attorney Preet Bharara in New York on Friday extended the claims deadline to April 30 from Feb. 28.
Breeden said the pace of claims has "accelerated dramatically" as more people learn about his fund, which was collected by the U.S. Department of Justice and established in November. He also said many claims are complex, often involving investments that flowed through three or more intermediaries.
"Thousands of additional claimants will benefit from having a bit more time," he said in a statement.
Breeden's fund lets people who held cash in "feeder funds," investment groups and other middleman vehicles that invested their money with Madoff to seek to recoup their losses.
These "indirect investors" represent the bulk of all claims filed after the 2008 collapse of Bernard L. Madoff Investment Securities LLC but have been ineligible to recover from Irving Picard, the court-appointed trustee liquidating that firm.
More than 70 percent of claimants to Breeden's fund have recovered nothing, and about 94 percent have come from individuals whose claims were denied as indirect investors or did not file claims in the bankruptcy process.
Claims have been submitted from roughly 75 countries, with 40 percent of the claims coming from outside the United States.
Breeden is a former U.S. Securities and Exchange Commission chairman. He was not immediately available for further comment.
The size of Breeden's fund was originally $2.35 billion, but grew to $4.05 billion in January when JPMorgan Chase & Co , Madoff's main bank for two decades, contributed $1.7 billion in a civil forfeiture.
That was part of the bank's overall $2.6 billion payout to resolve regulatory probes, and litigation by Picard and private investors.
Another $2.2 billion of Breeden's fund came from the estate of Jeffry Picower, a Florida investor and large beneficiary of Madoff's scheme. The estate paid another $5 billion to Picard.
Some other sums in the Madoff Victim Fund came from auctions of Madoff belongings such as luxury homes, boats and 14 pairs of boxer shorts. Madoff's underwear fetched $200.
Picard allowed about 15 percent of the 16,519 claims he reviewed. Most denied claims came from indirect investors.
People who withdrew more money from their Madoff accounts than they put in, known as "net winners," are ineligible to recover from Breeden and Picard.
Madoff, 75, was arrested in December 2008, pleaded guilty three months later and is serving a 150-year sentence in a federal prison in North Carolina.
Five former employees of Madoff's firm are on trial in Manhattan federal court for allegedly helping advance the fraud.
http://www.reuters.com/article/2014/02/21/madoff-payout-idUSL2N0LQ1IB20140221
Madoff jailhouse interview used to bolster NY suit
By LARRY NEUMEISTER
Associated Press
Thursday, February 20, 2014
http://www.washingtontimes.com/news/2014/feb/20/jailhouse-madoff-interview-used-to-bolster-ny-suit/
NEW YORK (AP) - A new lawsuit against JPMorgan Chase & Co. relied on a jailhouse interview with Bernard Madoff to bolster claims that top executives at the nation's largest bank for many years confronted Madoff about significant concerns in filings with a regulatory agency regarding his private investment business but always backed off because he earned the bank so much money.
In the lawsuit filed Thursday in Manhattan federal court, lawyers for two pension funds quoted Madoff from an in-person interview conducted last fall in Butner, N.C., where Madoff is serving a 150-year prison sentence, as well as telephone interviews conducted with him.
They said Madoff told them that the former chief executive officer at two banks that preceded the formation of JPMorgan and a former JPMorgan board member confronted Madoff in the 1990s and through the next decade, too.
But the lawsuit said they usually raised their concerns "as an after-thought" at the end of luncheon meetings as they passed along concerns raised every quarter by relationship managers at the bank, including the chief risk officer at JPMorgan's Investment Bank.
Madoff told the lawyers that the meetings often were attended by one of his longtime customers, the late real estate maven Norman Levy, whose accounts raised concerns for the bank because he was also one of JPMorgan's important customers, the lawsuit said.
The lawsuit said JPMorgan reviewed Levy's brokerage accounts showing billions of dollars in debit balances and margin accounts with Madoff, but noticed that Madoff's filings with the Securities and Exchange Commission showed no customer receivables or payables from Levy or any other customers, revealing that Madoff was not investing Levy's money or lending him money on margin.
Madoff said he told Chase executives he would not discuss information about his clients with them and that they should ask Levy for answers, the lawsuit said. It added that Madoff said he told Levy not to answer the bank's questions.
"As Madoff explained, this was theater to Levy, which he got a kick out of doing," the lawsuit said.
According to the lawsuit, Madoff said the bank's executives "would 'cower' because Levy was such an important customer of JPMorgan's Private Bank. Thus, faced with the choice of shutting down Madoff's account and losing lucrative profits, or turning a blind eye to the troubling and unanswered questions presented by Madoff, JPMorgan - at its highest level - chose to turn a blind eye."
Madoff told the lawyers that his motivation to now discuss JPMorgan's role in his fraud was to help his victims recover assets that he stole, the lawsuit said.
The lawsuit also said Madoff recalled that the bank's ability to review the banking activities in Levy's accounts and its handling for more than 20 years of the account for Madoff's private investment business gave it better insight into what he was doing than even the SEC could achieve.
Madoff also told lawyers that he believes the bank was intimidated by him as it earned hundreds of millions of dollars from his business, the lawsuit said.
Chase spokeswoman Tasha Pelio said the bank had no comment on the lawsuit, which sought unspecified damages and changes in bank policies to prevent similar frauds.
Last month, JPMorgan agreed to pay $1.7 billion to settle criminal charges stemming from Madoff's fraud and said it would reform its protections against major frauds. The $1.7 billion is part of $2.6 billion the bank has agreed to pay to settle legal actions brought as a result of the Madoff fraud.
http://www.washingtontimes.com/news/2014/feb/20/jailhouse-madoff-interview-used-to-bolster-ny-suit/
In reversal, ex-Madoff aide takes stand in his own defense
By Joseph Ax
NEW YORK Tue Feb 18, 2014 2:47pm EST
http://www.reuters.com/article/2014/02/18/us-madoff-employees-idUSBREA1H1WL20140218
(Reuters) - In an unusual move, Bernard Madoff's former back-office director took the witness stand in his own defense on Tuesday, telling a federal jury that he had no idea his boss was operating a Ponzi scheme until the day Madoff was arrested in December 2008.
Daniel Bonventre, one of five former Madoff aides on trial in federal court in Manhattan who are accused of aiding in the fraud, said he remained in the dark throughout his 40 years at Madoff's firm.
"Did Mr. Madoff lie to you over the years?" Bonventre's lawyer, Andrew Frisch, asked.
"Probably every day," Bonventre replied.
It is relatively unusual for criminal defendants to testify in their own defense, making Bonventre's testimony a calculated risk. The decision likely shifts the jury's focus to Bonventre's credibility, rather than the prosecution's burden of proof, said Robert Anello, a white-collar defense lawyer not involved in the case.
"Many jurors in white-collar cases are waiting to hear from the defendant," said Anello, a partner at Morvillo Abramowitz Grand Iason & Anello. "The natural inclination is, ‘This is a gentleman who is articulate, who can operate a business - why can't he tell us his story?'"
As recently as last week, Bonventre told U.S. District Judge Laura Taylor Swain that he did not wish to testify, but in a letter sent to Swain over the weekend, Frisch said his client had changed his mind.
It remains unclear whether the other four defendants - portfolio managers Annette Bongiorno and Joann Crupi and computer programmers Jerome O'Hara and George Perez - will also testify.
All five have said they were duped by Madoff into believing the investment business was legitimate. Madoff is serving a 150-year prison sentence after pleading guilty to running the Ponzi scheme, which cost investors an estimated $17 billion in principal losses.
Under questioning from Frisch on Tuesday, Bonventre said Madoff seemed to be a caring, thoughtful boss who took care of his employees' families, including hiring a number of their relatives.
Madoff arranged for Bonventre's first wife to be transferred from another hospital to Memorial Sloan Kettering Cancer Center in Manhattan after she was diagnosed with cancer, he testified. Later, Bonventre said, Madoff gave him the home number for his personal cardiologist when Bonventre's current wife, Barbara, had chest pains.
Madoff's doctor discovered an aneurysm and scheduled surgery, Bonventre said.
After Madoff's confession, he said, he wondered whether that generosity of spirit was all part of Madoff's con, a form of manipulation to create a false persona.
"I think he was a terribly ill man," Bonventre said. "It's difficult to reconcile everything I knew about him for 40 years and everything I know now. I could live to be 100, and I'm not sure I would have a better answer."
At times, Bonventre said, he questioned certain aspects of Madoff's business that seemed unusual or nonsensical, but he said Madoff's explanations were always plausible.
"During your years at the firm, did it ever dawn on you that Mr. Madoff was running a fraud?" Frisch asked.
"No," Bonventre said.
Government lawyers have yet to question Bonventre.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Editing by Eddie Evans and Douglas Royalty)
http://www.reuters.com/article/2014/02/18/us-madoff-employees-idUSBREA1H1WL20140218
Former Madoff aides get their day in court
By Joseph Ax
NEW YORK Mon Feb 10, 2014 6:30am EST
http://www.reuters.com/article/2014/02/10/us-madoff-employees-idUSBREA190IP20140210
(Reuters) - Four months into a criminal trial for five former employees of Bernard L. Madoff Investment Securities, witnesses have made it clear that no one but Madoff himself knew the whole truth about his massive Ponzi scheme, from his top lieutenant on down.
With prosecutors expected to wrap up their case on Monday, the defendants' lawyers will try to convince a federal jury that their clients were completely in the dark, unaware that they were propping up an unprecedented fraud.
The defense's task is twofold: to persuade jurors that cooperating witnesses are lying to secure lighter sentences, and that whatever improper acts the defendants may have committed were done unwittingly.
"In white-collar cases, the issue often is not who did what," said Robert Anello, a partner at Morvillo Abramovitz Grand Iason & Anello, who is not tied to the case. "It is often whether what you did, based on your knowledge, is a crime."
The five defendants are the firm's director of back office operations, Daniel Bonventre; portfolio managers Annette Bongiorno and Joann Crupi; and computer programmers Jerome O'Hara and George Perez.
The case in Manhattan federal court is the first criminal trial to stem from Madoff's fraud, which cost investors an estimated $17 billion in principal losses. Madoff pleaded guilty and is serving a 150-year prison sentence; he has not implicated the defendants.
In their opening statements in October, the lawyers painted Madoff as a cult-like figure whose orders the defendants followed blindly.
"They thought he was almost a god," Eric Breslin, Crupi's lawyer, told jurors at the start of the trial in October. "They did not want to question anything he did."
But prosecutors have argued that the defendants knowingly committed crimes like faking documents, deceiving regulators and filing false tax returns, even if they were not fully aware of the extent of the scheme.
"You don't have to know everything that's going on to be guilty of a conspiracy," said Michael Shapiro, a white-collar defense lawyer with Carter Ledyard & Milburn who is not involved in the case.
Prosecutors have introduced reams of documents and called approximately three dozen witnesses, including several former Madoff employees, some of whom pleaded guilty themselves and appeared as government cooperators.
Chief among the latter was Madoff's top aide, Frank DiPascali, the government's star witness, who pleaded guilty in 2009 and has not yet been sentenced. He spent about a month on the witness stand telling jurors that all five defendants were intimately involved in every aspect of the fraud.
In one instance, DiPascali claimed Crupi, O'Hara and Perez helped him print fake records for a KPMG auditor and then used a refrigerator to cool them down, reasoning that the auditor might be suspicious if the papers were still warm from the printer.
They then tossed the papers around "like a medicine ball" in order to make them appear older, he testified.
Other former Madoff employees appearing as cooperating witnesses have included trader David Kugel, who said he helped Bongiorno and Crupi to fabricate trades in client accounts; his son, Craig, who said he arranged for Bonventre's son to receive health benefits even though he did not work at the firm; and controller Enrica Cotellessa-Pitz.
Like DiPascali, they testified for the government in hopes of lessening their sentences.
Defense lawyers have sought to undermine their credibility by arguing they are willing to lie for leniency.
"Is it fair to say that you got pretty good at conning people?" Larry Krantz, Perez's lawyer, asked DiPascali, after making the point that he had spent most of his career lying to customers, regulators and fellow employees.
DiPascali appeared to change at least one part of his testimony under grilling from defense lawyers. He initially claimed he knew about the fraud since the 1970s, before saying he did not actually learn the truth until the 1990s.
Throughout the trial, it has become clear that the web of deceit girding Madoff's firm had many layers, with Madoff himself lying to his top aides and those aides, in turn, lying to their subordinates.
Even DiPascali said he did not understand the full scope of the fraud until a few days before Madoff's arrest, when the financier tearfully confessed to him that the firm was bankrupt. Until then, DiPascali said, he believed the money was safe in secret assets.
He also acknowledged under cross-examination that he fed false cover stories to Bongiorno, Perez and O'Hara at times to convince them to take actions they might not otherwise have done if they had known the full truth, a point defense lawyers will likely emphasize to the jury.
It remains unclear whether any of the defendants will take the stand, though their lawyers have indicated it is unlikely.
"In a case like Madoff, where the jurors have been reading about it for years, they are probably itching to hear from the folks who are there to explain what was going on," Anello said. "That's a tough decision."
Presentation of the defense case will likely last two or three weeks.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Joseph Ax; Editing by Dan Grebler)
http://www.reuters.com/article/2014/02/10/us-madoff-employees-idUSBREA190IP20140210
U.S. judge approves JPMorgan's $543 million deal to settle Madoff claims
By Joseph Ax
NEW YORK Tue Feb 4, 2014 3:13pm EST
http://www.reuters.com/article/2014/02/04/us-jpmorgan-madoff-idUSBREA131HN20140204?feedType=RSS&feedName=businessNews
(Reuters) - A federal bankruptcy judge on Tuesday approved JPMorgan Chase & Co's (JPM.N) $543 million deal to end two private lawsuits stemming from its relationship with convicted Ponzi scheme mastermind Bernard Madoff.
A spokeswoman for the trustee liquidating Bernard L. Madoff Investment Securities LLC confirmed that U.S. Bankruptcy Judge Stuart Bernstein approved the agreement, which was made public on January 7, the same day federal authorities announced the bank had agreed to pay more than $2 billion to settle criminal charges related to the Madoff fraud.
JPMorgan will pay $218 million to resolve class-action litigation and $325 million to resolve claims brought by the trustee, Irving Picard.
A JPMorgan spokesman declined to comment.
Madoff was a longtime client of the bank, which was accused of turning a blind eye to suspicious activity within his accounts that suggested fraud.
Picard has estimated that the Ponzi scheme, the largest in history, cost investors more than $17 billion of principal. To date, he has recovered more than $10 billion for victims, including the JPMorgan settlement.
Madoff, 75, pleaded guilty in 2009 and is serving a 150-year sentence. Five of his former aides are currently on trial in New York federal court on charges that they helped Madoff perpetuate his scheme.
In all, JPMorgan recorded approximately $20 billion of legal settlements in 2013, including $13 billion to resolve claims related to mortgages it packaged leading up to the financial crisis.
The bankruptcy case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, U.S. Bankruptcy Court for the Southern District of New York, No. 08-1789.
(Reporting by Joseph Ax; Additional reporting by Nate Raymond; Editing by Dan Grebler)
http://www.reuters.com/article/2014/02/04/us-jpmorgan-madoff-idUSBREA131HN20140204?feedType=RSS&feedName=businessNews
Madoff IT Guys Wrote Code for Fakes to Trick SEC
The programmers used “a variety of techniques” for generating “pseudo-randomized” data for documents.
January 28, 2014
Erik Larson
http://www.securitiestechnologymonitor.com/news/madoff-it-guys-wrote-code-for-fakes-to-trick-sec-31964-1.html?ET=securitiesindustry:e4283:1221312a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=SIN_DailyClose__012914
(Bloomberg) -- Bernard Madoff’s former computer programmers created a web of simple equations to make thousands of fake transaction numbers, dates and time stamps appear realistic on documents used to trick auditors, a jury was told in the trial of five of the con man’s former top aides.
The men, Jerome O’Hara and George Perez, wrote dozens of “special” programs during audits by the U.S. Securities and Exchange Commission and HSBC Holdings Plc, Richard Dietrich, a senior technician at International Business Machines Corp., testified yesterday in federal court in Manhattan. Prosecutors have said the programming wouldn’t have been necessary if real trading had taken place, and that the former employees knew it was fraudulent because they helped create it.
The trial is the first stemming from Madoff’s $17 billion Ponzi scheme, which collapsed after his confession and arrest in December 2008. O’Hara, Perez and three other former Madoff employees went on trial in October over accusations they aided the fraud for decades and got rich in the process.
Dietrich analyzed computers seized from Madoff’s Midtown Manhattan office and is a prosecution expert witness.
The programmers used “a variety of techniques” for generating “pseudo-randomized” data for documents, said Dietrich, a 32-year IBM veteran who helped develop the AS400 computer system used at Madoff’s now-defunct company. The programming was used to perform tasks such as assigning random international banks as counterparties to fake trades and making false Depository Trust Co. statements, he said.
Software Programs
Dietrich explained to the jury hundreds of lines of code contained in dozens of linked programs written by Madoff’s information technology staff using what he said was IBM hardware from 1988 and a computer environment developed in 1983. The programs were displayed in a web-based format on monitors in the jury box while Dietrich navigated lines of code one at a time for hours under questioning by a prosecutor.
One program, called “SPCL1I,” which was created in 1994 and last modified in 2005 by Perez, created a fake time stamp for trades by assigning random times in 15-minute intervals from 4 a.m. and 8:59 a.m. to correspond with trading hours in London, Dietrich said. The program would then assign random minutes and seconds using the same technique, he said.
The system worked because it used a basket of pre-selected options like “a pile of cards” and then set each one aside so it wouldn’t be used again until the deck was empty, Dietrich said.
Fudged Numbers
The codes contained numerous internal comments that were left as notes by the programmers, Dietrich said. One such comment referred to a program being used for a “randomness check.” Another referred to a line of code that “fudges” the CUSIP numbers assigned to all stocks.
O’Hara and Perez, accused of automating the creation of millions of false customer statements and other documents as Madoff’s fraud expanded rapidly in the 1990s, have said they were following orders and didn’t realize the code was being used for a fraud. They both pleaded not guilty.
The U.S. alleges the fraud started in the late 1970s, more than two decades before Perez and O’Hara were hired. When the programmers discovered how essential their skills were to the fraud, they allegedly extorted higher salaries and bonuses out of Madoff after confronting him in his office in 2006.
During hours of testimony yesterday, some jurors closed their eyes for several minutes at a time while others shook their heads or yawned. Others appeared to pay close attention.
Visiting Judges
During a break, U.S. District Judge Laura Taylor Swain, who is overseeing the trial, spoke with a group of judges visiting from Kosovo who were observing the case for the day. She apologized to the group for the technical nature of the testimony and said it was important. An interpreter translated for them into Albanian.
During his cross-examination today by O’Hara’s lawyer Gordon Mehler, Dietrich said he didn’t have firsthand knowledge of who instructed the programmers to carry out their tasks.
“You don’t know what role Bernie Madoff had in programs he wanted created?” Mehler asked.
“No, I don’t,” Dietrich said.
Dietrich also said it wasn’t clear who created Madoff’s programs before Perez and O’Hara started working at the firm. The AS400 was installed at the company in 1993.
“So from your analysis you can’t tell who wrote what in the 1970s and 1980s, correct?” Mehler said.
“That is true,” Dietrich said.
Information Officer
Mehler drew the jury’s attention to evidence in the programs showing references to Liz Weintraub, a 25-year Madoff employee who was the con man’s chief information officer when the two programmers were hired. Weintraub died in February 2008, 10 months before the firm’s collapse.
The other defendants are Annette Bongiorno, an employee for 40 years who ran the investment advisory unit where the fraud occurred; Joann Crupi, who managed large accounts; and Daniel Bonventre, who oversaw the broker-dealer and proprietary trading operations where real trading took place.
Prosecutors, who may finish presenting evidence as soon as next week, asked Swain for permission to show the jury dozens of new charts depicting Bonventre’s “card swipes” for entering the secured investment-advisory unit within Madoff’s offices from 2005 to 2008. The former executive has argued that he wasn’t involved with the business where the fraud occurred, and that he worked on a different floor of the building.
Card Log
Bonventre’s defense lawyer Andrew Frisch asked Swain in a letter yesterday to block the move, arguing it’s too late in the case for his team to analyze the 35,000-page log of card-swipe activity for the lipstick-shaped skyscraper on 3rd Avenue in Midtown Manhattan, where Madoff’s offices were located.
Crupi’s lawyer Eric Breslin also asked Swain to block the U.S. from using a new set of “misleading and confusing” charts showing call logs between his client and Madoff’s former finance chief, Frank DiPascali, in the days before Madoff’s arrest.
DiPascali, who pleaded guilty in the case and testified as the government’s key witness, said he met with Crupi at a Panera Bread in New Jersey the weekend after Madoff confessed to him that the Ponzi scheme was about to collapse. DiPascali said he and Crupi had met plan for operations the next week, including scheduling wires for millions of dollars to the company’s top clients and insiders.
“The only purpose of this exhibit is to suggest something nefarious must have happened at Panera Bread because the parties called each other multiple times,” Breslin said in a letter to Swain. “This is no more than argument.”
Madoff, 75, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. Seven of his employees also pleaded guilty to crimes associated with the con man’s operations.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
http://www.securitiestechnologymonitor.com/news/madoff-it-guys-wrote-code-for-fakes-to-trick-sec-31964-1.html?ET=securitiesindustry:e4283:1221312a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=SIN_DailyClose__012914
Madoff back in prison after hospitalization for heart attack
Published: Wednesday, 22 Jan 2014 | 10:00 AM ET
By: Scott Cohn | CNBC Senior Correspondent
http://www.cnbc.com/id/101354967
Convicted fraudster Bernard Madoff is back in prison after being hospitalized for a heart attack last month, CNBC has learned.
Madoff, 75, also has stage-four kidney disease but is not receiving dialysis.
Madoff, who has served less than five years of his 150-year prison sentence for running the largest investment fraud in U.S. history, confirmed the details of his health in an email to CNBC. Madoff says he was hospitalized last month at Duke University Medical Center and has since been returned to the medium security federal prison in nearby Butner, N.C.
The U.S. Bureau of Prisons declined to comment on Madoff's condition or treatment.
(Read more: Five years later, Madoff still trying to control the story http://www.cnbc.com/id/101264719 )
—By CNBC's Scott Cohn. Follow him on Twitter @ScottCohnCNBC
http://www.cnbc.com/id/101354967
Federal judge overseeing Madoff liquidation dies
By Bernard Vaughan
Mon Jan 13, 2014 12:29pm EST
http://www.reuters.com/article/2014/01/13/madoff-judge-lifland-idUSL2N0KN17R20140113
Jan 13 (Reuters) - The federal bankruptcy judge presiding over the liquidation of assets related to Bernard Madoff's Ponzi scheme has died, a clerk to the U.S. Bankruptcy Court in New York said on Monday.
U.S. Bankruptcy Judge Burton Lifland, 84, died on Sunday, according to the clerk, Vito Genna. Genna said he did not know the cause of death.
Lifland was the longest-serving judge for the U.S. Bankruptcy Court for the Southern District of New York, for which he was previously chief judge, Genna said.
He was appointed to the bench in 1980, according to biographical information on the court's website.
Among his major cases, Lifland oversaw the asbestos-related bankruptcy of Johns Manville in 1982, power producer Calpine in 2005 and the 2010 bankruptcy of video rental company Blockbuster.
It was not immediately clear which judge would take over the Madoff liquidation and Lifland's other cases.
"We are deeply saddened to learn of the passing of Judge Lifland, one of the leading experts on bankruptcy law," said Amanda Remus, a spokeswoman for Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC.
In a ruling on Monday, the 2nd U.S. Circuit Court of Appeals upheld a 2011 injunction issued by Lifland that blocked two former Madoff clients from pursuing claims against the estate of a Florida businessman who was one of Madoff's biggest clients.
http://www.reuters.com/article/2014/01/13/madoff-judge-lifland-idUSL2N0KN17R20140113
U.S. top court seeks Obama administration's views in Madoff trustee case
By Lawrence Hurley
WASHINGTON Mon Jan 13, 2014 10:31am EST
http://www.reuters.com/article/2014/01/13/usa-court-madoff-idUSL2N0KN0VI20140113
WASHINGTON, Jan 13 (Reuters) - The U.S. Supreme Court on Monday asked the administration of President Barack Obama to weigh in on whether the trustee seeking money for the victims of convicted Ponzi-schemer Bernard Madoff can recover damages from banks he accused of aiding in the fraud.
The court invited Solicitor General Donald Verrilli to file a brief offering his views on whether a lower-court ruling that prevented trustee Irving Picard from recovering nearly $30 billion from various banks, including JPMorgan Chase & Co and HSBC Holdings Plc, should remain intact.
Picard last week announced a $325 million settlement with JPMorgan, meaning the bank will be dropped from the case.
That settlement, which must be approved by a judge, was announced just after JPMorgan struck a deal with U.S. prosecutors and bank regulators to pay more than $2 billion to resolve charges that it failed to follow up on suspicious activity by Madoff, who was a client of the bank for more than two decades.
The other banks involved in the case are Italy's UniCredit SpA and Switzerland's UBS AG.
There are separate claims against the banks in a class action case that is not related to the issue before the Supreme Court.
In June, the 2nd U.S. Circuit Court of Appeals said Picard lacked standing to pursue a variety of claims on behalf of former Madoff customers.
Picard has estimated that Madoff's Ponzi scheme cost investors $17.3 billion of principal. Madoff pleaded guilty in 2009 and is serving a 150-year prison sentence.
As a result of the latest settlement, Picard has recovered almost $10 billion, according to his statement last week.
The Supreme Court will take no action on the pending case until the administration files its brief.
The case is Picard v. JPMorgan, U.S. Supreme Court, 13-448.
http://www.reuters.com/article/2014/01/13/usa-court-madoff-idUSL2N0KN0VI20140113
Madoff-related fraud to cost JPMorgan $2.5 billion
By TOM HAYS and LARRY NEUMEISTER
Associated Press
Jan 8, 6:17 AM EST
http://hosted.ap.org/dynamic/stories/U/US_MADOFF_FRAUD_JPMORGAN?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-01-08-06-17-53
NEW YORK (AP) -- For more than 15 years, there were signs something was amiss with what federal prosecutors in Manhattan call the "703 account" at JPMorgan Chase & Co.
Money was being transferred back and forth for no reason. The account holder was recording double-digit returns on investments that were too good to be true. The bank itself was worried enough about possible fraud to withdraw its own investments
Documents
Court filing seeking Madoff's wife's assets
Madoff's bail appeal
Madoff's allocution statement
http://hosted.ap.org/specials/interactives/_documents/madoff_allocution_statement.pdf
A list of Madoff's known victims
[...]
More
http://hosted.ap.org/dynamic/stories/U/US_MADOFF_FRAUD_JPMORGAN?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-01-08-06-17-53
JPMorgan to pay $1.7 billion to settle Madoff criminal case
NEW YORK Tue Jan 7, 2014 11:23am EST
http://www.reuters.com/article/2014/01/07/us-jpmorgan-madoff-deal-idUSBREA060JL20140107
(Reuters) - JPMorgan Chase & Co will pay a $1.7 billion penalty to settle charges by U.S. federal authorities that the bank failed to report suspicious activity involving Bernard Madoff's Ponzi scheme.
As part of the deal, which describes numerous suspicious interactions during the bank's two-decade relationship with Madoff, JPMorgan is admitting it violated laws requiring it to monitor customer activity for money laundering in the case, authorities said on Tuesday.
The deal includes a two-year deferred prosecution agreement and settles outstanding probes by two bank regulators into failures in JPMorgan's anti-money laundering policies. The bank also agreed to improve its controls.
Shares of JPMorgan were down 1.2 percent at $58.29 in morning trading.
"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time," JPMorgan spokesman Joe Evangelisti said in an email. "We filed a Suspicious Activity Report (SAR) in the UK in late October 2008, but not in the U.S."
He added: "We do not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme."
As part of the deal, the bank agreed not to apply for a tax deduction or tax credit for the $1.7 billion payment. The $1.7 billion will go to the victims of Madoff's fraud, according to Tuesday's announcement.
U.S. bank regulators in Washington are expected to levy additional fines against JPMorgan. Bank regulators will appear at a press conference scheduled for 1:15pm (1815 GMT).
JPMorgan is admitting it had failed to raise the alarm about Madoff's activities to a bank regulator, even though bankers in more than one area of its operations had identified inconsistencies in Madoff's behavior and his fund's returns.
Madoff, through his Bernard L. Madoff Investment Securities LLC hedge fund operation, was revealed in December 2008 to be the operator of a massive Ponzi scheme. Convicted in 2009 of defrauding thousands of investors, he is serving a 150-year prison sentence.
Madoff's is the largest known Ponzi scheme in history. He kept an account at JPMorgan Chase, or banks it had bought, from 1986 until his arrest in December 2008, according to a statement of facts that the bank agreed to for public disclosure.
The account at the bank received deposits and transfers of about $150 billion, almost exclusively from investors in Madoff Securities, yet the money was not used to buy securities as Madoff had promised, according to the statement.
The balance in the account reached $5.6 billion in August 2008 but was down to $234 million when Madoff was arrested four months later.
At various times between the late 1990s and 2008, employees of various divisions of the bank "raised questions" about Madoff Securities and the validity of its investment returns. Yet "at no time during this period" did they bring their concerns to U.S. anti-money laundering employees who were responsible for monitoring the bank's relationships with its clients, according to the statement of facts.
The bank did not file any suspicious activity reports on Madoff Securities in the United States until after Madoff's arrest.
'ROUND-TRIP'
During the 1990s, according to the statement, Madoff routinely made "round-trip" transactions between an account at JPMorgan held by one of the bank's private banking clients and an account Madoff himself held at another unidentified bank. Using the unnamed client's account, Madoff moved money between the two banks daily and took advantage of the normal delays in the check-clearing process to make it seem as though both accounts had more money than they did.
JPMorgan paid interest on the inflated amount in its private banking client's account and continued dealing with Madoff even after the other bank identified the scheme, closed his account and notified JPMorgan, according to the statement.
In 1994, an employee of JPMorgan's private bank said in a memo that "the daily cost associated" with Madoff's withdrawals was "outrageous" and it was clear to JPMorgan that Madoff was earning interest on uncleared funds. But the memo said when the employee tried to notify JPMorgan's private banking client about the scheme, the client responded: "If Bernie is using the float, it is fine with me; he makes a lot of money for my account."
(Reporting by Emily Flitter and David Henry, additional reporting by Aruna Viswanatha; Editing by Jeffrey Benkoe, Bernadette Baum and Lisa Von Ahn)
http://www.reuters.com/article/2014/01/07/us-jpmorgan-madoff-deal-idUSBREA060JL20140107
JPMorgan Chase Nears a $2 Billion Deal in a Case Tied to Madoff
By JESSICA SILVER-GREENBERG and BEN PROTESS
January 5, 2014, 10:00 pm
http://dealbook.nytimes.com/2014/01/05/jpmorgan-chase-nears-a-2-billion-deal-in-a-case-tied-to-madoff/
Working through a long list of legal problems, JPMorgan Chase is starting the new year with another steep payout to the government.
The bank plans to reach as soon as this week roughly $2 billion in criminal and civil settlements with federal authorities who suspect that it ignored signs of Bernard L. Madoff’s Ponzi scheme, according to people briefed on the case.
All told, after reaching the Madoff settlements with federal prosecutors in Manhattan and regulators in Washington, the bank will have paid some $20 billion to resolve government investigations over the last 12 months.
JPMorgan’s Madoff settlements, the people briefed on the case said, would also involve a so-called deferred prosecution agreement, a criminal action that would essentially suspend an indictment as long as JPMorgan acknowledged the facts of the government’s case and changed its behavior. The agreement, nearly unheard-of for a giant American bank and typically employed only when misconduct is extreme, underscores the magnitude of the case against JPMorgan.
The bank’s settlement talks with the authorities, reported by The New York Times last month, thrust JPMorgan into the spotlight on the fifth anniversary of Mr. Madoff’s arrest.
Under the terms of the deals, the bank will pay more than $1 billion to the prosecutors in Manhattan and the remainder to the Office of the Comptroller of the Currency and a unit of the Treasury Department investigating broader breakdowns in the bank’s safeguards against money-laundering. The government plans to earmark some of the payout for Mr. Madoff’s victims, according to the people briefed on the case, who spoke on condition they not be named because they were not authorized to discuss private settlement talks.
JPMorgan at one point discussed a so-called tolling agreement with prosecutors that would essentially extend the five-year legal deadline for bringing a case, one person said. The deadline might have otherwise expired late last year.
JPMorgan declined to comment for this article, but has publicly maintained that “all personnel acted in good faith” in the Madoff matter.
A spokesman for the United States attorney’s office in Manhattan, and the F.B.I., which led the investigation into JPMorgan, declined to comment. A spokesman for the comptroller’s office also declined to comment.
Despite serving as painful reminders of JPMorgan’s ties to Mr. Madoff — it was his primary bank for more than two decades — the settlements would enable the bank to put another investigation behind it. The expected deal comes on the heels of JPMorgan’s payment of a record $13 billion to the Justice Department and other government authorities over its sale of troubled mortgage securities in the period leading up to the financial crisis.
The payouts reflect a new conciliatory stance at JPMorgan. Within the bank, there is growing impatience among executives who worry that the scrutiny distracts from its record profits. And while it continues to haggle over the details of each settlement, people close to the bank say, JPMorgan is keen to regain its credibility and is resigned to pulling out the checkbook to make that happen.
Jamie Dimon, the bank’s chief executive, has played a role in some of the government negotiations and has directed billions of dollars to new compliance measures. In his annual letter to shareholders in 2013, Mr. Dimon also apologized for letting “our regulators down.”
But even as JPMorgan whittles down its regulatory woes, new threats have emerged. Authorities have opened a bribery investigation into JPMorgan’s hiring practices in China, prompting the bank to turn over internal emails and documents about its “Sons and Daughters” hiring program, which employed the children of the nation’s ruling elite.
The Madoff case, perhaps the largest threat to JPMorgan as it hung over the bank these last five years, produced its own damaging emails. The emails, some of which came to light in a private lawsuit against the bank, suggest that even as questions swirled about the legitimacy of Mr. Madoff’s operation, JPMorgan continued to do business with him.
In one internal email sent before Mr. Madoff’s arrest in December 2008, a senior risk manager at JPMorgan reported that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”
No individual executives have been accused of wrongdoing. And the bank was hardly the only one to miss signs of Mr. Madoff’s fraud, which eluded regulators for decades.
Still, federal prosecutors are expected to cite JPMorgan for a criminal violation of the Bank Secrecy Act, a federal law that requires banks to maintain internal checks against money-laundering and to report suspicious transactions to the authorities. Alongside the bank’s ties to Mr. Madoff, the regulators at the comptroller’s office have examined lax controls in JPMorgan’s private banking unit in Asia and within the so-called correspondent banking business, in which it relies on foreign institutions to process transactions overseas.
At one point in the settlement talks, the people briefed on the case said, prosecutors explored a harsher punishment for JPMorgan: demanding that the bank plead guilty to a criminal violation of the Bank Secrecy Act. In a meeting with prosecutors to discuss the potential fallout from such a plea, which could have jeopardized JPMorgan’s charter as a national bank, the comptroller’s office promised not to interfere.
But ultimately, the prosecutors opted for the fine and the deferred prosecution agreement. While big foreign banks like UBS have reached deferred prosecution agreements, according to a University of Virginia Law School database, JPMorgan will be the first American bank on Wall Street to strike such a deal.
The decision could reignite concerns that Wall Street banks are too big to indict, though prosecutors very likely concluded that a deferred prosecution agreement was more appropriate for a case that began as a civil investigation, without a criminal component. Preet Bharara, the United States attorney in Manhattan whose office is handling the JPMorgan case, has been an outspoken critic of prosecutors’ backing down for fear of putting a company out of business.
“I don’t think anyone is too big to indict — no one is too big to jail,” he said in a recent speech.
http://dealbook.nytimes.com/2014/01/05/jpmorgan-chase-nears-a-2-billion-deal-in-a-case-tied-to-madoff/
In the Matter of Peter B. Madoff, Esq.,
Respondent.
http://www.sec.gov/litigation/admin/2013/34-71207.pdf
Ghosts of Ponzi Past
By Terry Keenan
December 15, 2013 | 5:38am
http://nypost.com/2013/12/15/ghosts-of-ponzi-past/
Five years after the collapse of the biggest Ponzi scheme ever, its mastermind, Bernie Madoff, seems to be everywhere this December, like the Ghost of Christmas Past.
Yesterday the Ponzi prince said he was helping the feds take on JPMorgan for its dealings in the mad affair.
And at Foley Square, Madoff’s right-hand fraudster, Frank DiPascali, has been on the witness stand regaling jurors with tales of deception so brazen they wouldn’t make it onto “Law & Order.”
Meanwhile, on East 64th Street, the former Madoff penthouse is on the market again, this time for $17 million, or twice what the government got for the property in 2010.
The anniversary of Madoff’s undoing has also been a time to revisit the “victims” of Bernie’s diabolical deeds. By now we know the stories: Thousands of country-club millionaires who eagerly put their life savings in Madoff’s hands turned a blind eye to the red flags and enjoyed the too-good-to-be-true returns until the bottom fell out.
Now comes news that most Madoff investors (with the exception of those who invested indirectly, through feeder funds) will be getting about 75 cents on the dollar for what they invested with the crook.
While that may sound harsh, a 25 percent haircut seems a fair price to pay for putting greed over common sense.
It’s a tough message, but let’s face it: Millionaires managing their own money or paying other people handsomely to do it for them should have noticed that something was flagrantly amiss.
Not only did a graph of Madoff’s long-term returns run up at a 45-degree angle, the voluminous statements he sent to investors often included money-market and other funds that had shuttered their operations years before.
The fact that Madoff also often didn’t take a fee for his Midas-like services was also an alarm bell that even a novice investor would notice.
But with a large portion of his victims set to be made 75 percent whole despite the ordeal, five years is time enough to put it to rest. The biggest gift those who succumbed to Madoff’s madness could give this Christmas is to stop being victims and start being advocates for financial awareness in their communities.
http://nypost.com/2013/12/15/ghosts-of-ponzi-past/
J.P. Morgan to Settle Madoff Probe for More Than $1 Billion
Tentative Deal Would End Criminal Investigation into Warnings Over Ponzi Scheme
By Dan Fitzpatrick And Dan Strumpf
Updated Dec. 12, 2013 12:18 a.m. ET
http://online.wsj.com/news/articles/SB10001424052702303932504579252423570055640?mod=WSJ_Markets_LEFTTopStories
J.P. Morgan Chase is expected to pay more than $1 billion in penalties to the Justice Department to end a criminal probe into whether it provided adequate warnings about Bernard L. Madoff.
The deal, which would also include a deferred-prosecution agreement with U.S. Attorney Preet Bharara, could be wrapped up by the end of year, said others close to the case. Prosecutors have been looking for whether the bank failed to alert regulators despite numerous red flags. A central component of the case is why the bank didn't provide a formal report raising concerns about Mr. Madoff in the U.S. despite filing such a document with authorities in the U.K.
Mr. Madoff had a two-decade-long relationship with J.P. Morgan before his arrest in December 2008.
The largest U.S. bank is also expected to pay an additional set of fines to U.S. regulators relating to inadequate warnings around Mr. Madoff as well as other control weaknesses, said the person close to the situation. That amount, which would go in part to the Office of the Comptroller of the Currency, hasn't yet been communicated to the bank, this person added.
An OCC spokesman and a J.P. Morgan spokesman couldn't be reached for comment. A spokesman for Mr. Bharara declined comment.
Separately, in the trial in New York of five former Madoff employees, a defense attorney for a former employee of Mr. Madoff sought to undermine a key government witness by alleging the witness had a 30-year career as a "confidence man" and sophisticated liar.
The witness, Frank DiPascali, a lifetime employee of Mr. Madoff who eventually rose to become his lieutenant, faced his first day of cross-examination Wednesday from a lawyer of one of the five former employees facing trial for their alleged roles in the Ponzi scheme.
Mr. DiPascali occasionally looked down and took long pauses as he answered questions from Larry Krantz, a lawyer for former Madoff employee George Perez.
Mr. Krantz on several occasions raised Mr. DiPascali's admitted history of lying to customers, fellow Madoff employees and regulators in his role perpetuating the $17 billion fraud.
At one point, Mr. Krantz asked Mr. DiPascali if he thought of himself as a "con man."
After an extended silence, Mr. DiPascali answered: "I did indeed violate the trust of many people during my time with Madoff. I'm not in a position to grapple with that question and assign myself that title."
Until Wednesday, the former Madoff lieutenant had faced five full days of questioning from federal prosecutors in Manhattan federal court. Mr. DiPascali, a Queens, N.Y., native with a high-school education, is seen as the government's star witness in its case against the five Madoff employees.
The employees are Mr. Perez, Daniel Bonventre, Annette Bongiorno, JoAnn Crupi, and Jerome O'Hara. They have denied the charges.
Mr. DiPascali's testimony has offered the most detailed picture to date of the daily activity within the fraudulent investment firm, which collapsed with Mr. Madoff's arrest five years ago Wednesday. He has pleaded guilty to criminal charges and faces up to 125 years in prison.
In earlier testimony, Mr. DiPascali said he worked closely with the five defendants to produce the fake records that helped continue the Ponzi scheme. In his questioning, Mr. Krantz sought to undermine those claims by questioning Mr. DiPascali's credibility and portraying his current cooperation with the government as motivated by a desire for a more lenient sentence.
In particular, Mr. Krantz seized on what he portrayed as a discrepancy between Mr. DiPascali's guilty plea in August 2009 and testimony that he has given at the current trial. In 2009, Mr. DiPascali told a federal judge that he learned about the fictitious trades that sustained the Ponzi scheme in the early '90s, the defense lawyer said. But at the current trial, Mr. DiPascali said he learned of the bogus trades much earlier in his career, in the late '70s.
"What happened was I developed a fuller understanding of the extent of what was going on," Mr. DiPascali explained.
Mr. Krantz asked the former Madoff employee to read aloud a transcript of lengthy testimony he gave to the Securities and Exchange Commission years before the Ponzi scheme was uncovered.
One piece of the testimony concerned a trading platform at the firm called MA 206. In a steady, flat voice, Mr. DiPascali read a pages-long description of the platform, which involved a complex series of stock-and-options trades.
Despite the lengthy statement, MA 206 never existed.
"As you were giving this testimony, did you ever stop and think that what you are doing is quite extraordinary?" Mr. Krantz asked.
"It was not extraordinary to me . . . because the [fictitious platform] had been talked about and worked on for many, many years," Mr. DiPascali said.
At a different point, Mr. Krantz asked: "How did it feel to commit perjury before the SEC?"
"It did not feel wonderful," Mr. DiPascali said.
Write to Dan Strumpf at daniel.strumpf@wsj.com
http://online.wsj.com/news/articles/SB10001424052702303932504579252423570055640?mod=WSJ_Markets_LEFTTopStories
Criminal Action Is Expected for JPMorgan in Madoff Case
By JESSICA SILVER-GREENBERG and BEN PROTESS
December 11, 2013, 10:01 pm
http://dealbook.nytimes.com/2013/12/11/criminal-action-is-expected-for-jpmorgan-in-madoff-case/?_r=0
JPMorgan Chase and federal authorities are nearing settlements over the bank’s ties to Bernard L. Madoff, striking tentative deals that would involve roughly $2 billion in penalties and a rare criminal action. The government will use a sizable portion of the money to compensate Mr. Madoff’s victims.
The settlements, which are coming together on the anniversary of Mr. Madoff’s arrest at his Manhattan penthouse five years ago on Wednesday, would fault the bank for turning a blind eye to his huge Ponzi scheme, according to people briefed on the case who were not authorized to speak publicly.
A settlement with federal prosecutors in Manhattan, the people said, would include a so-called deferred-prosecution agreement and more than $1 billion in penalties to resolve the criminal case. The rest of the fines would be imposed by Washington regulators investigating broader gaps in the bank’s money-laundering safeguards.
The agreement to deferred prosecution would also list the bank’s criminal violations in a court filing but stop short of an indictment as long as JPMorgan pays the penalties and acknowledges the facts of the government’s case. In the negotiations, the prosecutors discussed the idea of extracting a guilty plea from JPMorgan, the people said, but ultimately chose the steep fine and deferred-prosecution agreement, which could come by the end of the year.
Until now, no big Wall Street bank has ever been subjected to such an agreement, which is typically deployed only when misconduct is severe. JPMorgan, the authorities suspect, continued to serve as Mr. Madoff’s primary bank even as questions mounted about his operation, with one bank executive acknowledging before the arrest that Mr. Madoff’s “Oz-like signals” were “too difficult to ignore,” according to a private lawsuit.
JPMorgan, which declined to comment for this article, has repeatedly said that “all personnel acted in good faith” in the Madoff matter. No one at JPMorgan has been accused of wrongdoing and the bank was not the only one to miss Mr. Madoff’s fraud, which duped regulators and clients for decades.
In recent months, the bank has emphasized that it is scaling back businesses that could be vulnerable to money laundering and cutting ties to certain clients.
Jamie Dimon, the bank’s chief executive, made a reference to the settlement talks at an industry conference on Wednesday, saying: “You read about Madoff in the paper the other day. We have to get some of these things behind us so we can do our job.”
The looming settlements would come on the heels of JPMorgan’s reaching a record $13 billion settlement over its sale of troubled mortgage securities before the financial crisis.
The scrutiny has taken a toll on JPMorgan, undercutting its leverage in negotiations and casting the bank as a symbol of Wall Street risk-taking. That stigma also sapped the influence that JPMorgan once used to shape policy in Washington, people briefed on the matter said, where regulators are increasingly skeptical of the bank’s lobbying.
Although JPMorgan still wields some sway in Washington — it held more meetings with regulators on the so-called Volcker Rule than any other bank, according to the Sunlight Foundation — the bank’s $6 billion trading loss in London last year became a flash point in the process and inspired regulators to strengthen the rule, a restriction on risky trading that was approved this week.
Facing the scrutiny, JPMorgan and its top executives directed billions of dollars to new compliance measures and vowed to adopt a conciliatory tack with federal authorities. The bank also embarked on a tour of contrition that featured Mr. Dimon holding town-hall-style meetings with regulators.
Of all its legal problems, the Madoff case appears to be among the biggest threats because of the criminal element. The deferred-prosecution agreement, the people said, is expected to fault JPMorgan for a “programmatic violation” of the Bank Secrecy Act, which requires banks to maintain internal controls against money laundering and to report suspicious transactions to the authorities.
The bank is also planning to settle with the federal Comptroller of the Currency and a unit of the Treasury Department, which are scrutinizing broader breakdowns in JPMorgan’s detection of suspicious transactions routed through the bank. In addition to focusing on JPMorgan’s ties to Mr. Madoff, regulators from the comptroller’s office have also examined the safeguards at JPMorgan’s private banking unit in Asia and within the so-called correspondent banking business, in which it relies on foreign institutions to process transactions overseas.
The comptroller’s office, the Treasury and the United States attorney’s office in Manhattan all declined to comment.
The Madoff case could have turned out worse for JPMorgan. In recent weeks, the federal prosecutors in Manhattan debated whether to demand that JPMorgan plead guilty to a criminal violation of the Bank Secrecy Act, the people briefed on the matter said.
The government has been reluctant to bring criminal charges against large corporations, fearing that such an action could imperil a company and throw innocent employees out of work. Those fears trace to the indictment of Enron’s accounting firm, Arthur Andersen, which went out of businesses after its 2002 conviction, taking 28,000 jobs with it. Ever since, prosecutors have increasingly relied on deferred-prosecution agreements, which rebuke companies without threatening their health. Although a Wall Street bank has never faced a deferred-prosecution agreement, according to a University of Virginia Law School database, Wachovia and the banking arm of American Express have entered into such deals.
The agreements, however, have fueled concern that some banks, having grown so large and interconnected, are too big to indict.
Preet Bharara, the United States attorney in Manhattan whose office is handling the JPMorgan case, has raised similar concerns. “I don’t think anyone is too big to indict — no one is too big to jail,” he said in a recent speech.
In the case of JPMorgan, the nation’s biggest bank, his office discussed the potential ramifications of criminal charges with the comptroller’s office, which is required to monitor the bank’s stability, the people said. The comptroller’s office assured the prosecutors that it would not stand in the way of the charges. And Mr. Bharara’s office concluded that the bank could withstand a criminal charge.
But ultimately, prosecutors decided that a deferred-prosecution agreement was more fitting to a case that began as a civil investigation. Criminal authorities have a higher burden of proof than their civil regulatory counterparts, having to show a legal violation “beyond a reasonable doubt” rather than just a “preponderance of the evidence” standard in civil cases.
The government’s case against JPMorgan would most likely center on its failure to file a so-called suspicious activity report about Mr. Madoff. While the bank alerted the authorities in Britain to concern about Mr. Madoff, it did not sound the alarms with American regulators.
A statement of facts that would underpin the deferred-prosecution agreement will most likely cite a series of internal JPMorgan emails suggesting that employees had concerns that never made it to Washington. Some of the emails surfaced in a separate lawsuit that Irving H. Picard — the trustee trying to recoup money on behalf of Mr. Madoff’s victims — filed against JPMorgan in 2010. Mr. Picard, who has recovered $9.5 billion for victims, sued the bank for $6.4 billion, accusing it of “aiding and abetting” Mr. Madoff.
JPMorgan has denied Mr. Picard’s accusations. A federal appeals court tossed out his lawsuits against JPMorgan and other banks.
JPMorgan’s relationship with Mr. Madoff spanned more than two decades, from 1986 to the time of his arrest in 2008. JPMorgan served as his primary bank, Mr. Picard said, collecting fees from Mr. Madoff’s brokerage firm, which moved billions of dollars through an account at the bank.
By 2006, concerns began to mount within the bank. “I do have a few concerns and questions,” one JPMorgan employee wrote in February 2006 after studying some of Mr. Madoff’s trading records, according to an email cited in the lawsuit. “All trades are generated by Madoff’s black box.”
Mr. Madoff is serving a 150-year sentence after pleading guilty to operating the scheme.
http://dealbook.nytimes.com/2013/12/11/criminal-action-is-expected-for-jpmorgan-in-madoff-case/?_r=0
JPMorgan Expected To Shell Out $2 Billion And Face Criminal Action In Madoff Case
Reuters ?
53 minutes ago
http://www.businessinsider.com/jpmorgan-expected-to-face-criminal-action-in-madoff-case-2013-12
(Reuters) - JPMorgan Chase & Co <JPM.N> and federal authorities are nearing settlements over the bank's relationship with convicted Ponzi schemer Bernard Madoff, striking tentative deals that would involve about $2 billion in penalties and a rare criminal action, the New York Times reported.
The settlements would fault the bank for turning a blind eye to Madoff's huge Ponzi scheme, the Times said, citing people briefed on the case.
JPMorgan spokesman Joseph Evangelisti declined to comment on the New York Times report when contacted by Reuters.
Madoff was convicted in 2009 of defrauding thousands of investors and is serving a 150-year prison sentence. JPMorgan has been accused of ignoring warning signs that Madoff's business was a fraud, often to win more fees and commissions for services they provided.
The New York Times said the settlement with federal prosecutors in Manhattan would include a so-called deferred-prosecution agreement and more than $1 billion in penalties to resolve the criminal case.
The rest of the fines would be imposed by Washington regulators investigating broader gaps in the bank's money-laundering safeguards, the paper said.
JPMorgan, the biggest U.S. bank by assets, recently reached a $13 billion settlement of a range of government claims over bad mortgage securities and struck another deal with regulators to pay about $1 billion for its "LondonWhale" derivatives trading debacle.
(Reporting by Chris Peters in Bangalore; Editing by Supriya Kurane)
http://www.businessinsider.com/jpmorgan-expected-to-face-criminal-action-in-madoff-case-2013-12
Five years later, aide recalls Madoff's arrest on witness stand
By Joseph Ax
NEW YORK Wed Dec 11, 2013 6:06pm EST
http://www.reuters.com/article/2013/12/11/us-madoff-employees-trial-idUSBRE9BA1BI20131211?feedType=RSS&feedName=businessNews
(Reuters) - Exactly five years ago, Frank DiPascali was awakened in his New Jersey home by an early call from his boss, Bernard Madoff.
"He said, 'Frank, the FBI is in the office with my brother,'" DiPascali said in federal court in New York on Wednesday. "I said, 'Why are you calling me?' And I threw my phone across the room."
The longtime Madoff deputy was speaking on the fifth anniversary of Madoff's arrest on December 11, 2008, which marked the collapse of his decades-long Ponzi scheme.
DiPascali, who has pleaded guilty to his part in the scheme, was testifying at the trial of five former Madoff employees who are charged with helping the financier conceal his fraud from customers, government regulators and Wall Street.
The defendants - back-office manager Daniel Bonventre, portfolio managers Joann Crupi and Annette Bongiorno and computer programmers Jerome O'Hara and George Perez - have denied the allegations. They claim Madoff convinced them that the business was legitimate.
Madoff is serving a 150-year prison sentence. He has denied that the five defendants aided in his scheme.
FAKING OUT THE FEDS
In a week of testimony so far, DiPascali has said all five took part in creating fake records to hide the fact that no trading was occurring in any customer accounts.
On Tuesday, DiPascali had testified that Madoff told him that the firm was broke only days before he was arrested.
As the trial continued on Wednesday, DiPascali said he then panicked, throwing an unregistered gun he had received as a gift into his pond and destroying a flash drive that contained evidence of fake records.
"It was ridiculous," he said, because he knew there were other copies at the office.
At the office in New York on December 10, he said he saw Bernard Madoff's wife, Ruth, and that she looked "catatonic," adding that it was obvious to him Madoff had told her about the fraud's extent.
"I touched her cheek and said, 'Ruthie, it's going to be OK,'" he testified.
"Did you believe it was going to be OK?" Assistant U.S. Attorney John Zach asked.
"No," DiPascali said.
On his way to the office on December 11, he got a call from Peter Madoff, Bernard's brother, telling him that Bernard Madoff had been taken into custody. Throughout the day, DiPascali provided falsified records to federal agents and lied to them about what he knew, he said.
At one point, Peter Madoff walked into the conference room where investigators had convened and dropped stacks of records for the firm's main bank account at JPMorgan Chase & Co, DiPascali said.
Under his breath, Peter Madoff said "something to the effect of, 'This is where the secrets are,'" DiPascali testified.
Zach then took DiPascali through his decision to cooperate and eventually plead guilty, asking him what had happened to his house, his cars and his boat, all of which were seized by federal authorities.
"How much money do you have right now on your own?" Zach asked.
"The $14 in my pocket," replied DiPascali, who is out on bail, but under house arrest.
He faces up to 125 years in prison.
Later on Wednesday, Larry Krantz, the defense lawyer for Perez, began what is likely to be several days of cross-examination by emphasizing that DiPascali spent the better part of three decades lying to customers, regulators and fellow employees about the fraud, in an effort to undermine his credibility as a witness.
"Is it fair to say that you got pretty good at conning people?" he asked.
"I never took a survey," DiPascali answered.
The case is USA v. O'Hara et al, U.S. District Court for the Southern District of New York, No. 10-cr-0228.
(Editing by Jan Paschal)
http://www.reuters.com/article/2013/12/11/us-madoff-employees-trial-idUSBRE9BA1BI20131211?feedType=RSS&feedName=businessNews
Madoff workers concerned about 'exit strategy' in 2006: witness
By Joseph Ax
NEW YORK Tue Dec 10, 2013 3:27pm EST
http://www.reuters.com/article/2013/12/10/us-madoff-employees-idUSBRE9B912T20131210
(Reuters) - Spooked by three audits in less than two years, several of Bernard Madoff's employees grew concerned in 2006 about their fates if his massive Ponzi scheme came to light, a former Madoff aide testified on Tuesday.
Among them, two computer programmers, Jerome O'Hara and George Perez, told an incensed Madoff in early 2006 that they would no longer alter trading records, and they later suggested getting paid off the books in diamonds, the former aide said.
"They said they didn't want their fingerprints on this crap any longer," the aide, Frank DiPascali, said in federal court in New York.
DiPascali was testifying at the trial of O'Hara, Perez and three other former Madoff employees who are accused of helping pull off a fraud that cost investors an estimated $17 billion. The others are portfolio managers Annette Bongiorno and Joann Crupi, and Daniel Bonventre, the director of operations for the firm's back office.
All five have said they are innocent of the charges and, like many others, were duped by Madoff into believing the business was legitimate.
DiPascali, who pleaded guilty and is the prosecution's star witness, has been testifying in U.S. District Court for more than a week, detailing how he and the five defendants conspired to falsify documents, fool regulators and hide the fraud from the firm's clients.
In 2006, he said, following dinner at a Greek restaurant where O'Hara and Perez drank a "considerable amount" of alcohol, O'Hara said "something to the effect of, 'Could this whole thing be a fraud?'"
DiPascali brushed off the question as "ridiculous," he said, but over the next few weeks both programmers expressed concern about the work they had done to construct fake records to give to the Securities and Exchange Commission.
"'I'm tired of jumping on hand grenades here,'" they said, according to DiPascali. "'Every time we turn around, there's another regulator.'"
That led to the meeting with Madoff, in which O'Hara and Perez suggested that he shut down the investment advisory business where the scheme originated, DiPascali said. Madoff became belligerent, DiPascali said.
"'You're not going to tell me how to run my business,'" Madoff said, according to DiPascali. After the meeting, he instructed DiPascali to "offer them anything they want," he said.
The two programmers told DiPascali they didn't want to have massive salary and bonus increases on paper and at one point suggested that they might be paid in diamonds, DiPascali said.
"I kind of flew off the handle," DiPascali said. "Where am I going to get a bag of diamonds?"
Eventually they agreed on a sizable raise, he said. Despite their insistence that they would no longer input data into fake trade records, however, he said they helped him build software to make it easier for others to do so.
A few weeks later, also in 2006, DiPascali said he and Bonventre had a drink at a restaurant in the lobby of the firm's office building in New York. Bonventre asked DiPascali if he knew whether Madoff had "an exit strategy," DiPascali said.
"If he does, he hasn't explained it to me," DiPascali said he replied.
Bonventre said he had his own plan: He would maintain that Madoff told him the trades were all occurring in Europe and that Bonventre should mind his own business, DiPascali said.
Wednesday marks the five-year anniversary of Madoff's arrest. He is serving a 150-year prison sentence and has denied involving others in his scheme.
The case is USA v. O'Hara et al, U.S. District Court for the Southern District of New York, No. 10-cr-0228.
(Reporting by Joseph Ax; Editing by Jonathan Oatis)
http://www.reuters.com/article/2013/12/10/us-madoff-employees-idUSBRE9B912T20131210
Snooping in SEC examiner's briefcase, Madoff hid fraud -ex-aide
By Joseph Ax
NEW YORK Mon Dec 9, 2013 7:54pm EST
http://www.reuters.com/article/2013/12/10/us-madoff-employees-trial-idUSBRE9B901F20131210
NEW YORK (Reuters) - When a pair of U.S. Securities and Exchange Commission examiners visited Bernard Madoff's offices in 2005, the now-imprisoned financier was not too worried - until he sneaked a look into one of their briefcases.
What Madoff found - a news article questioning how he produced positive returns every year - sent him into a rage, according to courtroom testimony on Monday by his decades-long right hand man Frank DiPascali.
"These SOBs are toying with me," DiPascali quoted Madoff as saying.
DiPascali is the star witness for the government in the trial of five former Madoff firm employees in U.S. District Court in Manhattan, having pleaded guilty in 2009 in the hopes of receiving a lighter sentence than the 125 years he potentially faces.
The trial opened on October 16 for the five, who are charged with aiding Madoff's worldwide investment fraud, which imploded in December 2008 and cost investors an estimated $17 billion. The five have denied wrongdoing and said they fell under the spell of Madoff, who pleaded guilty in March 2009 and is serving a 150 year prison sentence.
In his testimony on Monday, DiPascali said that after Madoff went through the SEC examiner's briefcase, he and his employees got to work, erasing internal emails from the firm's servers and concocting fake documents that showed trades with foreign counterparties that never took place.
At one point, DiPascali said, he and two computer programmers, Jerome O'Hara and George Perez, discussed whether it would be feasible to bug the SEC examiners' office to hear their conversations, an idea that was never put in practice.
O'Hara and Perez are on trial with portfolio managers Annette Bongiorno and Joann Crupi and back office director of operations Daniel Bonventre. Their lawyers have not yet had an opportunity to question DiPascali in front of the jury.
DiPascali said the SEC examination was the agency's second in several months, after a team from Washington had also visited the firm's Manhattan office to look at records.
A few months later, KPMG would send auditors, and at the end of 2005, the SEC would send a letter requesting records as part of yet another investigation.
Madoff grew angry when he learned the New York SEC examiners wanted to see internal emails, DiPascali said.
"'That's how all these guys get caught for insider trading,'" Madoff said, according to DiPascali.
None of the probes would uncover the fraud, at least in part because of the effort Madoff and his employees made to hide the fraud, DiPascali testified.
The firm would list foreign brokerages as counterparties for its fake trades when providing records to U.S.-based examiners from the SEC, with Madoff reasoning that government agents would be less likely to contact overseas companies, DiPascali said.
But Madoff had them redo the records to list U.S. counterparties when the auditors from KPMG arrived from the London office.
When Madoff grew worried that the SEC would go after him for failing to register as an adviser, Crupi and DiPascali helped him alter customer authorization forms to make it seem as though he had no discretion in making investment decisions, DiPascali testified.
The night before the KPMG auditors arrived in New York, DiPascali said he went out to a fancy dinner with Crupi, O'Hara and Perez to celebrate their work in preparation. DiPascali testified that O'Hara made a toast: "'Here's to tricking the auditors, here's to fooling KPMG', or something like that."
The dinner cost more than $1,000, after which the five employees stayed for a few nights at the luxury hotel Plaza Athenee, since they were working long hours. Prosecutors showed jurors a copy of the hotel bill, which exceeded $3,800.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Joseph Ax; Editing by Grant McCool)
http://www.reuters.com/article/2013/12/10/us-madoff-employees-trial-idUSBRE9B901F20131210
Some claims against Madoff feeder funds, sons' wives are curbed
By Jonathan Stempel
NEW YORK Mon Dec 9, 2013 6:41pm EST
http://www.reuters.com/article/2013/12/09/us-madoff-decision-payout-idUSBRE9B819620131209?feedType=RSS&feedName=businessNews
(Reuters) - The trustee seeking money for Bernard Madoff's victims may be unable to pursue some claims against investment firms that fed client funds into the swindler's Ponzi scheme, a Manhattan federal judge said.
In a decision released on Monday, U.S. District Judge Jed Rakoff also said the trustee Irving Picard could not pursue "unjust enrichment" claims against spouses of Madoff's sons Andrew and Mark, saying the women did not qualify as "insiders" who could be held liable for fraud.
Amanda Remus, a spokeswoman for Picard, said the trustee is reviewing the decision. Lawyers for Deborah Madoff, who married Andrew Madoff in 1992, and Stephanie Mack, who married Mark Madoff in 2004, were not immediately available for comment. Mark Madoff committed suicide in December 2010.
The decision dated December 5 is a setback for the recovery efforts of Picard, who is liquidating at Bernard L. Madoff Investment Securities LLC and has said Madoff's fraud caused investors to lose $17.3 billion of principal.
Picard has recovered $9.5 billion, of which he has paid out a little over half. Madoff was arrested nearly five years ago, on December 11, 2008, and is serving a 150-year prison term.
FEEDER FUNDS
Rakoff's decision covered more than a dozen lawsuits against principals and affiliates of "feeder funds" that sent customer money to Madoff's firm, court records show.
Picard alleged that these feeder funds had been aware of red flags signaling fraud, but ignored them because they were receiving substantial payments through dealings with Madoff.
But the judge said a June 20 decision by a federal appeals court in New York dismissing $30 billion of claims against such banks as JPMorgan Chase & Co and HSBC Holdings Plc "disposes of many of the trustee's arguments."
Citing the doctrine of "in pari delicto," meaning "in equal fault," the appeals court concluded that Picard could not assert claims on behalf of Madoff's firm to recover for fraud that the firm itself caused.
But Rakoff said the court was not asked to decide if Picard could seek some recoveries as an assignee of customer claims.
The judge concluded that Picard had standing to pursue some of these claims, but that doing so against feeder funds may be barred under the Securities Litigation Uniform Standards Act (SLUSA).
That 1998 law limits a private party's ability to bring a "covered class action," or single lawsuit seeking damages on behalf of more than 50 people.
"Here," Rakoff wrote, "the trustee is not attempting to pursue claims belonging to the debtor, a single entity, for the benefit of many; rather, he seeks to assert claims belonging to many creditors as a single entity."
Rakoff directed a federal bankruptcy judge to decide whether SLUSA barred Picard's claims in given lawsuits.
MADOFF WIVES
As to the spouses, Picard alleged that Deborah Madoff and Stephanie Mack were unjustly enriched by $54.5 million through their marriages to Andrew and Mark Madoff.
But Rakoff said the trustee could not prevail by invoking an exception to "in pari delicto" by claiming that the women were corporate insiders who breached their fiduciary duties.
Rakoff noted that neither spouse was involved in fraud, that both face other claims by the trustee, and that Picard can still pursue money from Andrew Madoff and Mark Madoff's estate.
"Effectively, the trustee seeks to extend the definition of insiders to include spouses solely by virtue of their marriage to, and their receiving of joint transfers with, corporate insiders," the judge wrote. "This novel proposition is unsupported by any legal authority and extends the limited insider exception beyond its proper bounds."
The case is Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC, U.S. District Court, Southern District of New York, No. 12-mc-00115.
(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)
http://www.reuters.com/article/2013/12/09/us-madoff-decision-payout-idUSBRE9B819620131209?feedType=RSS&feedName=businessNews
Billions More in Recoveries at Stake in Two Madoff Court Cases
Five Years Later, Legal Issues Underscore Challenges in Unwinding History's Biggest Financial Fraud
By Daniel Strumpf
Updated Dec. 8, 2013 7:00 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303722104579242663298426086?mod=WSJ_Markets_LEFTTopStories
After thousands of court actions since the revelation of Bernard L. Madoff's Ponzi scheme, more than $7 billion in potential recoveries for the victims hinge on two big cases pending before a federal appeals court in New York.
A tangle of legal objections in the two cases underscore the challenges in unwinding the biggest financial fraud in history—the swindling of $17 billion in principal from investors—which came to light five years ago on Wednesday.
A Slow Recovery
Irving Picard, the bankruptcy trustee for Bernard L. Madoff Securities, has recovered about 54% of the approximately $17.5 billion lost in the Ponzi scheme. These are some of the notable recoveries.
View graphics
http://online.wsj.com/news/interactive/madoff1205?ref=SB10001424052702303722104579242663298426086
"These two cases are the elephants in the room," said Joe Sarachek, managing director at CRT Special Investments LLC, one of many firms active in a vibrant market for Madoff claims, which hedge funds buy and sell based on projected future payouts. Wagers on the value of claims—bets placed by hedge funds and other investors—are largely based on the outcome of the cases, he and other traders said.
Thus far, customers of Mr. Madoff have been paid $4.9 billion by bankruptcy trustee Irving Picard, with more than half of allowed claimants now fully repaid. An additional $4.3 billion has been recovered but set aside pending litigation.
"In some respects, it's surprising they've gotten that much so far," said Stephen Lubben, a professor at Seton Hall University, noting the numerous court challenges Mr. Picard has faced in the course of his recovery.
For their efforts, Mr. Picard and his team have collected $823.6 million in legal fees from the Securities Investor Protection Corp., according to the trustee's website. Legal observers say the recovery process could continue for several more years.
Of the two looming court cases, the first concerns a September decision by a federal bankruptcy judge who ruled that Madoff victims are ineligible for interest or inflation payments on their claims. Victims unhappy with the decision say they are entitled to as much as 9% more because of the time that has elapsed since the loss of their money.
On the other side is Mr. Picard, who argues customers are entitled only to their lost principal. He has set aside about $1.37 billion in reserve while the Second Circuit Court of Appeals weighs whether to grant an appeal to the customers. A final decision in the trustee's favor would free up that sum for another potential customer distribution, the trustee has said.
In the second case, the trustee is seeking to overturn a decision that centers on his ability to "claw back" profits from investors who benefitted from the fraud. In a blow to the trustee, the decision stands to limit potential recoveries by shrinking the window of time in which he can seek to claw back such profits.
A decision upholding the original ruling could deprive Mr. Picard of up to $6 billion in future recoveries for customers, the trustee has said.
The court has yet to hear oral arguments in the cases and legal observers say it is difficult to predict when decisions will be issued.
Further complicating the recovery has been the addition of a second trustee. Richard Breeden, former chairman of the Securities and Exchange Commission, was appointed last December by the Justice Department to distribute $2.35 billion to victims of the fraud. Nearly all of the money in that fund was obtained through civil forfeiture as part of a 2011 settlement with the estate of Jeffry Picower, a longtime friend and investor with Mr. Madoff.
Last month, Mr. Breeden surprised many by saying he would disburse his pot of money to a vastly larger group of victims than those deemed eligible by Mr. Picard.
The move roiled the market for customer claims, scuttling at least one big settlement with a fund that shuttled money to Mr. Madoff and caught the office of Mr. Picard by surprise, people familiar with the matter said.
It also sent the value of some Madoff-related claims plunging in the secondary market, according to firms involved in the buying and selling of the claims.
Even five years after the fraud was revealed, the trustees are still sorting through myriad challenges related to compensating Mr. Madoff's numerous victims.
"It's impossible to treat everybody fairly when the pie is not big enough to get everybody the slice that they want," said Kathy Bazoian Phelps, a partner at Diamond McCarthy LLP who specializes in bankruptcy law and has written extensively about Ponzi schemes. In the case of the lawsuits, "what's happening is the trustee is trying to expand the pie."
http://online.wsj.com/news/articles/SB10001424052702303722104579242663298426086?mod=WSJ_Markets_LEFTTopStories
A MESSAGE FROM SIPA TRUSTEE IRVING H. PICARD
http://www.madofftrustee.com/trustee-message-02.html
In December of 2008, the world learned about Bernard L. Madoff’s unprecedented fraud, a Ponzi scheme that spanned decades and defrauded customers of approximately $20 billion.
On the day the news broke, I received a call from the Securities Investor Protection Corporation (SIPC) and was asked to serve as SIPA Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS). The appointment was made official on December 15, 2008 by the United States District Court for the Southern District of New York.
My mandate as SIPA Trustee is to oversee the BLMIS liquidation as directed by law, to recover assets stolen in this fraud and to assemble the largest Customer Fund and General Estate possible so that all BLMIS customers and creditors, as designated by the statute, can ultimately receive some compensation for their losses as a result of this unprecedented Ponzi scheme.
I am joined in this effort by my court-appointed counsel at BakerHostetler, a team of dedicated and experienced attorneys led by partner David J. Sheehan. Together with special experts, consultants and international counsel, we are engaged in a broad range of activities required to fulfill our mission, including evaluating claims, conducting forensic analysis of years of documents, working through complex negotiations, filing and responding to motions, assembling detailed complaints and litigating them. We have worked diligently since December of 2008, laying the groundwork to ensure a maximum recovery, and as a result have positive news to report.
As of December 6, 2013:
We have recovered or entered into agreements to recover approximately $9.508 billion; 100 percent of the recoveries will ultimately be allocated to the Customer Fund for distribution to BLMIS customers with allowed claims.
We have distributed approximately $4.888 billion from the Customer Fund to BLMIS customers with allowed claims. Through the first pro rata interim distribution, which commenced on October 5, 2011, we have distributed approximately $516.2 million; through the second pro rata interim distribution, which commenced on September 19, 2012, we have distributed approximately $3.746 billion; and through the third pro rata interim distribution, which commenced on March 29, 2013, we have distributed approximately $523.0 million.
As of the third pro rata interim distribution, customers with allowed claims will have received at least 42.879 percent of the amount of the allowed claim, unless the claim has been fully satisfied.
We have worked with SIPC to pay the maximum SIPC advance of up to $500,000 against each allowed BLMIS claim, and to date, SIPC has committed approximately $811.7 million in cash advances to speed some financial relief BLMIS customers with allowed claims. The advances from SIPC, combined with the first three pro rata interim distributions from the BLMIS Customer Fund, have resulted in the return of more than $5.597 billion to BLMIS customers with allowed claims.
[...]
more
Bernie Madoff sweated scam's intricate details
Kevin McCoy, USA TODAY
2:24 p.m. EST December 7, 2013
http://www.usatoday.com/story/money/business/2013/12/07/madoff-sweated-scam-details/3890069/
Insider testimony about Madoff's scheme come on 5-year anniversary of fraud's collapse.
NEW YORK — Bernard Madoff sweated the intricate details of his massive Ponzi scheme.
Obsessively.
Keeping one of history's largest frauds running for decades arguably required at least as much time and effort as operating a legitimate investment firm, according to evidence in the ongoing conspiracy trial of former Madoff employees. Frank DiPascali, the now-disgraced financier's ex-finance chief, told jurors Madoff paced around his firm's Manhattan offices, discussing how to handle investment fabrications and respond to investigations and other threats.
No detail was too small to overlook — whether typeface on a backdated trade blotter or the shape of an asterisk on a fabricated version of a business form.
"A lot of these discussions he had with himself out loud," said DiPascali, who testified he at times tried to stifle the then-Wall Street heavyweight by warning "you cannot continue to talk like this."
The star prosecution witness began testifying days before Dec. 11's five-year anniversary of the scam's collapse. The implosion of the world's largest Ponzi scheme racked up more than $17.3 billion in losses for thousands of charities, celebrities, ordinary investors and financial funds. Roughly $11.8 billion has been recovered by investigators.
Madoff pleaded guilty without standing trial and is now serving a 150-year prison term. He insisted he ran the scheme alone.
However, five of his ex-employees are being tried on charges they knowingly aided and profited from the scheme. They are: Annette Bongiorno, Madoff's former executive assistant; Daniel Bonventre, the firm's ex-operations chief; JoAnn Crupi, who worked with Bongiorno and DiPascali; and former computer programmers Jerome O'Hara and George Perez.
They have maintained they had no knowledge of the fraud and were hoodwinked by Madoff.
DiPascali's testimony has provided the first insider view of the scheme. Speaking in a rapid-fire New York accent, he depicted Madoff as a meticulous if sometimes profane boss who dictated the percentage gains he wanted each investment customer to receive. DiPascali said he and other employees then added fake trades to adjust the purported values up or down.
When a client died, Madoff typically had the employees add losing trades to reduce the final payout. But that wouldn't work when longtime French customer Jacques Amsellem died. Attorneys for his estate didn't notify Madoff's firm or seek an accounting until two months later, DiPascali said.
By then, Amsellem's account "was too far over where Bernie wanted it to be," he testified.
Responding to Madoff instructions, Bongiorno and Crupi created a fictionalized Amsellem account "that didn't exist when he was alive," said DiPascali, who participated in the effort. They then filled the account with losing trades to produce a $1,772,000 loss, which reduced the last payout to match Madoff's expectations, said DiPascali.
The boss acted "like a lunatic" as he worked to limit a 1992 Securities and Exchange Commission investigation of Avellino and Bienes, an accounting firm that invested its client funds with Madoff, DiPascali testified. Had the probe expanded, it might have focused on Madoff's firm, too.
DiPascali said he and other Madoff employees created a phony new Avellino & Bienes account and filled it with fictitious, backdated trades of quality stocks. The idea was to have the SEC examine an account with "safe and secure" investments like IBM that gave the appearance of higher value, DiPascali testified.
The effort involved manipulating computer entries to make sure there were no signs of the current date.
"Were there actually any assets in these accounts?" asked Assistant U.S. Attorney John Zach.
"No," said DiPascali. "These were real companies, but fictitious trades."
Millions of other Madoff firm records were similarly fabricated. But DiPascali said that didn't stop the boss from warning employees never to include "Story Stocks" — securities of firms recently in news accounts with announcements that sent those shares soaring or plunging.
Why? According to DiPascali, Madoff theorized a regulatory agency could someday see the records and suspect a customer of acting on non-public information to reap illegal, insider-trading profits.
Concerned that an extended business interruption could lead to discovery of the scam, Madoff had an emergency operations center constructed in Queens, a few miles across the East River from his Midtown Manhattan headquarters. DiPascali said the office, equipped with millions of dollars in computers, printers and other equipment, was used after the 9/11 terrorist attacks.
Employees kept close track of changes in the name and of Madoff's firm and its business forms over the years. Madoff made sure they used the correct version when fabricating backdated transactions for a specific time period, DiPascali testified.
Similarly, he said, Madoff made sure employees obtained just the right paper, computer printing fonts and layout format needed to fabricate bogus reports that would convince anyone the fakes were genuine documents from the Depository Trust Co. securities clearinghouse. The fakes showed billions of dollars in fictional Treasury securities purportedly held by Madoff's firm.
Zach suggested the work included repeated efforts to get asterisks on the fakes to look exactly like the real ones.
Eventually, the bogus reports were "close to perfect," said DiPascali, who testified Madoff once held one up near an office window and remarked "how great it was."
But a 2004 SEC probe of Madoff's business posed a tougher challenge. DiPascali said Madoff read an SEC letter requesting information over and over, trying to decide how to respond. For years, the financier had told clients he held their investment funds and securities. But he didn't want the SEC to know that, said DiPascali.
So he had employees craft a whole new set of office records that would purportedly show he held no customer funds and delivered client securities to custody banks. DiPascali testified he showed the boss old reports that might work. But Madoff pronounced them "no damn good" because they didn't include the name of an appropriate custody bank for each client's securities.
"Where the hell are we going to get these banks from?" DiPascali said he responded to Madoff. "His response was, you can just make them up."
Ultimately, DiPascali said Madoff had employees search the Internet for names of foreign banks, and then add them to the new batch of bogus records. The financier stressed the choices "had to make sense" — a Japanese bank with a Japanese investment client — said DiPascali.
Madoff gambled that SEC's lead investigator would not make vigorous efforts to contact the banks and double-check the data, saying, "It's just not in his pay grade."
http://www.usatoday.com/story/money/business/2013/12/07/madoff-sweated-scam-details/3890069/
My Interview With Madoff
Prison? 'This Is as Good as It Gets.' His Whistleblower? 'Idiot.' Fed Stimulus? 'Greatest Manipulation' He's Ever Seen
By Sital Patel
Dec. 7, 2013 10:31 a.m. ET
http://online.wsj.com/news/articles/SB10001424052702303722104579242703723473552?KEYWORDS=madoff
"I will be pleased to have you visit," read the email that landed in my inbox this spring. It was signed, " Bernard Madoff. "
Entrance to the Butner Federal Correctional Complex in Butner, N.C. Bloomberg News
That exchange led to a two-hour meeting in May with the most notorious fraudster on Wall Street, during which Mr. Madoff pointed fingers at others and said his decadeslong Ponzi scheme wasn't really his fault. He was dismissive of regulators and whistleblowers, calling Harry Markopolos —a fraud investigator who warned the Securities and Exchange Commission about Mr. Madoff—an "idiot."
The federal prison in Butner, N.C., looks more like a small college campus than a penitentiary. The low buildings, surrounded by barbed-wire fences, are on sparse grounds set back from the road.
Once past security at the front desk, I was greeted by the prison's public-information officer, Angela Langley. We were buzzed through a set of three metal doors, the final coming after a walk down a long, cold corridor with neutral colors.
The officer then directed me to a large room that Ms. Langley said was for "recreation" and which contained vending machines, books and magazines. Mr. Madoff entered and we shook hands.
The 75-year-old, dressed in beige polyester pants and shirt with a matching canvas belt, showed no signs of stress. He told the occasional joke and said he was lucky to be in Butner, as it had a reputation of being "very laid back" and is kind of like a "camp."
"This is as good as it gets," said Mr. Madoff. He explained that the Federal Bureau of Prisons "put you where you will survive."
As a reporter for MarketWatch, I initially contacted Mr. Madoff for a story about transparency on Wall Street and fairness for investors, and I reflected on the conversation recently as the five-year anniversary of his fraud's discovery approached.
But—discussions of transparency and fairness aside—it was clear from the outset that he wanted to justify the actions that resulted in his 150-year prison term. He said he felt "trapped" into the con by other people and always thought he would be able to get himself out of it.
His investors, he said, were "sophisticated people" and should have known better.
"People asked me all the time, how did I do it. And I refused to tell them, and they still invested," he said. "Things have to make sense to you. You should ask good questions."
He insisted banks knew about his fraud and were complicit in the scheme for years. At one point, when I didn't follow his logic about the banks, he snatched the notepad from my hand and wrote out what he meant.
From the Archives
In March 2009, The Wall Street Journal looked at the scope of Madoff's Ponzi scheme, and how he got away with it for so long, in a two-part documentary.
One factor that allowed the Ponzi scheme to continue for so many years, he said, was that he had a lot of credibility in the industry. He dropped names and talked a lot about the old days, when he was among Wall Street's trading elite, sitting on industry committees and hobnobbing with a financial-services Who's Who.
Mr. Madoff played down the possibility that regulators could have caught him earlier if they had listened to the warnings from Mr. Markopolos, saying he was "an idiot" who gave the SEC bad leads.
His fraud persisted for so long, he said, because auditors didn't verify his firm's assets at depository trusts.
"If they had checked me, I would have been found out," he said.
After he got caught, Mr. Madoff told me, he wrote apology letters to former SEC chairmen Arthur Levitt and Mary Schapiro.
But he also insisted that none of his employees, with the exception of Frank DiPascali Jr., knew that he was involved in a Ponzi scheme. They falsified records, but they didn't know about the fraud, said Mr. Madoff. Mr. DiPascali has pleaded guilty and his testimony is continuing this coming week in the trial of five other Madoff employees. All of them have pleaded not guilty to participating in the fraud.
Mr. Madoff recalled one of the first moments he sensed that economic conditions in 2008 could be fragile. He was at the Palm Beach Country Club in Florida, he said, and he had "a young black kid" for a caddy, and the caddy was buying and selling homes.
"He said he didn't need credit. He would buy homes and flip them for a profit," Mr. Madoff recalled. "I told my wife, 'This is the end.' "
The end of the housing boom would be a contributing factor in the collapse of his fraud, as many investors began seeking to cash out as the economy stalled and financial assets sank in value.
At other times, he wanted to talk more broadly about the markets. He said that, if he had money, he wouldn't put it in the markets, because they are no longer about raising capital. Instead, he said, they simply shuffle money among investors. He also criticized the Federal Reserve's stimulus program as the "greatest manipulation" he had ever seen.
Mr. Madoff said inmates and prison guards constantly ask him for investment advice. Prisoners at one point wanted him to teach a course on how to invest, but he said the prison wouldn't allow it.
For most of our chat, he was in good spirits. He joked that his brother Peter's prison in South Carolina was a "camp" and much nicer than Butner. Peter Madoff, who was sentenced to 10 years in prison for his role in the fraud, refuses to speak to him.
No one in his immediate family talks to him, not even his wife, he said, adding that this was the worst consequence of his conviction.
His son Andrew Madoff refuses to talk to him and won't allow his wife to speak to him either, he told me. Mr. Madoff briefly brought up his other son, Mark, who committed suicide following the revelations of his father's Ponzi scheme. Mr. Madoff said he regretted that happened but showed little emotion.
The only family members who visit Madoff are the daughters of his wife's niece, who attend a college nearby, he said.
While prisoners can use the phone for 15 minutes at a time and have up to 300 minutes a month, Mr. Madoff says he doesn't use his allocation because he doesn't "have anyone to talk to."
http://online.wsj.com/news/articles/SB10001424052702303722104579242703723473552?KEYWORDS=madoff
J.P. Morgan Is in Talks With U.S. Over Madoff Warnings
J.P. Morgan and U.S. Attorney Are Discussing Settlement Tied to Investigation
By Dan Fitzpatrick And Michael Rothfeld
Updated Dec. 6, 2013 6:30 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303722104579242482034141424?mod=WSJ_Markets_LEFTTopStories
J.P. Morgan Chase & Co.'s alleged failure to file a key federal document more than five years ago is emerging as a critical component of a Justice Department investigation into whether the bank provided adequate warnings about the fraud of Bernard L. Madoff, people close to the probe said.
Manhattan U.S. Attorney Preet Bharara's office is examining why J.P. Morgan didn't provide U.S. regulators with a formal "suspicious activity report" raising concerns about Mr. Madoff—despite having done so with a U.K. agency more than a month before Mr. Madoff's arrest, said the people close to the probe. Mr. Madoff had a two-decade-long banking relationship with J.P. Morgan before his arrest in December 2008.
J.P. Morgan is negotiating a settlement with the U.S. attorney's office that will likely include a deferred-prosecution agreement and a fine relating to alleged inadequate warnings about Mr. Madoff, these people said. Prosecutors and the Federal Bureau of Investigation have been looking for a larger pattern of control failures inside J.P. Morgan and examining whether the bank allegedly failed to alert regulators despite numerous red flags, said the people close to the case.
It is possible a deferred-prosecution agreement with the U.S. attorney's office could be announced in the coming weeks, although that date also could slide to the beginning of 2014, these people added. A deferred-prosecution agreement is a pact under which a company pays a penalty and prosecutors file charges that are dismissed after a set period if the company lives up to certain conditions. Typically, the parties agree on a statement of facts about what occurred.
Mr. Madoff pleaded guilty to charges he ran a decadeslong Ponzi scheme that bilked investors out of billions of dollars, and the five-year anniversary of the fraud's unraveling is this coming week. Mr. Madoff is serving a 150-year prison term. J.P. Morgan has said it didn't know about or participate in the fraud.
A possible Madoff settlement is the latest attempt by the largest U.S. bank by assets to put as many legal woes behind it as possible. In recent months, J.P. Morgan has agreed to pay nearly $20 billion to settle an array of lawsuits and investigations, and it still faces scrutiny from regulators on areas ranging from trading to overseas hiring practices. It set aside legal reserves of $9 billion in the third quarter, bringing to $23 billion the amount held to absorb future settlements and lawsuits.
Federal law requires banks to file a suspicious-activity report, or SAR, when they "detect certain known or suspected violations of federal law or suspicious transactions."
There were roughly 1.3 million such reports filed in 2008 and roughly 1.6 million in 2012, according to federal data. J.P. Morgan alone typically files 150,000 to 200,000 such reports a year.
J.P. Morgan is in talks with the U.S. over actions tied to Madoff. Above, the company's headquarters in New York. Agence France-Presse/Getty Images
It isn't known why J.P. Morgan wouldn't have provided a formal warning to U.S. regulators prior to Mr. Madoff's arrest. But it did with U.K. regulators. On Oct. 28, 2008, the bank filed a document with Britain's Serious Organised Crime Agency listing several "concerns" about Bernard L. Madoff Investment Securities LLC, including investment returns that "appear too good to be true." The filing said "as a result" of the bank's Madoff concerns, J.P. Morgan sent out redemption notices to one Madoff-related fund and was preparing similar notices for two other such funds.
The document was reviewed by The Wall Street Journal and also was cited in a separate 2010 lawsuit brought by a trustee seeking to recover money for Mr. Madoff's victims. It was submitted by Rebecca Smith, a J.P. Morgan employee who was listed as the bank's vice president for the U.K. Through a bank spokesman, Ms. Smith declined to comment.
The U.K. filing came after a London J.P. Morgan employee was threatened while trying to redeem the bank's money from a fund that channeled cash to Madoff, according to court documents. "We know where to find you," this employee was told, according to those documents. That episode was cited in the 2010 trustee lawsuit. A portion of the suit was dismissed in 2011 by a federal judge. The trustee, Irving Picard, has said he plans to appeal that decision.
An SAR filing in the U.S. is required if a bank suspects a transaction of $5,000 or more could involve money laundering or terrorist financing. The definition of suspicious activity is vague and forces banks to use discretion in filing the reports, said Brandon Garrett, a professor at the University of Virginia School of Law. But a company also can be prosecuted for not having an effective anti-money-laundering program in place, he added.
Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com and Michael Rothfeld at michael.rothfeld@wsj.com
http://online.wsj.com/news/articles/SB10001424052702303722104579242482034141424?mod=WSJ_Markets_LEFTTopStories
JPMorgan in talks with U.S. Attorney over Madoff warnings: WSJ
NEW YORK Fri Dec 6, 2013 8:32pm EST
http://www.reuters.com/article/2013/12/07/us-usa-jpmorgan-madoff-idUSBRE9B601120131207?feedType=RSS&feedName=businessNews
(Reuters) - The U.S. Attorney's Office in Manhattan is looking into why JPMorgan Chase & Co did not file a suspicious activity report about Bernard Madoff before he was arrested for running a multibillion-dollar Ponzi scheme, the Wall Street Journal reported on Friday, citing people close to the probe.
The bank is negotiating a settlement with U.S. Attorney Preet Bharara's office over the matter that will likely include a fine and a deferred prosecution agreement, the Journal reported.
A spokesman for the bank could not immediately be reached for comment on the Journal story.
JPMorgan had raised concerns with UK regulators about Madoff more than a month before his arrest in December 2008, the Journal reported. In a document filed with Britain' Serious Organized Crime Agency, the bank raised several concerns about Bernard L Madoff Investment Securities, such as returns that appeared "too good to be true," the Journal said.
Madoff had a banking relationship with JPMorgan for two decades, the Journal said.
In addition to the Madoff case, prosecutors and the Federal Bureau of Investigation are examining whether there was a larger pattern of failed controls at the bank, the paper said, citing people close to the probe.
Madoff is serving a 150-year prison sentence after pleading guilty to running a Ponzi scheme that cost investors billions of dollars.
JPMorgan has said it did not know about the fraud, the Journal said.
Suspicious activity reports are required when a bank finds suspicious transactions or signs of a violation of federal law.
The Madoff probe comes as JPMorgan grapples with a string of legal troubles. Over the past few months, it has agreed to pay nearly $20 billion to settle lawsuits and probes, the Journal said.
(Reporting by Dena Aubin; Editing by Eric Beech)
http://www.reuters.com/article/2013/12/07/us-usa-jpmorgan-madoff-idUSBRE9B601120131207?feedType=RSS&feedName=businessNews
Madoff Fumed at SEC Letter
By Ashby Jones
Updated Dec. 5, 2013 10:50 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303997604579240453340377682?mod=WSJ_hp_Markets3up
Bernard L. Madoff didn't like the letter he got from the Securities and Exchange Commission in 2004 asking for a clearer picture of his firm's operations, jurors were told Thursday.
"He went on a whole rant about how Washington didn't run things, New York ran things," testified Frank DiPascali Jr., a top Madoff lieutenant. Then, recalled Mr. DiPascali, Mr. Madoff "dissected every word to craft a response so that no one would follow up and dig deeper."
Mr. Madoff's reaction and the tense period that followed as the firm tried to implement a plan to avoid detection were discussed in testimony by Mr. DiPascali, casting new light on the ways the firm shielded its illicit behavior from the eyes of regulators.
During the discussion of the fallout from the SEC letter, Mr. DiPascali described the process behind many of Mr. Madoff's decisions, calling it "fluid" and "open." He said Mr. Madoff would "talk out loud" while mulling something.
"He was never ever, ever...private...It was an open environment, and at times he didn't know when to shut the hell up. At times, I cringed when he said things," Mr. DiPascali said. He said that he would have to remind Mr. Madoff to be more discreet, because "he was a frantic lunatic at times."
Mr. DiPascali, a high-school-educated, Queens, N.Y., native who worked for Mr. Madoff at the firm for more than 30 years, is now a star government witness at the trial of five other former employees who were indicted for their alleged roles in perpetuating the $20 billion scam.
Mr. DiPascali has said he worked closely with the five defendants— Daniel Bonventre, Annette Bongiorno, JoAnn Crupi, Jerome O'Hara and George Perez —to produce the fake records. The five defendants have denied the charges.
Mr. DiPascali's testimony represents the most detailed depiction to date of daily activity within the now-disgraced investment firm and how it deceived customers and regulators.
The gist of the plan devised by Mr. Madoff was first to convince regulators that the firm only managed finances for a "couple of dozen" customers, rather than the "thousands" that they actually had, Mr. DiPascali told jurors. Mr. Madoff also decided to create phony documents to give the impression that the firm was a specific type of brokerage, known as an "RVP/DVP," that executed trades but didn't hold customers' cash or securities. It was "180 [degrees] from" the way the firm had presented itself previously, Mr. DiPascali told jurors during his third full day of questioning by a federal prosecutor in Manhattan federal court.
In order to create the illusion that the firm wasn't holding customer cash or securities, Mr. Madoff decided that existing documents needed to be reconstructed to include the names of banks, Mr. DiPascali testified on Thursday, to indicate who was, in fact, holding the purported assets.
When asked which bank names to list at the top of the new documents, Mr. Madoff instructed his staff to "make them up," said Mr. DiPascali. " 'You could put Chase or you could put J.P. Morgan or you could put Bank of America, ' " Mr. DiPascali recalled Mr. Madoff saying.
Ultimately, Mr. Madoff thought it would be smarter to use names of foreign banks, reasoning that "government employees" were "probably not allowed to make international calls" to follow up, said Mr. DiPascali.
Earlier Thursday, Mr. DiPascali testified that the Madoff firm allegedly had a name for the process of entering fake trades in some customer accounts after the fact: "schtupping."
He said the firm had a number of reasons for engaging in the process, the word for a Yiddish vulgarity. For some customers, fake losses were entered to reduce tax liabilities. For others, the phony trades created the appearance that smaller investors, or "little people," had made roughly the average of what all Madoff investors had made, said Mr. DiPascali.
Schtupping even extended to accounts held by Madoff employees, he added, when he "noted that some employees were on the low side of the bell curve." He thought they too "should get a rate that was average."
Write to Ashby Jones at ashby.jones@wsj.com
http://online.wsj.com/news/articles/SB10001424052702303997604579240453340377682?mod=WSJ_hp_Markets3up
Deal Over Madoff Funds Collapses
By Dan Strumpf and Matt Wirz
Nov. 21, 2013 2:24 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702303653004579212142481937028?KEYWORDS=madoff
A planned $800 million settlement between one of the largest investors in the Bernard L. Madoff Ponzi scheme and the trustee recovering funds for Madoff investors has collapsed, people familiar with the matter said.
The deal between Kingate Management, a feeder fund to Madoff's firm, and bankruptcy trustee Irving Picard fell apart after the Justice Department this week announced its decision to exclude such funds from payouts out of the agency's $2.35 billion Madoff Victim Fund, which is overseen by Richard Breeden.
The settlement would have returned about $800 million to the Madoff bankruptcy trustee, which manages a separate, larger fund for victims of the fraud that has so far recovered $9.51 billion. Kingate, a hedge fund based in the British Virgin Islands, invested $1.73 billion in Madoff's firm from 1994 to 2008, according to court filings.
The Justice Department decision caught officials in Mr. Picard's office by surprise, according to people familiar with the matter.
Mr. Picard has been reimbursing only direct Madoff investors, which includes managers or liquidators of feeder funds. The provisional settlement with Kingate assumed Mr. Breeden would adopt a similar approach, people familiar with the matter said.
So far, investors are reading the Justice Department's move as damaging recoveries on claims in feeder funds that already have reached settlements with Mr. Picard. One day after Mr. Breeden said feeder funds would be excluded from payouts, certain claims in the secondary market traded roughly 16% lower than before the announcement, according to one fund manager.
Mr. Breeden's plan calls for Madoff victims who invested through Kingate to be able to collect payments directly, rather than having those payments go through Kingate.
Mr. Breeden defended the move, saying he prioritized returning cash to Mr. Madoff's victims over Mr. Picard's negotiations with various feeder funds. "You can't say the distribution of a couple billion dollars to the victims of crime has to structure itself around commercial litigation settlements," Mr. Breeden said in an interview. "It's the other way around."
But the move complicates the recovery process for at least some people who said they are owed money and underscores the remaining hurdles for the two individuals governing the return of cash to victims of the world's biggest Ponzi scheme, which totaled an estimated $17 billion and was discovered five years ago next month.
Mr. Breeden was named head of the Madoff Victim Fund last December. Most of the money in the fund was obtained through civil forfeiture as part of a 2011 settlement with the estate of Jeffry Picower, a longtime friend and investor with Mr. Madoff. Mr. Picard's team separately collected $5 billion from that settlement.
Kingate had planned to sell its claims against Madoff's estate to Deutsche Bank AG upon reaching a settlement with Mr. Picard, although the bank and Kingate have been arguing over the price of the trade since 2011. Deutsche was simultaneously in talks with a group of hedge funds, including Centerbridge Partners LP, Farallon Capital LLC and Solus Alternative Asset Management, to resell the Kingate claims.
The trades are now on hold, although they may be renegotiated if Mr. Picard and Kingate reach a new settlement, people familiar with the matter said.
Mr. Breeden said he is unperturbed by the surprise with which his distribution method has been greeted in the claims trading world.
"The forfeiture programs are not set up for hedge funds to have another asset class to trade. They're set up to allow victims of crime to recover a portion of their losses," he said. "I think the republic will survive that [settlement] having to restructure itself."
Some Madoff investors welcomed Mr. Breeden's plans. Pete Leveton, an investor in a feeder fund that was based in Boulder, Colo., said he was "cautiously optimistic" now that an avenue has opened up for indirect investors to get money back. Mr. Leveton is co-head of a coalition of investors in the fund, called Agile Group, who have been lobbying for payments to indirect investors.
Write to Matt Wirz at matthieu.wirz@wsj.com and Dan Strumpf at daniel.strumpf@wsj.com
http://online.wsj.com/news/articles/SB10001424052702303653004579212142481937028?KEYWORDS=madoff
Madoff Yelled About Aide Who Knew Everything, Secretary Says (1)
By Erik Larson November 07, 2013
http://www.businessweek.com/news/2013-11-07/madoff-yelled-about-top-aide-who-knew-everything-secretary-says
Bernard Madoff’s former secretary told a jury she heard the con man shout at his brother Peter Madoff in an argument about a top aide now accused of assisting his fraud, saying the man “knows how everything works.”
The conversation about Daniel Bonventre, one of five former employees on trial for allegedly aiding Madoff’s $17 billion Ponzi scheme, ended with Madoff telling his brother to mind his own business, using an expletive, Eleanor Squillari testified today in federal court in Manhattan. Squillari was Madoff’s receptionist and personal assistant from 1984 until his 2008 arrest.
The five former employees are accused of helping Madoff hide his fraud from customers and regulators for years, and getting rich in the process. It’s the first criminal trial stemming from the scheme in Madoff’s investment-advisory business, which prosecutors say started in the early 1970s and imploded at the peak of the financial crisis.
Bonventre, who oversaw the broker-dealer and proprietary trading operations of Madoff’s company, where real trading took place, has denied involvement in the fraud and says he was duped like thousands of others.
Bonventre’s lawyer, Andrew Frisch, asked Squillari during cross examination if she knew exactly what Bernard Madoff and his brother were discussing when they argued about Bonventre. She said no. She agreed the fight could have been about trading operations or something else related to the job.
Other Defendants
The other defendants in the case, all accused of helping make fake documents for decades, are Annette Bongiorno, who worked for Madoff for 40 years and ran the investment advisory business; Joann Crupi, who managed large accounts; and computer programmers George Perez and Jerome O’Hara. All five have pleaded not guilty.
In a ruling outside the presence of the jury, U.S. District Judge Laura Taylor Swain this week granted the defense’s request that Squillari be barred from testifying that O’Hara and Perez looked “smug” when they left a private meeting with Madoff around 2006. Defense lawyers said it was unfair speculation, while prosecutors said it was “central” to their case alleging the men extorted Madoff to assist his fraud.
O’Hara and Perez, who joined Madoff’s firm in the 1990s, acknowledged that a “dramatic meeting” with Madoff took place in 2006, according to their lawyers’ Oct. 17 opening statements to the jury. The men claim that they arranged the encounter to challenge Madoff’s request for computer code they believed might be abused, and that they were “extremely nervous” about confronting him and being fired.
JPMorgan Account
Mark Doctoroff, a former executive director at JPMorgan Chase & Co. (JPM:US) who acted as the relationship manager for Madoff’s securities firm from about February 2008 until it closed, testified today he was unaware at the time that Madoff had a formal investment advisory unit or that Madoff’s JPMorgan bank account was used for that business.
Doctoroff, who left New York-based JPMorgan last year, said Bonventre asked the bank in November 2008, less than a month before Madoff’s arrest, if Madoff’s firm could borrow $200 million secured by U.S. Treasuries, even though Madoff’s credit limit for such loans was $100 million.
“They are doing well financially,” Doctoroff said in a Nov. 17, 2008, internal e-mail to the bank’s credit department about the request, which he said should be granted. The e-mail was displayed on flat-screen monitors for the jury.
“They are looking at the current market as an opportunity to make investments, true to their value investing style,” Doctoroff said in the e-mail. “Told Dan you would call him back if a problem, or let me know and I will -- but think we should process.”
The loan was never processed.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net
http://www.businessweek.com/news/2013-11-07/madoff-yelled-about-top-aide-who-knew-everything-secretary-says
Madoff messenger testifies about cash payments
Originally published: November 7, 2013 8:14 PM
Updated: November 7, 2013 9:10 PM
By JOHN RILEY john.riley@newsday.com
http://www.newsday.com/news/new-york/madoff-messenger-testifies-about-cash-payments-1.6401651
A former messenger for Bernard Madoff testified Thursday that for years he delivered cash payments of "usually $2,500" every week or two to account supervisor Annette Bongiorno, one of five ex-aides on trial for assisting Madoff's Ponzi scam.
William Nasi, appearing in federal court in Manhattan, said the payments usually came from checks issued by Madoff's cashier to him. He would take them to a bank, cash them and deliver the money to Bongiorno, Madoff's one-time secretary.
"She would just drop it into her purse and say thank you," said Nasi, who also testified Bongiorno was partial to $100 bills, telling him, "Get me Ben Franklins!"
Bongiorno, 65, of Manhasset, is charged with overseeing the production of account statements with made-up securities trades to fool customers into believing Madoff was actually investing their money instead of running a Ponzi scheme.
Prosecutors claim Madoff used the cash, generous pay and other perks to corrupt Bongiorno and her co-defendants -- computer programmers Jerome O'Hara, 50, of Malverne, and George Perez, 47, of East Brunswick, N.J.; account manager Joann Crupi, 52, of Westfield, N.J.; and operations manager Dan Bonventre, 66, of Manhattan.
But defense lawyers contend their clients were fooled by Madoff and never realized they were part of a fraud that would cost investors an estimated $19 billion when it collapsed in 2008. The trial began Oct. 16, and is expected to last as long as five months.
In other testimony Thursday, Madoff's one-time personal secretary Eleanor Squillari described an obscenity-laden conversation in which Madoff told his brother Peter that Bonventre "knew how everything worked" and that Peter should "mind his own business."
On cross-examination, however, Squillari said she had no idea what the conversation was about, and said that despite working in the same suite with Madoff since the early 1990s, she believed he was running a solid business right to the end.
http://www.newsday.com/news/new-york/madoff-messenger-testifies-about-cash-payments-1.6401651
Ex-Madoff Staff Seek to ‘Embarrass’ SEC at Trial, U.S. Says
Erik Larson
Nov 06, 2013 12:01 am ET
http://washpost.bloomberg.com/Story?docId=1376-MVT0FY1A1I4H01-7DR8LF17L67I7G8DCK9HCDC6SI
Nov. 6 (Bloomberg) -- Five ex-employees of Bernard Madoff on trial accused of aiding his $17 billion fraud seek to “embarrass” U.S. Securities and Exchange Commission witnesses by asking about bungled Madoff audits, prosecutors say.
The questions, to be asked on cross-examination, should be barred because the SEC employees who will testify began probing only after Madoff’s arrest on Dec. 11, 2008, and weren’t involved in earlier reviews that failed to uncover the Ponzi scheme, prosecutor Randall Jackson said Nov. 4 at a hearing.
The proposed questioning is “pure harassment designed to attempt to embarrass either the SEC or particular witnesses,” another prosecutor, Matthew Schwartz, said in a court filing. “The defendants should not be permitted to turn the trial into a referendum on the investigatory practices of the SEC.”
The five former employees are accused of helping Madoff hide his fraud from customers and regulators for years, and getting rich in the process. It’s the first criminal trial stemming from the Ponzi scheme that prosecutors say started in the early 1970s and imploded at the peak of the financial crisis.
U.S District Judge Laura Taylor Swain will decide later whether to narrow the defense’s cross-examination of SEC staff or allow the lawyers to explore the agency’s actions to make a point about their clients, who have all pleaded not guilty. The U.S. hasn’t said when the SEC witnesses will testify.
“The defendants must be free to explore the full circumstances of the SEC audits in order to establish that these audits failed for reasons separate and apart from the charged conduct,” defense lawyers said Oct. 30 in a letter to Swain placed in court files.
Five Defendants
The defendants are Annette Bongiorno, who ran the investment advisory business at the center of the fraud; Joann Crupi, who managed large accounts; Daniel Bonventre, who oversaw the broker-dealer unit; and computer programmers George Perez and Jerome O’Hara, who allegedly automated the creation of millions of fake documents to trick customers and regulators.
The SEC since 1992 missed at least six opportunities to uncover the world’s biggest Ponzi scheme after assigning inexperienced lawyers to inquiries, conducting inspections that were too narrow and failing to press Madoff when catching him in lies, the agency said in a 2009 internal report about the failures.
The report, by then-SEC Inspector General H. David Kotz, found the agency failed to make a “thorough and competent” probe of Madoff’s firm, even after receiving detailed complaints suggesting its investment returns were impossible.
John Nester, a spokesman for the SEC, declined to comment on the dispute over questioning of the agency’s witnesses.
Trained Regulators
The five defendants argue they couldn’t have detected a fraud so sophisticated that it was missed by trained regulators. The U.S. claims the SEC overlooked the scheme partly because the defendants conspired to trick the agency, thus making the failure irrelevant to their guilt or innocence.
Arguments over the scope of such questioning take place only in court filings or when the jury isn’t present. Swain said the trial, in its third week of testimony, may last five months.
Madoff, 75, pleaded guilty in 2009 and is serving a 150- year prison sentence in North Carolina. About half a dozen others have pleaded guilty since then and are to testify.
The defense argues that the cooperating witnesses, who haven’t been sentenced, will lie about others to get less time behind bars.
Defense lawyers are also seeking permission to tell the jury about the guilty pleas of Madoff co-conspirators who aren’t testifying in the trial, including Madoff’s brother Peter Madoff, who worked for the company for decades and is serving a 10-year sentence.
‘Directly Relevant’
“The evidence of Peter Madoff’s plea and 10-year sentence is directly relevant to the state of mind and motivation of the government’s cooperating witnesses,” the defense attorneys said in their filing. “Obviously, the cooperating witnesses are seeking desperately to avoid a similar fate.”
The trial continued yesterday with the defense’s cross- examination of David Kugel, one of the former Madoff employees who pleaded guilty and is cooperating with the U.S. He testified last week that he gave fake trading data for years to Bongiorno and Crupi, who are accused of using the information to make fake customer account statements look real.
Bongiorno’s lawyer, Roland Riopelle, yesterday asked Kugel, a former trader for Madoff for 38 years who rose to supervise the trading floor of the broker-dealer unit, whether the financial markets were doing badly in 2008. Kugel said he was’t sure.
Lehman Filing
Kugel said he couldn’t remember when Lehman Brothers Holdings Inc. filed for bankruptcy and had to be reminded of the disappearance of Bear Stearns Cos. before recalling the state of the economy around the time Madoff’s firm collapsed.
Asked by Riopelle if the economic crisis unfolding had anything to do with his decision to withdraw $3 million from his inflated Madoff investment account in July 2008, and another $1.7 million a few months later, and put the money in insured certificates of deposit at several banks, he said no.
“Better safe than sorry,” Kugel said.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Charles Carter, Stephen Farr
http://washpost.bloomberg.com/Story?docId=1376-MVT0FY1A1I4H01-7DR8LF17L67I7G8DCK9HCDC6SI
Ex-Madoff trader testifies that office aide helped him get bogus home, construction loans
David Kugel testifed that Joann Crupi gave him false financial information for mortgage applications. He alleges that one statement showed he had more than $6 million in a Madoff Securities account, when it actually contained $120,000.
By Daniel Beekman / NEW YORK DAILY NEWS
Tuesday, November 5, 2013, 12:42 AM
http://www.nydailynews.com/news/crime/madoff-trader-testifies-office-aide-helped-bogus-loans-article-1.1506825
This crook from Bernie Madoff’s old Ponzi-scheming shop built his homes on a house of cards.
Longtime Madoff trader David Kugel, a turncoat witness in the fraud case against several former Madoff office workers, testified Monday that one of the defendants helped him obtain bogus home and construction loans by feeding him false financial information.
Kugel, who in 2011 copped to his role in Madoff’s $65 billion Ponzi scheme, testified that office aide Joann Crupi lent him a hand when he needed phony documents for mortgage applications.
In 2003, when Kugel was seeking a loan for a home in Nassau County’s affluent Manhasset, Crupi, who was often called Jodi, gave him a sham statement showing he had more than $6 million in one of his Madoff Securities accounts — which in reality was $120,000 in the red, the witness testified.
The repeated trickery allowed Kugel and his wife to score the Long Island house and a home in Boca Raton, Fla. Kugel also lied in order to snag various loans for his son and daughter.
“How many loans did you procure this way?” Assistant U.S. Attorney Matthew Schwartz asked the prosecution witness in Manhattan Federal Court.
“I believe it was five,” said Kugel, who worked with Madoff for more than 30 years.
The witness said he initially went to his con artist boss for help with the loans. Madoff told him to let Crupi, 52, know exactly what he wanted, Kugel testified.
“He said, ‘Go to Jodi Crupi and tell her what you need,’ ” Kugel said.
In each case, Kugel sent lenders inflated numbers for his Madoff Securities accounts to gain their trust.
A lawyer for Crupi will likely grill on Kugel Tuesday for his testimony implicating her in shady business.
Roland Riopelle, lawyer for Madoff secretary Annette Bongiorno, 64, hammered the witness on Monday, noting that Kugel risked harm to his wife by having her sign the loan papers.
“You were willing to expose your wife to a possible federal prosecution for just a few pieces of silver. Isn’t that right, Sir?” Riopelle asked.
“Yes,” Kugel replied.
It was the third day on the witness stand for Kugel, who agreed to cooperate with prosecutors in exchange for the possibility of a more lenient sentence.
He previously testified that both Crupi and Bongiorno helped him fabricate trades.
The five defendants claim they knew nothing about Madoff’s mega-scam and were just following orders. The other three defendants are Madoff Securities operations manager Daniel Bonventre, 66, and computer programmers George Perez, 47, and Jerome O’Hara, 50.
Their trial is expected to last five months.
Madoff pleaded guilty in 2009 and will spend the rest of his life behind bars.
dbeekman@nydailynews.com
http://www.nydailynews.com/news/crime/madoff-trader-testifies-office-aide-helped-bogus-loans-article-1.1506825
Madoff Barred ‘Ridiculous’ Fake Trades, Ex-Trader Testifies (1)
By Erik Larson November 01, 2013
http://www.businessweek.com/news/2013-10-31/madoff-urged-realistic-trades-while-duping-clients-jury-told
David Kugel, a trader at Bernard Madoff’s brokerage for 38 years, told a jury the con man let him use backdated trades to boost profit in his personal investment account, as long as they didn’t look “ridiculous.”
Kugel testified yesterday in Manhattan federal court at the trial of five former Madoff employees that most of the fake trading data he created was used for customer accounts managed by defendants Annette Bongiorno and Joann Crupi, who ran the investment business at the center of Madoff’s $17 billion Ponzi scheme. Using fake trades for himself was a “bonus,” he said.
Kugel, who was hired out of Pace University by Madoff in 1970, pleaded guilty to fraud two years ago. He testified that Madoff sometimes asked him for investment calculations during his first year on the job, and he didn’t know why. When Kugel discovered the scheme and his role in it around 1977, he said he continued helping to make sure the fake trades looked realistic.
“He was my boss and he asked me to do something,” Kugel said of Madoff, who also pleaded guilty and is serving a 150-year sentence at a federal prison in North Carolina. “I knew it was wrong, but I didn’t question him.”
On trial alongside the two women are Daniel Bonventre, who oversaw the broker-dealer and proprietary trading operations where Kugel worked; and computer programmers George Perez and Jerome O’Hara, who allegedly automated the creation of millions of fake documents. All five have pleaded not guilty to charges of conspiring to trick customers and regulators for years.
Second Week
Kugel, giving an insider’s view of how the world’s biggest Ponzi scheme was carried out, is the first witness to testify to admit involvement in the fraud, which unraveled with Madoff’s arrest on Dec. 11, 2008. The trial is in its second week of testimony before U.S. District Judge Laura Taylor Swain, who said it may last as long as five months.
Prosecutors yesterday sent a letter to Swain, challenging her request that both sides offer mid-trial summaries of their cases to aid the jury’s comprehension of the testimony and issues in the prosecution. The U.S. argued its summary could potentially result in a conviction being overturned on appeal.
Defense lawyers said in their opening statements on Oct. 17 that Kugel and other former Madoff employees who have pleaded guilty in the case -- about half a dozen of them -- are willing to lie and implicate their former colleagues to get less time behind bars when they’re sentenced.
Madoff Hires
Bongiorno, who joined Madoff’s company immediately after high school and worked for him for 40 years, claims Madoff manipulated her and she didn’t know she was taking part in a fraud. Crupi, who joined Madoff straight out of college in 1983, made a similar argument.
Kugel, born in Cleveland and raised in Brooklyn, New York, said yesterday that while at first he didn’t know why Bongiorno asked him for old pricing data, he began to suspect right away. His suspicions were confirmed, he said, when he opened a personal investment account with Madoff in 1977 and saw the backdated trades he created appear on his own statements.
Assistant U.S. Attorney Matthew Schwartz asked Kugel why he opened an account -- with $25,000 from the sale of his father-in-law’s house -- when he knew the business was fraudulent. Kugel said that when he asked his boss where the money was really going, Madoff said he was putting it in shopping centers, foreign currency and other investments.
Backdated Trades
Kugel said he believed Madoff and didn’t press him further.
Madoff eventually allowed Kugel to pick backdated trades for his personal account, Kugel said. Madoff told him to keep the trades realistic, saying, “Don’t make it look ridiculous,” Kugel testified. His account held about $10 million at one point, including $5 million in real deferred compensation, he said.
Kugel said he stopped providing the fake trading data for client accounts in the 1990s, when Madoff changed his investment strategy for the business from convertible arbitrage trades -- Kugel’s specialty -- to a so-called split-strike strategy.
Madoff allowed Kugel to use his corporate credit card for thousands of dollars in personal expenses, and Kugel always paid it back, he testified. Asked why he would repay money to Madoff when there was so much fraud going on, Kugel said, “Because I owed it to him.”
Guilty Plea
Kugel has also pleaded guilty to mortgage fraud for putting false investment information on loan paperwork. He said Oct. 30 that Madoff and Crupi were involved in that scheme, too.
Industry experts, fraud examiners and former administrative assistants at Madoff’s company have already taken the witness stand. It’s the first criminal trial stemming from fraud, which deprived investors of $17 billion in principal and about $47 billion in fake profit they believed to be in their accounts.
Kugel said Bongiorno approached him weekly starting in the early 1970s seeking data based on specific desired profits over a set period for certain clients, which he said he obtained from the Wall Street Journal and other sources to mimic real trades. In the 1980s and 1990s, he supplied the same type of information to Crupi, he said.
Kugel gave Bongiorno information “based on the way the stock traded that day,” so it “didn’t look out of line,” he said. “It looked like a real trade.”
Fake Confirmation
Prosecutors had Kugel explain a fake trade confirmation sheet displayed on monitors for the jury. The confirmation from September 1982 showed 1,235 shares of Emhart Corp. purchased for Bongiorno’s personal investment account, for $72,093.13.
Kugel said that for a given fake transaction, he provided the date, stock symbol and a range of realistic prices based on his research, while Bongiorno calculated the number of required shares to buy or sell and chose a price from the range. Schwartz displayed as evidence handwritten share calculations that matched the trade data on Bongiorno’s Emhart trade confirmation.
Kugel used a calculator on the witness stand when asked to describe to the jury how he created fake trading information. As he explained the calculations over several minutes, some jurors shifted in their seats, looked at one another and smiled. One laughed.
Schwartz asked Kugel if Madoff was good at math.
“Certain aspects yes, certain aspects no,” Kugel said. “He had trouble with long division.”
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Erik Larson in federal court in Manhattan at elarson4@bloomberg.net
To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net
http://www.businessweek.com/news/2013-10-31/madoff-urged-realistic-trades-while-duping-clients-jury-told
Ex-Madoff trader implicates other workers in decades-long fraud
By Joseph Ax
NEW YORK | Thu Oct 31, 2013 7:30pm EDT
http://www.reuters.com/article/2013/10/31/us-madoff-employees-idUSBRE99U1FO20131031
(Reuters) - A former trader at Bernard Madoff's investment firm described on Thursday how he helped create false trades with two other former employees to prop up Madoff's $17 billion Ponzi scheme.
David Kugel, who joined the firm in 1970 and worked there for nearly four decades, said he provided historical data on stock prices to Annette Bongiorno and Joann Crupi, who then fabricated trades in client accounts.
"If someone looked at it, it would look potentially like a real trade, like something that had taken place," he told a federal jury in New York.
Bongiorno and Crupi are among five former Madoff employees charged with aiding Madoff in a scheme that cost investors an estimated $17 billion. The other defendants are Daniel Bonventre, the firm's director of operations, and two computer programmers, Jerome O'Hara and George Perez.
Kugel, who pleaded guilty in 2011 as part of an agreement to cooperate with prosecutors, is the first insider to testify at the trial. He did not offer testimony implicating Bonventre, O'Hara or Perez on Thursday.
Madoff, 75, is serving a 150-year prison sentence after pleading guilty in 2009. He has said he perpetrated the fraud on his own.
Defense lawyers for the five employees on trial have argued that they were bewitched by Madoff's brilliance and did not question whether his success was legitimate. They have not had a chance to cross-examine Kugel, who will continue to testify on Monday when the trial resumes.
In approximately five hours on the witness stand on Thursday, Kugel explained how he would use copies of the Wall Street Journal to provide a range of stock prices to Bongiorno beginning in the late 1970s and to Crupi years later.
They used the data to construct fake trades that would appear to be based on real stock prices and dates, he said.
Madoff himself didn't handle the calculations, Kugel said, in part because he wasn't good at basic math.
"Bernie Madoff couldn't do long division, you said?" prosecutor Matthew Schwartz asked.
"That was my understanding, yes," Kugel replied.
Kugel said he believed all along that Madoff was investing customer money elsewhere - in shopping centers or foreign currency, for instance - and using returns from those investments to pay clients.
That explained why he held almost his entire personal fortune in accounts at Madoff's firm and helped his mother, sister, brother, daughter and son open their own accounts there, he said.
"Why, if you knew the trades were fake, did you allow your family to invest?" Schwartz asked.
"For the same reason I had an account - even though I knew everything was wrong, that he was fooling people and sending out fraudulent accounts, I thought he was investing it and the money was safe," Kugel said.
U.S. District Judge Laura Taylor Swain dismissed the jury a little early on Thursday so any parents could go trick-or-treating on Halloween night. The trial is expected to last several more months.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Joseph Ax; Editing by Cynthia Osterman)
http://www.reuters.com/article/2013/10/31/us-madoff-employees-idUSBRE99U1FO20131031
Madoff trustee may pursue $8 billion claims vs. banks in feeder fund cases
By Jonathan Stempel
NEW YORK | Wed Oct 30, 2013 2:12pm EDT
http://www.reuters.com/article/2013/10/30/us-madoff-fraud-decision-idUSBRE99T16Q20131030
(Reuters) - A federal judge has made it easier for the trustee seeking money for Bernard Madoff's victims to pursue more than $8 billion of claims against banks and other financial firms that received money from "feeder funds" that profited from the swindler's massive Ponzi scheme.
U.S. District Judge Jed Rakoff said federal bankruptcy law did not require the trustee, Irving Picard, to obtain final court orders against the feeder funds before pursuing claims against third parties to which those funds transferred money.
In a decision made public on Wednesday, the Manhattan judge said a contrary holding "could cause bankruptcy proceedings to drag on unnecessarily for years, wasting court resources as well as creating unnecessary uncertainty for potential defendants who may be subject to recovery proceedings."
The ruling keeps alive claims in roughly 57 cases, against defendants including affiliates of Bank of America Corp (BAC.N), Barclays Plc (BARC.L) and Standard Chartered Plc (STAN.L), that will now be handled in the U.S. bankruptcy court in Manhattan, court records show.
Picard said he has so far recovered $9.5 billion of the roughly $17.3 billion of principal that Madoff's customers lost.
"This is a significant development in the liquidation proceedings as the ... trustee's current subsequent transfer complaints seek recoveries in excess of $8 billion," Amanda Remus, a spokeswoman for Picard, said in a statement.
Robinson Lacy, a Sullivan & Cromwell partner representing some of the third-party transferees, declined to comment.
The case related to Fairfield Sentry Ltd and Kingate Global Fund Ltd, two feeder funds that in 2009 went into liquidation.
Feeder funds sent customer assets for investment to Bernard L. Madoff Investment Securities LLC, which from time to time then returned payments based on the profits shown in often fictitious account statements. The feeder funds would then use these sums to pay clients, fund managers and others.
"COMPLEX CASE"
Picard, a partner at the law firm Baker & Hostetler, claimed he was authorized on behalf of Madoff victims to recover sums illegally transferred to the funds by Madoff's firm, and later transferred to the third parties.
In his decision, Rakoff said bankruptcy law did not require the trustee to bring or fully complete litigation against initial transferees, the feeder funds, before pursuing the third party transferees.
The judge also rejected an argument by some of the third party transferees that Picard missed a December 2010 deadline, two years after Madoff's fraud was uncovered, to sue them.
"In a complex case like this one, it is unreasonable that the trustee, who is a stranger to any non-debtor transactions, would be expected to bring all recovery proceedings against subsequent transferees" within two years, he said.
Picard has asked the U.S. Supreme Court to review a lower court ruling that blocks him from suing JPMorgan Chase & Co (JPM.N), UBS AG (UBSN.VX) and other banks he believes aided the fraud.
Madoff, 75, pleaded guilty in March 2009 and is serving a 150-year prison term. Five former employees of his firm are now on trial in Manhattan for having allegedly aided in his fraud.
The case is Securities Investor Protection Corp v. Bernard L. Madoff Investment Securities LLC, U.S. District Court, Southern District of New York, No. 12-mc-00115.
(Reporting by Jonathan Stempel in New York; Editing by Alden Bentley)
http://www.reuters.com/article/2013/10/30/us-madoff-fraud-decision-idUSBRE99T16Q20131030
Witness: Entire Madoff Operation Was Fraud
By Christopher M. Matthews
Oct. 29, 2013 6:07 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702304470504579166061251353426?mod=rss_whats_news_us
The entire operation at Bernard L. Madoff Investment Securities LLC was a fraud, not just the investment-advisory business where the Ponzi scheme took place, a government witness testified Tuesday in the criminal trial of five former employees of Bernard L. Madoff.
The testimony contradicted Mr. Madoff's longstanding position that his firm's broker-dealer and proprietary-trading units were legitimate businesses and could bolster the case against the firm's former director of operations, who wasn't involved in day-to-day operations at the investment-advisory business.
Bruce Dubinsky, an accounting expert who investigated Mr. Madoff's fraud, testified that the firm's broker-dealer and proprietary-trading units—internally called "House Five"—lost hundreds of millions of dollars and were only kept afloat by fraudulent transfers from the investment-advisory business. Books and records were falsified to cover up the transfers, Mr. Dubinsky testified.
"The 'House Five' side of the business was losing a lot of money and could not stand on its own two feet," Mr. Dubinsky said during testimony that lasted all of Tuesday. "'House Five' was not a legitimate business either."
Mr. Dubinsky was commissioned by Irving Picard, the trustee liquidating Mr. Madoff's firm to help repay victims, to write a report on the $17 billion Ponzi scheme. His testimony represents one of the most complete looks at the government's case against Mr. Madoff's defunct firm.
Mr. Madoff admitted in March 2009 to running a decades-long Ponzi scheme and is serving a 150-year prison term. In his plea statement, Mr. Madoff said the scheme was run through the firm's investment-advisory business and that its proprietary-trading and market-making operations were legitimate.
Earlier
Defense: Employees 'Believed Madoff Like So Many Others' (Oct. 17, 2013)
Prosecutor: Madoff Workers Lied (Oct. 16, 2013)
Five Things You Need to Know About the Trial (Oct. 8, 2013)
Staffers' Trial Will Be Another Madoff Reckoning (Oct. 6, 2013)
The government disputed Mr. Madoff's statements in 2010 when they charged his longtime director of operations, Daniel Bonventre, one of the five defendants on trial. Prosecutors alleged in their complaint against Mr. Bonventre that from 1997 to 2008, more than $750 million of investor funds from the investment-advisory business was used to support House Five.
On Tuesday, Mr. Dubinsky told jurors that the entirety of Mr. Madoff's firm was "hopelessly insolvent," and began to fall apart in 2008 when customers in the investment-advisory business began withdrawing funds amid the financial crisis.
During his cross-examination of Mr. Dubinsky, Andrew Frisch, an attorney for Mr. Bonventre, sought to portray House Five as a legitimate line of business. Mr. Frisch repeatedly asked about the millions of legitimate trades performed by the broker-dealer and proprietary-trading units over the years. He also questioned Mr. Dubinsky about the separation between House Five and the investment-advisory business.
"A Chinese wall is supposed to be in place between the two businesses, correct?" Mr. Frisch asked.
Cross-examination of Mr. Dubinsky will continue Wednesday morning in what is expected to be a five-month trial.
The defendants, who occupied a range of different jobs at Mr. Madoff's firm, are accused of securities fraud, creating false books and records and other charges. Programmers Jerome O'Hara and George Perez are accused of creating phony customer accounts, while portfolio managers Annette Bongiorno and JoAnn Crupi allegedly concocted trading records. Mr. Bonventre is accused of directing false accounting entries be made in the firm's books to conceal Mr. Madoff's fraud.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
http://online.wsj.com/news/articles/SB10001424052702304470504579166061251353426?mod=rss_whats_news_us
JPMorgan Faces Possible Penalty in Madoff Case
By BEN PROTESS and JESSICA SILVER-GREENBERG
October 23, 2013, 10:01 pm
http://dealbook.nytimes.com/2013/10/23/madoff-action-seen-as-possible-for-jpmorgan/
Federal authorities are preparing to take action in a criminal investigation of JPMorgan Chase, suspecting that the bank turned a blind eye to Bernard L. Madoff’s Ponzi scheme.
The Madoff case, coming on the heels of a tentative $13 billion settlement over JPMorgan’s mortgage practices, poses another major threat to the reputation of the nation’s largest bank.
Reflecting the magnitude of the investigation, prosecutors and JPMorgan have held preliminary discussions about a so-called deferred prosecution agreement, people briefed on the inquiry said. Such an arrangement would suspend criminal charges against JPMorgan in exchange for a fine, certain other concessions and an acknowledgment that the bank will face charges if it fails to behave. Prosecutors may also require JPMorgan, which has repeatedly said that “all personnel acted in good faith” in the Madoff matter, to hire an independent monitor.
While deferred-prosecution agreements are the Justice Department’s preferred tool for punishing corporate giants — they allow prosecutors to appear tough without imperiling a company’s health — they are typically deployed only when misconduct is severe. For a large American bank, they are nearly unheard-of.
But the government, the people added, has not ruled out a harsher punishment for JPMorgan Chase’s national banking subsidiary. Prosecutors could demand that the unit plead guilty to a criminal violation of the Bank Secrecy Act, a federal law requiring financial institutions to report suspicious activity to the government.
Underscoring concerns that a guilty plea could destabilize the bank, the people said, prosecutors have discussed the ramifications of criminal charges with one of JPMorgan’s regulators. But the regulator, the Office of the Comptroller of the Currency, assured the prosecutors that it would not interfere.
Representatives for JPMorgan, the Comptroller and the prosecutors declined to comment. Authorities could announce an action by the end of the year, the people briefed on the inquiry said, a move that could cap a multiyear investigation. Prosecutors, the people said, are weighing criminal charges against JPMorgan employees who did business with Mr. Madoff. It is unclear which employees are under investigation.
The investigation, led by the F.B.I. and the United States attorney’s office in Manhattan, centers on whether JPMorgan failed to alert federal authorities to Mr. Madoff’s conduct. JPMorgan served as Mr. Madoff’s primary bank for more than two decades, giving it a unique window onto his practices.
The case will most likely hinge on a series of e-mails that suggest JPMorgan continued to work with Mr. Madoff even as questions mounted about his operation. In one e-mail that surfaced in a separate lawsuit, a JPMorgan employee acknowledged that Mr. Madoff’s outsize returns seemed “a little too good to be true.”
The people briefed on the inquiry, who spoke on the condition of anonymity because they were not authorized to discuss private negotiations, cautioned that the government had not decided to charge any current or former JPMorgan employees. Likewise, the discussions with the bank itself are preliminary and the government has not concluded what action to take. Two of the people noted that prosecutors were more likely to seek a deferred prosecution agreement than to demand a guilty plea.
Neither JPMorgan nor any other big Wall Street bank has ever been subjected to such an agreement before, according to a University of Virginia Law School database. Among large American banks, only Wachovia and the banking arm of American Express have entered into such an agreement.
But if it does pursue a guilty plea, the government would deal another blow to the reputation of JPMorgan and its chief executive, Jamie Dimon. The bank was once an industry favorite in regulatory circles.
The actual repercussions would depend on the underlying criminal charge. The most serious potential violation could complicate JPMorgan’s business with certain clients, possibly forcing investors like pension funds to withdraw some money from the bank. But a lesser violation would be likely to have more of a reputational consequence.
For the government, it would represent an extraordinarily rare show of force. Ever since a criminal indictment led to the demise of the accounting firm Arthur Andersen, Enron’s auditor, the government has been wary of imposing criminal charges on big corporations for fear that it would imperil the institution and have ripple effects on the broader economy. Under federal guidelines, prosecutors must weigh “collateral consequences,” like job losses and economic implications, in such an action.
HSBC, for example, paid $1.9 billion to settle a money-laundering case, but the Justice Department stopped short of indicting the British bank. The case reinforced concerns that big banks, having grown so large and interconnected, are too big to indict.
Yet Preet Bharara, the United States attorney in Manhattan whose office is handling the JPMorgan case, has disputed that theory. In a recent speech, Mr. Bharara said he rejected the idea from companies that “because we’re so big, to take action against us, the sky is going to fall.”
“I don’t think anyone is too big to indict — no one is too big to jail,” Mr. Bharara said at another speech.
The Manhattan United States attorney and the F.B.I are not the only ones pursuing JPMorgan over the Madoff case. The Office of the Comptroller of the Currency recently sent the bank a notice indicating that the agency would soon fine the bank over the Madoff case, two people briefed on the case said.
Irving H. Picard — the trustee seeking to recover money for Mr. Madoff’s victims — also sued JPMorgan in 2010 for $6.4 billion, saying the bank allowed “fraudulent transfers” and accusing it of “aiding and abetting” Mr. Madoff’s fraud. The trustee sued UBS, HSBC and UniCredit Bank Austria, as well, although a federal appeals court in Manhattan has tossed out his lawsuits against the banks. Mr. Picard recently petitioned the United States Supreme Court to hear his appeal.
JPMorgan has denied Mr. Picard’s allegations.
The developments come at a difficult time for JPMorgan, which faces an onslaught of government scrutiny.
The tentative $13 billion settlement in the mortgage case would resolve an array of state and federal investigations into the bank’s sale of trouble mortgage investments. The bank, authorities suspect, sold mortgage securities in the run-up to the financial crisis without fully warning investors of the risks.
JPMorgan is also grappling with an investigation into the bank’s decision to hire the sons and daughters of senior Chinese government officials. And Mr. Bharara’s office is examining whether some of the bank’s trading in the energy markets amounted to manipulation.
The Madoff case is particularly thorny. Any action would link the bank to the most notorious financial criminal in more than a generation. Mr. Madoff orchestrated a Ponzi scheme lasting decades that wiped out an estimated $17 billion in cash for his investors. Paper losses reached more than $64 billion.
Mr. Madoff is serving a 150-year sentence in a federal prison in North Carolina after pleading guilty in March 2009. In a 2011 interview from prison, Mr. Madoff told The New York Times that the banks he did business with “had to know.”
Mr. Madoff’s ties to JPMorgan trace to 1986, when it became his primary banker. Over the course of that relationship, Mr. Picard claims, JPMorgan “made at least half a billion dollars in fees and profits” from the relationship.
The bank, according to Mr. Picard’s lawsuit, generated handsome sums by allowing Mr. Madoff’s brokerage firm to “funnel billions of dollars” through its account with JPMorgan, “disregarding its own anti-money laundering duties.”
The bank, starting around 2006, also pursued derivatives deals linked to Mr. Madoff’s so-called feeder-fund investors, the hedge funds that invested their clients’ money with him.
About that time, concerns began to circulate within JPMorgan.
“I do have a few concerns and questions,” one JPMorgan employee wrote in February 2006 after studying some of Mr. Madoff’s trading records, according to an e-mail cited in the lawsuit. “All trades are generated by Madoff’s black box.”
But JPMorgan’s derivatives deals, which allowed investors to collect returns tied to the profits of the feeder funds, took off anyway. By June 2007, JPMorgan’s “Equity Exotics” unit had sold more than $130 million worth of the deals to investors, Mr. Picard’s lawsuit said.
That month, JPMorgan employees sought approval to push the total to $1.32 billion, according to the lawsuit.
On June 15, 2007, when a JPMorgan committee met to ponder the proposal, new suspicions emerged about Mr. Madoff. A senior risk management officer at the bank e-mailed colleagues to report that another bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.” The senior officer added that “I think we owe it to ourselves to investigate further.”
But according to Mr. Picard, the bank’s further research amounted to a phone call with Mr. Madoff and “a Google search with no follow-up.”
Similar concerns were enough to deter JPMorgan’s own private bank from doing business with Mr. Madoff. In an e-mail, a JPMorgan wealth management executive remarked that Mr. Madoff’s “Oz-like signals” were “too difficult to ignore.”
After Mr. Madoff’s arrest in December 2008, Mr. Picard said, a flurry of JPMorgan e-mails captured the lack of surprise at the bank.
One employee, referring to the agenda for the June 2007 meeting, wrote, “Perhaps best this never sees the light of day again!!”
http://dealbook.nytimes.com/2013/10/23/madoff-action-seen-as-possible-for-jpmorgan/
Madoff employees lived high on corporate money, prosecutors say
By Bernard Vaughan
NEW YORK | Mon Oct 21, 2013 6:32pm EDT
http://www.reuters.com/article/2013/10/21/us-madoff-employees-idUSBRE99K16I20131021?feedType=RSS&feedName=businessNews
NEW YORK (Reuters) - Members of Bernard Madoff's inner circle indulged in expensive wine, cruises and jaunts to Las Vegas and St. Barts, all paid for by his investment firm, prosecutors said on Monday in a trial of five former long-time Madoff associates.
The expenses were listed on the corporate credit card statement of portfolio manager Joann Crupi and the personal credit card statements for Daniel Bonventre, two of five people on trial in New York accused of helping Madoff pull off a fraud that cost investors an estimated $19 billion.
Assistant U.S. Attorney John Zach showed jurors Crupi's corporate credit card statements from 2004 through 2008, noting that she took cruises and trips to Las Vegas and Disney World with family members and frequently spent hundreds of dollars on wine at Wine Library in Springfield, New Jersey, where she spent almost $2,000 on one occasion.
Zach asked witness Charlene White, a former employee at Bernard Madoff Securities LLC, whether she observed any behavior by Crupi that would have explained the expenditures as legitimate business expenses.
"In November of 2005 ... did you observe Ms. Crupi passing out almost $2,000 of wine for a Thanksgiving celebration?" Zach asked White.
Zach likewise asked White if events at work could explain the cruises or trips to Las Vegas.
"No," said White, who began working at Madoff's firm in 1993.
Crupi's lawyer, Eric Breslin, objected several times to Zach's questioning of White, the second witness to testify in a trial expected to last as long as five months.
White, a former data entry worker, was not in a position to know what was a legitimate business expense and what was not, Breslin told U.S. District Judge Laura Taylor Swain after the jury was excused for lunch.
Swain ruled that Zach could continue to ask her if she observed wine from Crupi in the office, but not whether the expenses were legitimate.
In addition to Crupi, the defendants include Daniel Bonventre, the director of operations for the firm; Annette Bongiorno, another portfolio manager; and Jerome O'Hara and George Perez, both computer programmers.
All five pleaded not guilty and their lawyers have said they did not know about Madoff's scheme or were merely puppets under Madoff's spell.
Madoff, 75, is serving a 150-year prison sentence after pleading guilty in 2009 to defrauding investors in his investment firm.
White testified that Bonventre would tell her how much he owed on his personal American Express platinum card. The firm would then issue a check - which Bonventre would sign - to pay for it.
One check in 2006, which Zach showed jurors, was for $21,923.18. Zach also showed jurors numerous Bonventre expenses, including a $10,471.95 bill for a hotel in St. Barts in May 2006.
White also testified that she saw the five defendants conversing with former Madoff deputy Frank DiPascali sometime in the 2000s while the firm was being audited.
This was odd, she said, because the defendants were frequently not in the office together. DiPascali, who pleaded guilty, is expected to be a key government witness.
"It was unusual that they would be together, in a conversation," White said.
On cross-examination by lawyers for the defendants, however, White characterized Bonventre as a "very fair" supervisor who always gave her opportunities. She was earning close to $70,000 a year when the firm fell apart, compared to about $24,000 in the early 1990s, she said.
White also said she did not know what the defendants and DiPascali were talking about when she saw them during the audit.
"As far as you know, the conversation could have been about the Mets, or the weather," Breslin said.
White agreed.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Bernard Vaughan; Editing by Richard Chang and Andrew Hay)
http://www.reuters.com/article/2013/10/21/us-madoff-employees-idUSBRE99K16I20131021?feedType=RSS&feedName=businessNews
Madoff employees were puppets of 'grand master,' defense says
By Bernard Vaughan
NEW YORK | Thu Oct 17, 2013 2:57pm EDT
http://www.reuters.com/article/2013/10/17/us-madoff-employees-idUSBRE99G12Y20131017?feedType=RSS&feedName=businessNews
NEW YORK (Reuters) - Lawyers for five former employees of Bernard Madoff said on Thursday their clients were mere puppets under the spell of what one called an enigmatic "broker-dealer rockstar" and "pathological liar."
The former staffers are on trial accused of creating false records and transactions at Bernard Madoff Securities LLC until its implosion in 2008. Investors lost about $19 billion in the scam, prosecutors have said.
"He was a back-office employee in a broker-dealer business," Andrew Frisch said of his client Daniel Bonventre, 66. "Dan believed in Madoff, like so many others."
Madoff, 75, is serving a 150-year prison sentence after pleading guilty in 2009.
On Wednesday, prosecutors appealed to the jurors' common sense, saying Madoff could not possibly have pulled off his scheme, valued as high as $65 billion, without help.
Frisch, the first defense lawyer to make an opening statement on Thursday, said Madoff's employees were spellbound by "the all-knowing, grand master of Wall Street."
Frisch said the part of Madoff's business that conducted the fraud, called investment advisory, was walled off from the broker-dealer business in which he said Bonventre worked, where actual trades were made.
Only Madoff and his long-time deputy, Frank DiPascali, were in on the scam, said Frisch, who repeatedly impugned regulators for missing signs of the fraud.
DiPascali, who pleaded guilty, is expected to be a major government witness.
"DiPascali and Madoff told the pathological lies to regulators," said Frisch. "DiPascali and Madoff told the pathological lies to the same federal government prosecutors in this case."
Roland Riopelle, a lawyer for Annette Bongiorno, also said his client had no knowledge of fraud or intent to commit fraud.
"The government simply cannot prove that she knew there was a fraud and that she intended to hurt anyone," Riopelle said.
Bongiorno began working as Madoff's secretary at the age of 19, around 1968, and advanced to eventually manage customer accounts. She was a "young, naive high school graduate from Queens who felt she was working at a world-class organization," Riopelle said.
Bongiorno has no experience with the securities industry or its regulations, Riopelle said. She never controlled which securities would be bought, instead entering trades into account statements at Madoff's behest.
"All of those decisions were made by Madoff," whom Bongiorno saw as a hero, Riopelle said.
Riopelle also contrasted Bongiorno, who kept records and stayed at the firm immediately after its implosion, with DiPascali and others who have pleaded guilty, who Rioppelle said destroyed or stole documents.
"That was their reaction," Riopelle said. "Not to keep everything in a filing cabinet."
Opening statements by lawyers for the other employees continued on Thursday. They are former portfolio manager Joann Crupi and computer programmers Jerome O'Hara and George Perez.
The 12 jurors and eight alternate jurors generally appeared engaged, except for three, who dozed on Thursday morning, an ominous portent for a trial expected to tackle complex subjects over five months.
U.S. District Judge Laura Taylor Swain assured a juror whose daughter is marrying in March that she "will be walking your daughter down the aisle."
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Bernard Vaughan; Editing by Eddie Evans and Andrew Hay)
http://www.reuters.com/article/2013/10/17/us-madoff-employees-idUSBRE99G12Y20131017?feedType=RSS&feedName=businessNews
Securities and Exchange Commission v. Peter Madoff, Civil Action No. 12-cv-5100 (S.D.N.Y.)
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22845 / October 15, 2013
Securities and Exchange Commission v. Peter Madoff, Civil Action No. 12-cv-5100 (S.D.N.Y.)
The Commission announced today that, on October 11, 2013, the Honorable Laura Taylor Swain, United States District Court for the Southern District of New York, entered a default judgment against Peter Madoff, former chief compliance officer and senior managing director at Bernard L. Madoff Investment Securities LLC (BMIS) from 1969 to 2008.
The Commission’s complaint alleged that Peter Madoff created stacks of compliance documents setting out supposedly robust policies and procedures over BMIS’s investment advisory operations. However, no policies and procedures were ever implemented, and none of the reviews were actually performed even though Peter Madoff represented that he personally completed the reviews.
The SEC’s complaint also alleged that in addition to creating false compliance materials, Peter Madoff created false broker-dealer and investment advisor registration applications filed by BMIS. He also failed to implement and review required policies and procedures, and falsified the firm’s books and records. Peter Madoff was richly rewarded for his misconduct, pocketing tens of millions of dollars through salary and bonuses, fake trades, sham loans, and direct, undocumented transfers of investor funds to himself from the bank account that BMIS used to perpetrate the Ponzi scheme.
Peter Madoff failed to answer, move or otherwise respond to the Commission’s complaint. The default judgment permanently enjoins Peter Madoff from violating or aiding and abetting violations of Sections 10(b), 15(b)(1), 15(c) and 17(a) of the Securities Exchange Act of 1934 and Rules 10b-3, 10b-5, 15b3-1 and 17a-3 thereunder, and Sections 204, 206(1), 206(2), 206(4) and 207 of the Advisers Act of 1940 and Rules 204-2 and 206(4)-7 thereunder. The default judgment orders no monetary relief in light of Peter Madoff’s criminal conviction and the $143 billion in restitution ordered in the parallel criminal proceeding United States v. Peter Madoff, 10 Crim. 228 (S.D.N.Y.) (LTS).
For additional information, see Litigation Release Number 22407 (June 29, 2012).
http://www.sec.gov/litigation/litreleases/2013/lr22845.htm
Implications for banks as Madoff litigation grinds on
Published: Monday, 14 Oct 2013 | 7:22 PM ET
By: Peter J. Henning
http://www.cnbc.com/id/101110890
It has been nearly five years since the Ponzi scheme perpetrated by Bernard L. Madoff came to light, and litigation surrounding the case grinds on.
The trustee seeking to recover funds for defrauded investors, Irving H. Picard, asked the Supreme Court to overturn a lower court decision barring him from pursuing banks for their role in helping perpetuate the fraud.
Meanwhile, the prosecution of five former employees of Mr. Madoff's firm began last week. The criminal trial is likely to expose more tidbits about the operation of the long-running fraud, including lurid details about sexual liaisons among staff members involving perhaps even Mr. Madoff himself. Yet, despite the titillating aspects of the case, it is really more of a footnote to his scheme.
(Watch: Did Madoff act alone?)
The more important case concerns Mr. Picard's efforts to recover funds from a number of banks, including JPMorgan Chase, UBS, HSBC and UniCredit. He accused them of aiding in the Madoff scheme by ignoring warning signs about the fraud that allowed it to grow. As time went on, the scheme cost investors about $17 billion, and wiped out billions more, as they were led to believe the money was safely in their accounts.
The trustee's claim against JPMorgan alone seeks nearly $19 billion, so recovering even a portion of that amount could add significantly to the $9 billion Mr. Picard has already gathered to compensate investors.
As is frequently the case, the issue is not about the banks' role in the fraud—at least not yet. Rather, it focuses on whether certain arcane legal doctrines will permit the lawsuits to move forward. The banks have been successful in obtaining dismissals of the complaints on the ground that Mr. Picard does not have the authority to pursue claims on behalf of the defrauded investors.
The initial problem Mr. Picard faced is a doctrine called "in pari delicto," or mutual fault, which prevents a firm from suing others for their role in its own misconduct. The New York Court of Appeals, the state's highest court, explained in a 2010 decision involving the failed futures firm Refco that this "principle has been wrought in the inmost texture of our common law for at least two centuries."
As the trustee for Mr. Madoff's failed securities firm, Mr. Picard took over its claims—in a sense, "stepping into the shoes" of the entity. That also means any defenses that could be asserted against Mr. Madoff also apply, so his wrongdoing is attributed to Mr. Picard for the purpose of deciding any claim. The in pari delicto rule is usually invoked on the ground that a court will not decide a dispute between two thieves about who gets the loot.
The United States Court of Appeals for the Second Circuit leaned heavily on this doctrine in upholding the dismissal of Mr. Picard's claims against the banks because the losses were equally attributable to Mr. Madoff. It found that the trustee's legal arguments to avoid the impact of the rule "are resourceful, but they all miss the mark."
Play Video
Madoff trustee Picard appealing to Supreme Court
The Madoff case bankruptcy trustee Irving Picard seeks a review by the Supreme Court, in hopes of holding some of the big banks liable, reports CNBC's Scott Cohn.
In his petition to the Supreme Court to review the federal appeals court's decision, Mr. Picard tries to step out of Mr. Madoff's shoes and into those of the investors who can pursue claims against the banks for their role in the Ponzi scheme. He relies primarily on another legal principle called "subrogation," which allows one party to take over the claims of another. This is used most often in the insurance area, where the insurer pays off the policy holder and then seeks compensation from anyone who caused the harm.
Mr. Picard argues that a provision of the law under which he was appointed, the Securities Investor Protection Act, gives him the authority to pursue the investor claims. The statute provides that if payments are made to customers of a failed securities firm by the Securities Investor Protection Corporation, then "in addition to all other rights it may have at law or in equity, [the trustee] shall be subrogated to the claims of such customers."
(Watch: Banks running out of tricks here: Pro)
According to the petition made to the Supreme Court, the appellate court misinterpreted the law by reading it too narrowly to prevent him from suing the banks. He argues that if the lower court's position is not overturned, then "when third parties collaborate with a broker to defraud its customers – something that is inevitable given a Ponzi scheme's unquenchable thirst for more investors and more money – there will never be enough funds available to compensate investors' losses."
Trying to figure out whether the Supreme Court will decide to review a case is almost always a guessing game. The court reviews a very small number of cases out of the thousands of petitions it receives, so the odds are against Mr. Picard's case being considered.
Mr. Picard's brief identifies conflicting decisions by other federal courts about whether a trustee can be subrogated to the claims of investors, which is one ground for the Supreme Court to step in to reconcile differing legal interpretations. But the issues in the case are narrow, so while the dollar figure from Mr. Madoff's fraud is significant, the legal issues may not come up with enough regularity to necessitate further review.
One indicator of potential interest in the case is whether the Supreme Court seeks out the views of the Securities and Exchange Commission on the issues. The S.E.C. has oversight responsibility of the Securities Investor Protection Corporation, and its views could carry some weight if it agrees with Mr. Picard that the federal appeals court misinterpreted the law.
(Read more: As DC deals, bank earnings get off to rough start)
The banking industry is sure to line up against further review, and will argue vehemently on behalf of the appellate court's decision that the case should not proceed further. If Mr. Picard is successful in being able to sue the banks, the potential liability of financial firms could be enormous because to succeed, every Ponzi scheme needs a bank account and other accouterments of financial legitimacy.
The banks have been successful so far in blocking lawsuits seeking to hold them responsible for the extensive losses Mr. Madoff inflicted on his investors. If Mr. Picard is able to switch to a new pair of shoes and pursue them, there is a good chance that he can obtain additional settlements on behalf of investors.
—By Peter J. Henning, The New York Times.
http://www.cnbc.com/id/101110890
Who has time to judge Madoff's associates?
By Bernard Vaughan
NEW YORK | Fri Oct 11, 2013 1:06am EDT
http://www.reuters.com/article/2013/10/11/us-madoff-employees-jury-idUSBRE99A04020131011
NEW YORK (Reuters) - It is hard enough to seat an impartial jury in a case stemming from the biggest Ponzi scheme in history.
But lawyers on both sides of the trial of five former employees of Bernard Madoff are grappling with what may be an even tougher challenge: they must find jurors willing and able to put their lives on hold for nearly half a year.
With so many defendants and so much evidence to present, prosecutors have said the trial could last five months, a fact that has weighed heavily on jury selection, which ran for three days this week and continues next Tuesday.
Even before that, U.S. District Judge Laura Taylor Swain requested a pool of about 400 people, an unusually high number, from which to select 12 jurors and six alternates.
Jury experts and trial veterans said a trial of such length significantly trims the potential pool and can lead to a jury that slews heavily towards the retired, the unemployed and people who work for the government or big companies, which pay employees on jury duty, with unknown effects on verdicts.
"They're in a job where losing half a year doesn't worry them," said Arthur Patterson, a senior vice president with DecisionQuest, a jury consulting firm.
The self-employed, people who own or work for small businesses and those who care for other family members can all run into difficulties in a long trial, which can cause stress and feelings of isolation for jurors.
"There are whole groups of people who are going to claim this would be a hardship and will not sit," said Andrew Lawler, a white-collar defense attorney and former assistant prosecutor in the office that is bringing the case against Madoff's employees. "I think the judge will be sympathetic to anyone who says they can't sit for five months for some legitimate reason," he said.
DISMISSED, DISMISSED
That was certainly borne out this week.
Among those excused was a 65-year-old woman who fretted that the trial would prevent her from helping to care both for her grandkids and for her elderly parents.
Randall Jackson, an assistant U.S. attorney on the prosecution team, had previously said the woman would have made an excellent juror. Reluctantly, he agreed with the judge's decision.
Swain also dismissed a woman who told the judge that the small Internet startup where she works could suffer if she was away for long. She said she was its sole marketing professional.
A business information analyst who said she is the only source of income for her two sons and an unemployed brother was also excused. "This is no good for me," the woman told Swain.
Candidates still under consideration include a retired teacher, an unemployed young woman who is an aspiring illustrator, a technology worker for Time Warner Cable, a part-time art teacher and mother of three, a man who teaches fifth grade, a nurse's aide, an actuary with a Manhattan firm, and a woman who negotiates over-the-counter derivatives for a Canadian bank.
"The fact that it's a long case," the retired teacher, a mother of two, said when Swain asked if she had any concerns about serving. She added that she tutors and substitute teaches part-time.
But is it manageable? asked Swain.
"Yes, it is," the retired teacher said.
At one point, Swain noted that federal jury duty pays $30 a day, subject of course to an ongoing freeze on federal spending that has shut down the U.S. government.
JURORS SUFFER
There are no major studies quantifying the effect of long trials on a jury's eventual verdict. But it is well documented that jurors suffer, even in much shorter trials.
A 1998 study by the National Center for State Courts found that 96 percent of jurors in trials lasting longer than 21 days who responded to a survey experienced stress as a result of sitting on a jury.
In one infamous example, the 2004 corruption trial of former Tyco International Ltd (TYC.N: Quote, Profile, Research, Stock Buzz) executives Dennis Kozlowski and Mark Swartz ended in a mistrial after a holdout juror received a threatening letter. The jurors had complained of a "poisonous" atmosphere in the deliberation room. The executives were eventually convicted in retrials.
Memory and exhaustion pose further issues in a long trial, placing increased importance on alternate jurors, who must step in if jurors have to drop out.
"It's a physically draining experience for everybody involved," said Evan Barr, a white-collar defense lawyer with Steptoe & Johnson and a former assistant U.S. attorney in the Southern District of New York. "The odds are very high that some of those alternates will be seated on the jury by the end."
Patterson, the jury consultant, said jurors often cannot remember witnesses at the end of a long trial. Prosecutors tend to overestimate how much evidence they need to present, he said.
Instructions not to talk to anyone about the case are especially isolating for jurors, said Valerie Hans, a law professor at Cornell University Law School and an expert on the jury system.
"One of the side effects is that you cut off the normal sources of support that people have as they go through life," said Hans, who said her husband once struggled as a juror because he could not confide in her.
"For problems, you very naturally turn to your spouse or others you're close to. This support network is something that we deprive jurors of," Hans said.
The defendants - a director of operations of Madoff's office, two computer programmers and two portfolio managers - are accused of helping Madoff conduct his massive Ponzi scheme, which robbed investors of more than $17 billion.
All five have pleaded not guilty to charges including securities fraud and conspiracy to defraud Madoff's clients.
Madoff, 75, is serving a 150-year prison sentence after pleading guilty in March 2009.
The case is U.S. v. O'Hara, 10-cr-00228, U.S. District Court, Southern District of New York.
(Reporting by Bernard Vaughan; Editing by Eddie Evans and Phil Berlowitz)
http://www.reuters.com/article/2013/10/11/us-madoff-employees-jury-idUSBRE99A04020131011
U.S. watchdog adopts Madoff-inspired reforms for auditors of brokers
By Sarah N. Lynch
12:22pm EDT
http://www.reuters.com/article/2013/10/10/us-audit-broker-watchdog-idUSBRE9990Q120131010?feedType=RSS&feedName=businessNews
WASHINGTON (Reuters) - The U.S. audit watchdog adopted new standards on Thursday that would force auditors to scrutinize securities brokerages more closely, finalizing a long-awaited reform that came about in the wake of Bernard Madoff's $65 billion Ponzi scheme.
The Public Company Accounting Oversight Board, which polices public company auditors, won new powers under the 2010 Dodd-Frank Wall Street reform law to write standards, routinely inspect and discipline the auditors of broker-dealers.
Under the new PCAOB rules, auditors of brokerages that hold custody of client money will be required to conduct reviews of those brokerages' internal controls, make sure the brokerages are complying with federal net capital rules and make sure customer money has not been misappropriated.
The PCAOB also adopted a new standard that applies to auditors of brokers who do not have custody of customer funds, as well as a third standard laying out requirements for how auditors should review "supplemental information" that brokerages often provide to regulators.
Madoff managed to get away with duping investors for so many years in part thanks to his auditor, David Friehling of Friehling & Horowitz, who operated his audit firm out of a strip mall in New City, New York. Friehling pleaded guilty in 2009 to fraud charges but claimed he did not know that Madoff was running a Ponzi scheme. He is awaiting sentencing.
"The new standards will enhance consumer protection by strengthening performance standards for the audit of brokers and dealers in important areas relating to financial soundness and compliance with legal requirements," PCAOB board member Lewis Ferguson said.
The PCAOB was unable to approve the new standards immediately after the enactment of the Dodd-Frank law because it had to wait for the Securities and Exchange Commission to complete related new rules for brokerages.
The SEC's rule, which was adopted in July, requires broker-dealers to file certain reports with regulators and hire an independent public accountant.
The toughest new requirements in the SEC's rule apply to brokers who, like Madoff, have custody of their clients' money, a factor that raises the risk for fraud or misappropriation of funds.
The SEC's rule requires brokerages that have custody of assets to file a "compliance report" with the SEC to verify they are following the agency's capital requirements and customer protection rules. Under the PCAOB's new standard, auditors will be required to scrutinize that document closely.
Brokerages without custody must file an exemption report, and outside auditors must review that report to help verify it under the PCAOB's new standards.
Although the PCAOB adopted the new audit standards only on Thursday, it has been operating an interim inspection program for two years to check auditors' work.
During that time, the PCAOB uncovered widespread flaws and issues with auditors failing to check properly for accounting fraud risks or test controls over customer funds.
In its second annual report released in August, the PCAOB said it uncovered problems in 95 percent of the 60 audits it checked - similar to its findings the prior year.
"We have seen significant compliance problems," PCAOB Chairman Jim Doty said on Thursday. "It is clear many firms will need to significantly improve their work under any set of standards to meet the SEC's requirements and more importantly, the public's expectations."
The PCAOB's standards must be finalized by the SEC before they take effect.
Until then, the PCAOB will continue to run an interim inspection program for broker-dealer auditors until rules for a permanent program can be completed. A rule proposal for a permanent inspection program is expected to be unveiled in 2014 at the earliest.
(Reporting by Sarah N. Lynch; Editing by Karey Van Hall and Dan Grebler)
http://www.reuters.com/article/2013/10/10/us-audit-broker-watchdog-idUSBRE9990Q120131010?feedType=RSS&feedName=businessNews
Lawyers On Quest To Find 12 Jurors For Madoff Trial
By Christopher M. Matthews
October 8, 2013, 3:17 PM ET
http://blogs.wsj.com/law/2013/10/08/lawyers-on-quest-to-find-12-jurors-for-madoff-trial/?mod=WSJBlog
Picking a jury for the criminal trial of five former employees of Bernard L. Madoff was never expected to be easy.
The stunning tale of how the secretive broker swindled investors and evaded regulators for decades is now common knowledge.
Indeed, more than 100 of the prospective jurors said they believed anyone who worked with Mr. Madoff must be guilty, according to the defense lawyers for the five former employees who face criminal charges for allegedly helping him carry out the Ponzi scheme.
All five have pleaded not guilty and say that like everyone else, they were duped by the now-convicted felon serving a 150-year prison term. The defendants plan to argue they were ignorant of Mr. Madoff’s scheme and were fooled by the power of his personality much as his investors were.
U.S. District Judge Laura Taylor Swain questioned potential jurors Tuesday in a federal courtroom in Manhattan on everything from their professions to what television shows they watched to their opinions of the securities industry. Of the more than 400 potential jurors, 165 were excused as of early Tuesday afternoon.
The questioning will likely continue into Wednesday.
The trial – expected to last four or five months – could represent prosecutors’ last, best chance to undermine Mr. Madoff’s insistence that he carried out the fraud essentially alone.
The defendants, who occupied a range of different jobs at Bernard L. Madoff Investment Securities LLC, are accused of securities fraud, creating false books and records and other charges.
Programmers Jerome O’Hara and George Perez are accused of creating phony customer accounts, while portfolio managers Annette Bongiorno and JoAnn Crupi allegedly concocted trading records. Prosecutors say Daniel Bonventre, a former operations director for Mr. Madoff, worked with former top lieutenant to Mr. Madoff, Frank DiPascali Jr., to allegedly gin up phony records.
Since the fraud was first uncovered, Mr. Madoff and eight other people have pleaded guilty for their roles in a fraud that led to an estimated $17 billion in losses for investors.
During the trial, prosecutors will try to knock down the former broker’s repeated assertions that he committed the Ponzi scheme on his own. And the government’s key witness, Mr. DiPascali, will likely testify that his former colleagues helped carry out the fraud.
Defense lawyers meanwhile want to play for jurors a 2007 video of a conference during which Mr. Madoff apparently shows a “super-normal ability to face people down and lie convincingly.”
It’s an important point, say the lawyers, given the view of many prospective jurors that people who worked at the Madoff firm must have known about the fraud. Prosecutors have argued the video is hearsay and irrelevant and asked the court to deny the defense’s request to play it.
Judge Swain has yet to decide on whether to admit the video as evidence.
http://blogs.wsj.com/law/2013/10/08/lawyers-on-quest-to-find-12-jurors-for-madoff-trial/?mod=WSJBlog
Bernard Madoff's inner circle goes on trial
By Bernard Vaughan
NEW YORK | Mon Oct 7, 2013 7:18am EDT
http://www.reuters.com/article/2013/10/07/us-madoff-employees-preview-idUSBRE9960A020131007?feedType=RSS&feedName=businessNews
NEW YORK (Reuters) - Madoff did not do it alone.
That is the message prosecutors will pound home as five of Bernard Madoff's long-time employees go on trial this week accused of enabling his $65 billion Ponzi scheme.
Madoff pleaded guilty in 2009 to defrauding investors at Bernard L. Madoff Investment Securities LLC, which imploded in late 2008. He is serving a 150-year prison sentence.
Madoff said he acted alone, but prosecutors have since charged 15 of his associates.
The five who go on trial on Tuesday were paid handsomely to help Madoff dupe investors and regulators, prosecutors allege. All five have pleaded not guilty and some of them have said in court filings that they did not know about the fraud.
In an indictment in July, prosecutors said the five employees created false records and fabricated exotic-sounding transactions to explain the firm's consistent high returns.
Whether they touted a "convertible arbitrage strategy," a "split-strike conversion strategy" or no particular strategy, "the truth was that Madoff and his co-conspirators - with very rare exception - were not making any trades at all," the indictment said.
The defendants are Daniel Bonventre, the director of operations for the firm's back office, who started working for Madoff around 1968; Annette Bongiorno and Joann Crupi, who managed clients' investment accounts; and computer programmers Jerome O'Hara and George Perez, whom prosecutors say helped the firm deceive the U.S. Securities and Exchange Commission and Internal Revenue Service, among others.
The charges include conspiracy to defraud Madoff's clients, securities fraud and falsifying records of a broker-dealer. U.S. District Judge Laura Taylor Swain, a Brooklyn native known for her calm demeanor, will preside over the trial, which starts with jury selection Tuesday.
Swain has requested a pool of 400 potential jurors, far more than usual, for a trial that could last five months. Long lines spilled out of the federal courthouse in New York on October 1, as potential jurors waited to fill out questionnaires exploring their suitability.
LARGELY CIRCUMSTANTIAL EVIDENCE
A key witness expected for the prosecution is Madoff's deputy and chief financial officer, Frank DiPascali. DiPascali, who worked for Madoff for 33 years, pleaded guilty in 2009 to helping Madoff and others carry out the fraud.
Defense lawyers will try to undermine his credibility, given his seniority at the firm and incentive to seek leniency, said Steven Feldman, a white collar defense lawyer at the law firm Herrick, Feinstein and a prosecutor in the U.S. Attorney's Office in New York from 2002 to 2008.
"You'd characterize him as a crucial piece of the puzzle that the defense is going to attack mercilessly," Feldman said.
The challenge for the prosecution is to prove criminal intent based on largely circumstantial evidence, Feldman said.
"The more complex the fraud and the more technical the fraud, the harder it is to prove that an individual defendant knew that he or she was doing something wrong at the time the alleged crime was committed," Feldman said.
In a pretrial document, lawyers for O'Hara and Perez said the programmers "performed the computer tasks assigned to them mostly by" DiPascali, and that they were "lied to and misled for years" by DiPascali and Madoff.
"We believe that the government has made a tragic mistake as to George Perez, and that the trial will demonstrate that he never became a knowing participant in any of the crimes charged," Perez's lawyer, Larry Krantz, said in an email.
O'Hara's lawyer, Gordon Mehler, said in an email that "we are eager to finally get underway."
Lawyers for Crupi questioned "whether she knew of the fraud at all" in a court document filed in September.
Crupi's lawyer, Eric Breslin, declined to comment. Lawyers for Bonventre and Bongiorno did not return requests for comment.
Prosecutors have also said that four out of the five were involved "in romantic and/or sexual relationships" with each other or with Madoff, although it is unclear if the relationships will be a factor in the trial.
Of the 15 Madoff associates indicted, nine have pleaded guilty. The most recent indictment was that of Paul Konigsberg, an accountant who worked with Madoff's clients, who pleaded not guilty on September 26.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Bernard Vaughan; Editing by Eddie Evans, Bernard Orr)
http://www.reuters.com/article/2013/10/07/us-madoff-employees-preview-idUSBRE9960A020131007?feedType=RSS&feedName=businessNews
Accountant Who Worked With Madoff for Years Is Indicted in Fraud
By PETER LATTMAN
September 26, 2013, 9:02 am
http://dealbook.nytimes.com/2013/09/26/longtime-madoff-accountant-is-arrested/
Federal authorities, broadening their investigation of Bernard L. Madoff’s multibillion-dollar Ponzi scheme five years after the fraud was uncovered, unveiled criminal charges on Thursday against Paul J. Konigsberg, a longtime accountant in Mr. Madoff’s inner circle.
The indictment accuses Mr. Konigsberg of assisting Mr. Madoff in doctoring the false account statements that were central to carrying out the fraud. Prosecutors say Mr. Konigsberg performed services for more than 300 accounts invested with Bernard L. Madoff Securities, including those held by some of the firm’s earliest and wealthiest clients.
“In order to keep his scheme hidden for so long, Madoff needed the assistance of certain willing outsiders that could be trusted to handle otherwise suspicious activity,” the government said. “Madoff directed many of his clients — including some of his most important customers, in whose accounts Madoff executed the most glaring fraudulent transactions — to use Paul J. Konigsberg, the defendant, as their accountant.”
On Wednesday night, Mr. Konigsberg was on the East End of Long Island, in the Hamptons, having dinner with friends at Bobby Van’s Steakhouse. An avid golfer, he and his friends played 18 holes at Sebonack Golf Club earlier in the day and planned another round for Thursday at the Atlantic Golf Club. But those plans were scuttled after Mr. Konigsberg received a late-night call from his lawyer telling him that he had been indicted. He drove back to New York to surrender.
Agents of the Federal Bureau of Investigation arrested him at 7 a.m. Thursday at his lawyers’ Park Avenue offices. In the afternoon, he appeared in Federal District Court in Manhattan and pleaded not guilty to conspiracy and falsifying records and statements. Magistrate Judge Debra Freeman released him on a $2 million bond.
Reed Brodsky, a lawyer for Mr. Konigsberg, attacked the government’s case. He said his client was an innocent victim of Mr. Madoff, and the fake account statements fooled Mr. Konigsberg along with everybody else. He also said Mr. Konigsberg lost $10 million of his own money in the fraud.
“In their witch hunt arising out of the largest Ponzi scheme in history, the government conveniently ignores that Bernie Madoff deceived everyone around him — from the most sophisticated investors to the S.E.C. itself,” said Mr. Brodsky, a partner at Gibson Dunn & Crutcher. “He looks forward to clearing his good name at trial.”
A founding partner of Konigsberg Wolf & Company, a midsize New York accounting firm that is now shuttered, Mr. Konigsberg had close business ties to Mr. Madoff dating to at least 1992, the government said. He was the only person outside the family to own an interest in Mr. Madoff’s business, holding a small stake in his London unit.
The government faces a December deadline to bring additional charges connected to the Madoff case. When Mr. Madoff was arrested on Dec. 11, 2008, after confessing to his sons the night before, it started the clock ticking on a five-year statute of limitations to bring securities fraud accusations.
Federal prosecutors asked Mr. Konigsberg’s lawyers to grant them an extension of the legal deadline, but they refused, leading to the government’s indictment, said a person briefed on the case.
Mr. Madoff, 75, now serving a 150-year prison sentence, says he acted alone. Yet Mr. Konigsberg is the 15th individual criminally charged in the case; nine people, including Mr. Madoff, have pleaded guilty.
On Oct. 7, five of Mr. Madoff’s former employees are scheduled to stand trial on charges that they aided the fraud. Each of the five — Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara and George Perez — worked at the firm for more than 15 years in a variety of low-level roles but ones the government said were crucial to carrying out Mr. Madoff’s long-running fraud.
The trial is likely to last several months, and the defendants are expected to argue that they were manipulated and deceived by their boss.
Prosecutors are weighing additional criminal charges. Among those still under scrutiny is Shana Madoff Swanson, Mr. Madoff’s niece and a former senior lawyer at the firm. Ms. Swanson’s father, Peter Madoff, was Mr. Madoff’s second in command and is serving a 10-year sentence after admitting that he falsified documents and lied to regulators.
The government is also examining the role of JPMorgan Chase. Mr. Madoff moved billions of dollars of investors’ cash in and out of Chase bank accounts until his crimes were uncovered. Investigators are focused on whether the bank failed to conduct adequate due diligence and properly alert regulators, said people with knowledge of the investigation.
A JPMorgan spokesman declined to comment.
Cash losses from the Madoff fraud are estimated at about $17.5 billion, but the paper wealth that was wiped out across about 4,000 investment accounts was more than $64 billion. Irving H. Picard, a bankruptcy trustee, has recovered about $9.4 billion and continues to trace the victims’ money.
Many of those victims were clients of Mr. Konigsberg’s. Trained as a lawyer, Mr. Konigsberg, 77, received a degree from Brooklyn Law School and a master’s in taxation from New York University School of Law. Mr. Konigsberg and his wife, Judith, live in Greenwich, Conn., and have a home in Palm Beach Gardens, Fla. The Konigsbergs socialized with Mr. Madoff and his wife, Ruth, once taking a ski vacation to the Swiss Alps with a group of Madoff associates.
In addition to the lucrative fees he received from his Madoff clients, Mr. Konigsberg also earned compensation directly from Mr. Madoff’s firm, according to the indictment. Mr. Madoff paid him a monthly retainer of $15,000 to $20,000 for providing accounting services to one of his most important clients, the government said.
He worked for a number of Mr. Madoff’s biggest investors, including Carl Shapiro, a Boston businessman, and Mr. Shapiro’s son-in-law, Bob Jaffe, who recruited many Madoff investors in Palm Beach, Fla. In 2010, Mr. Shapiro, Mr. Jaffe and their family members, who held much of their money at JPMorgan Chase, agreed to forfeit $625 million in Madoff profits to the trustee and the Justice Department.
The indictment highlights instances of Mr. Konigsberg working with Mr. Madoff’s firm to illegally backdate trades and create fictitious account activity to minimize his clients’ tax burden.
In addition, the government said that Mr. Konigsberg arranged a no-show job at Mr. Madoff’s firm for a relative who earned more than $320,000 over 17 years without ever working there, plus health benefits.
Mr. Konigsberg is the second outside accountant charged in the Madoff case. David G. Friehling, the longtime auditor for Mr. Madoff’s firm, who worked out of a Rockland County strip shopping mall, has pleaded guilty but has yet to be sentenced.
http://dealbook.nytimes.com/2013/09/26/longtime-madoff-accountant-is-arrested/
SEC Charges Accountant for Madoff Clients for Role in Creating False Books and Records
FOR IMMEDIATE RELEASE
2013-202
SEC complaint
http://www.sec.gov/litigation/complaints/2013/comp-pr2013-202.pdf
Washington D.C., Sept. 26, 2013 — The Securities and Exchange Commission today charged the longtime accountant for many of Bernard Madoff’s oldest and wealthiest clients for his role in the creation of false books and records used in the massive Ponzi scheme.
The SEC alleges that Paul Konigsberg’s assistance resulted in the formation of inaccurate trade confirmations each month as well as the development of phony data and records documenting the fabricated trades that were, in turn, falsely reflected in the ledgers and related books and records at Bernard L. Madoff Investment Securities LLC (BMIS).
“Konigsberg played a vital role in Madoff’s deception of his oldest and wealthiest clients over many years,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Konigsberg’s acquiescence, cooperation, and collaboration were essential to the Madoff fraud.”
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Konigsberg.
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Konigsberg aided and abetted the falsification of books and records at BMIS from at least the mid-1990s to late 2008. Konigsberg provided tax or accounting services for more than 200 BMIS client accounts, including five of Madoff’s wealthiest and oldest clients who invested more than a billion dollars combined in BMIS. Konigsberg received fees directly from BMIS clients for the accounting services that he provided them, and BMIS and Madoff paid him a monthly fee of $15,000 or $20,000 as a “retainer” for providing accounting services to a wealthy and longtime Madoff client and his adult children.
The SEC alleges that Konigsberg coordinated with BMIS staff to:
Decide upon desired investment or tax gains and losses to be manufactured and reflected on BMIS account statements and in BMIS computer systems to ensure his clients enjoyed favorable tax treatment for their purported investment activity.
Confer about backdated trades and fictitious account activity entered into the computer systems to create the desired trading results.
Return or destroy his clients’ true BMIS account statements and design alternative fictitious account activity to be entered into the firm’s books and records and reflected on new phony account statements.
The SEC’s complaint alleges that Konigsberg, who lives in Greenwich, Conn., aided and abetted the BMIS violations of Section 17(a) of the Securities Exchange Act and Rule 17a-3, and Section 204 of the Investment Advisers Act and Rule 204-2. The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctions against Konigsberg.
The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation. The SEC’s investigation is continuing.
###
http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539845290
Here is a list of the once super wealthy - His clients
http://clusterstock.alleyinsider.com/2008/12/bernie-madoff-hosed-client-list
http://www.finalternatives.com/node/6354
a great resource
http://clusterstock.alleyinsider.com/bernie-madoff
WOW for ten years Harry Markopolos was after the SEC
Here is the original news
NEW YORK (Reuters) – Bernard Madoff, a quiet force on Wall Street for decades, was arrested and charged on Thursday with allegedly running a $50 billion "Ponzi scheme" in what may rank among the biggest fraud cases ever.
The former chairman of the Nasdaq Stock Market is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he launched in 1960. But he also ran a hedge fund that U.S. prosecutors said racked up $50 billion of fraudulent losses.
Madoff told senior employees of his firm on Wednesday that "it's all just one big lie" and that it was "basically, a giant Ponzi scheme," with estimated investor losses of about $50 billion, according to the U.S. Attorney's criminal complaint against him.
A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors.
On Thursday, two agents for the U.S. Federal Bureau of Investigation entered Madoff's New York apartment.
"There is no innocent explanation," Madoff said, according to the criminal complaint. He told the agents that it was all his fault, and that he "paid investors with money that wasn't there," according to the complaint.
The $50 billion allegedly lost would make the hedge fund one of the biggest frauds in history. When former energy trading giant Enron filed for bankruptcy in 2001, one of the largest at the time, it had $63.4 billion in assets.
U.S. prosecutors charged Madoff, 70, with a single count of securities fraud. They said he faces up to 20 years in prison and a fine of up to $5 million.
The Securities and Exchange Commission filed separate civil charges against Madoff.
"Our complaint alleges a stunning fraud -- both in terms of scope and duration," said Scott Friestad, the SEC's deputy enforcer. "We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors."
Dan Horwitz, Madoff's lawyer, told reporters outside a downtown Manhattan courtroom where he was charged, "Bernard Madoff is a longstanding leader in the financial services industry. We will fight to get through this unfortunate set of events."
A shaken Madoff stared at the ground as reporters peppered him with questions. He was released after posting a $10 million bond secured by his Manhattan apartment.
Authorities, citing a document filed by Madoff with the U.S. Securities and Exchange Commission on January 7, 2008, said Madoff's investment advisory business served between 11 and 25 clients and had a total of about $17.1 billion in assets under management. Those clients may have included other funds that in turn had many investors.
The SEC said it appeared that virtually all of the assets of his hedge fund business were missing.
CONSISTENT RETURNS
An investor in the hedge fund said it generated consistent returns, which was part of the attraction. Since 2004, annual returns averaged around 8 percent and ranged from 7.3 percent to 9 percent, but last decade returns were typically in the low-double digits, the investor said.
The fund told investors it followed a "split strike conversion" strategy, which entailed owning stock and buying and selling options to limit downside risk, said the investor, who requested anonymity.
Jon Najarian, an acquaintance of Madoff who has traded options for decades, said "Many of us questioned how that strategy could generate those kinds of returns so consistently."
Najarian, co-founder of optionmonster.com, once tried to buy what was then the Cincinnati Stock Exchange when Madoff was a major seatholder on the exchange. Najarian met with Madoff, who rejected his bid.
"He always seemed to be a straight shooter. I was shocked by this news," Najarian said.
'LOCK AND KEY'
Madoff had long kept the financial statements for his hedge fund business under "lock and key," according to prosecutors, and was "cryptic" about the firm. The hedge fund business was located on a separate floor from the market-making business.
Madoff has been conducting a Ponzi scheme since at least 2005, the U.S. said. Around the first week of December, Madoff told a senior employee that hedge fund clients had requested about $7 billion of their money back, and that he was struggling to pay them.
Investors have been pulling money out of hedge funds, even those performing well, in an effort to reduce risk in their portfolios as the global economy weakens.
The fraud alleged here could further encourage investors to pull money from hedge funds.
"This is a major blow to confidence that is already shattered -- anyone on the fence will probably try to take their money out," said Doug Kass, president of hedge fund Seabreeze Partners Management. Kass noted that investors that put in requests to withdraw their money can subsequently decide to leave it in the fund if they wish.
Bernard L. Madoff Investment Securities has more than $700 million in capital, according to its website.
Madoff remains a member of Nasdaq OMX Group Inc's nominating committee, and his firm is a market maker for about 350 Nasdaq stocks, including Apple, EBay and Dell, according to the website.
The website also states that Madoff himself has "a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."
The company's website may be found here: http://www.madoff.com/
(Additional reporting by Christian Plumb, Phil Wahba, Michelle Nichols and Jennifer Ablan in New York and Rachelle Younglai in Washington; Editing by Andre Grenon, Bernard Orr and Alex Richardson)
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