Madoff Must Have Had Help, Lawyers Say, Citing Trustee Report
By David Glovin, David Voreacos and David Scheer
Feb. 24 (Bloomberg) -- A bankruptcy trustee’s finding that Bernard Madoff didn’t trade any securities for more than a decade may show that the money manager couldn’t have acted alone in what the U.S. alleged was the largest Ponzi scheme in history.
Madoff was arrested for securities fraud on Dec. 11 after confessing that his firm was “one big lie” and that the $50 billion scam was “all his fault,” according to an FBI affidavit. He told a federal agent that he’d “personally traded” for clients, according to the complaint.
Irving Picard, the trustee liquidating Madoff’s New York securities firm, cast fresh doubt on his claim with a Feb. 20 presentation to investors. Picard said he found no trace of stock trades on their behalf by Bernard L. Madoff Investment Securities LLC for as much as 13 years.
James Ratley, president of the Association of Certified Fraud Examiners, said he’s convinced Madoff was lying to the FBI. The New York money manager must have had help if he defrauded thousands of clients as prosecutors claim, Ratley said.
“In order for him to have done this by himself, he would have had to have been at work night and day, no vacation and no time off,” Ratley said in an interview. “He would have had to nurture the Ponzi scheme daily. What happened when he was gone? Who handled it when somebody called in while he was on vacation and said, ‘I need access to money’?”
No Clues
Since Madoff’s arrest, federal prosecutors in New York have offered no clues about how the scheme worked. Madoff, 70, remains under house arrest in his Manhattan apartment. He hasn’t formally entered a plea to the securities fraud charge. His lawyer, Ira Sorkin, declined to comment on whether Madoff had help in the alleged scheme. If convicted, Madoff faces as much as 20 years in prison and a $5 million fine.
Madoff’s securities firm went into liquidation on Dec. 15. Picard, named trustee of the firm, is now seeking to recover assets for the brokerage’s clients. On Feb. 20, he told them at a meeting in U.S. Bankruptcy Court in Manhattan that the firm appeared to be run on a “cash-in-and-cash-out” basis, without any actual trades.
That’s not what Madoff told clients. A copy of a single customer statement from November shows a client holding dozens of positions in U.S. Treasury bills and blue-chip stocks such as Exxon Mobil Corp., General Electric Co. and Chevron Corp. The trades occurred almost weekly, according to the statement. Madoff said he used a split-strike conversion strategy, buying shares of large U.S. companies and entering into options contracts, to limit risk, according to hedge fund adviser Aksia LLC.
‘Administrative Perspective’
“Simply from an administrative perspective, the act of putting together the various account statements, which did show trading activity, has to involve a number of people,” said Tom Dewey, a securities lawyer at Dewey Pegno & Kramarsky in New York.
“You would need office and support personnel, people who actually knew what the market prices were for the securities that were being traded,” Dewey said in an interview. “You would need accountants so that the internal documents reconcile with the documents being sent to customers at least on a superficial basis.”
George Jackson, a lawyer at Bryan Cave LLP and a former federal tax prosecutor in Chicago, said Madoff may be seeking to “fall on his sword” to protect others in the scheme. He said it’s almost impossible that Madoff could pull it off without help from colleagues in his 17th floor Manhattan offices, where prosecutors claim the alleged fraud was run.
Madoff Veteran
Among those colleagues were Frank DiPascali, a 33-year Madoff veteran who called himself chief financial officer; Annette Bongiorno, Madoff’s former personal secretary; and staffers Jo Ann “Jodi” Crupi, Robert Cardile, Erin Reardon and Winny Jackson, according to court documents, lawyers and Madoff investors. There were two computer programmers as well, according to an ex-Madoff employee.
DiPascali’s lawyer, Marc Mukasey, didn’t immediately return calls and an e-mail seeking comment. Bongiorno and Cardile, as well as Crupi’s attorney Eric Breslin, Reardon attorney Mary Jane Dobbs and Jackson’s lawyer David Wikstrom, didn’t return calls seeking comment. Andrew Lankler, a lawyer for Madoff accountant David Friehling, didn’t return a call seeking comment.
The Federal Bureau of Investigation will want to know who generated the customer statements, reported profits and losses to the Internal Revenue Service and managed day-to-day operations, Bryan Cave’s George Jackson said. Crupi and Bongiorno’s names are at the bottom of client notices asking them to confirm Social Security numbers, according to copies of Madoff firm documents.
‘Substantial Amount’
The investigation may take a “substantial amount of time,” Dewey said. “You’re talking about activities that have gone on, or not gone on, for decades.”
Columbia University Law School professor John Coffee said he expects Madoff’s subordinates to “come running to cooperate” with prosecutors in exchange for leniency.
“Someone had to creatively imagine what to tell all those clients,” Coffee said in an interview.
Coffee also said prosecutors may bring charges against managers of any feeder funds that invested with Madoff after getting kickbacks.
“If prosecutors can show a kickback or any kind of undisclosed payments to feeder funds, then it will be much simpler for private investors to sue those feeder funds and it can support indictment under the mail and wire fraud statutes,” Coffee said.
The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; David Glovin in New York federal court at dglovin@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net.
Last Updated: February 24, 2009 00:01 EST |
