Madoff aides convicted in Ponzi trial

Five former aides to Bernard Madoff were found guilty of helping run the biggest Ponzi scheme in U.S. history

Mar 24, 2014 @ 4:50 pm

Joann Crupi, a former employee of Bernard L. Madoff Investments Securities LLC, exits federal court in New York
+ Zoom
Joann Crupi, a former employee of Bernard L. Madoff Investments Securities LLC, exits federal court in New York (Bloomberg News)

Five former aides to Bernard Madoff who spent decades working for his firm were found guilty of helping run the biggest Ponzi scheme in U.S. history, a $17.5 billion fraud exposed by the 2008 financial crisis.

The three men and two women, hired by Mr. Madoff with little financial experience, were convicted on all counts. The defendants failed to persuade a federal jury in Manhattan they were ignorant of the fraud despite being part of the inner circle at his New York-based firm.

Hatched in the 1970s, Mr. Madoff's fraud targeted thousands of wealthy investors, Jewish charities, celebrities and retirees. It unraveled in 2008 when the economic crisis led to more withdrawals than Mr. Madoff could afford to pay out. In addition to $17.5 billion in principal, it erased about $47 billion in fake profit that customers thought was being held in their accounts.

Today's verdict, after five months of testimony and four days of deliberations, is a major victory for the U.S. government, coming in the only criminal trial brought in the five years since the scam was revealed. Mr. Madoff refused to cooperate with prosecutors.

Some clients learned they lost their life savings after Mr. Madoff's confession and arrest on Dec. 11, 2008, leading to criticism of regulators who repeatedly overlooked the scam. Mr. Madoff, 75, pleaded guilty the next year and is serving 150 years in a North Carolina prison.

BEGAN PROBE

Prosecutors began probing Mr. Madoff's highest-ranking employees soon after his arrest. While the con man claimed to have carried out the fraud alone, several of his former workers later pleaded guilty, including his ex-finance chief, Frank DiPascali, who testified at the trial as the government's key witness.

The defendants are Annette Bongiorno, who ran the investment advisory unit at the center of the fraud; Joann Crupi, who managed large accounts; Daniel Bonventre, the ex- operations chief of Madoff's broker-dealer; and computer programmers George Perez and Jerome O'Hara, accused of automating the scam as it grew rapidly in the 1990s.

“As the jury unanimously found, these five defendants played crucial roles in constructing and maintaining the house of cards that was the Madoff investment fraud,” Manhattan U.S. Attorney Preet Bharara said in a statement.

The convictions “demonstrate what we have believed from the earliest stages of the investigation: this largest-ever Ponzi scheme could not have been the work of one person,” Mr. Bharara said. “The trial established that the Madoff fraud began at least as far back as the early 1970s, decades before it came to light.”

Some of the defendants lowered their heads as the verdict was read. Ms. Crupi clasped her hands while Mr. Bongiorno wrote on the verdict sheet, nodding as each count was read.

Testimony began in October with industry experts, accountants, tax employees, federal agents and former clerical staff who worked at Bernard L. Madoff Investment Securities LLC's offices on three floors of a lipstick-shaped Midtown Manhattan skyscraper. They all gave evidence against the former employees, some of whom worked for Mr. Madoff since the 1960s and left extensive paper trails found in storage boxes, filing cabinets and 1980s-era computer systems.

TRICKED CUSTOMERS

The defendants were accused in a 31-count indictment of conspiring to use millions of fake account statements and false trade confirmations to trick customers into believing they owned shares in the world's biggest companies. Instead, prosecutors said, the victims' money was used to enrich the firm's wealthiest clients, give conspirators exorbitant pay and bonuses and keep the Ponzi scheme afloat.

Mr. Madoff's scam, disguised as an exclusive investment- advisory business, was made popular by its steady returns, even when the economy struggled. The success of Madoff's broker- dealer business and his extensive ties on Wall Street and in New York politics added to his allure.

The trial made public the greatest detail yet how Madoff was able to dupe the Securities and Exchange Commission and other investigators during audits. The defendants banded together during late-night sessions to create hundreds of fake statements showing new trading strategies and create fake reports showing their securities holdings, witnesses said.

The former colleagues got rich off the fraud, benefiting from backdated trades in their personal investment advisory accounts, as well as inflated salaries and bonuses intended to buy their loyalty and silence, prosecutors said. They used the stolen cash to buy mansions, yachts and beach homes and pay for country club memberships and private schools, prosecutors said.

Some of the defendants were also accused of disguising untaxed income as business expenses, using corporate credit cards to pay for tropical cruises, family vacations and expensive wines and meals for years without paying it back.

The jury rejected claims by the five former aides that Mr. Madoff duped them into carrying out his fraud by giving them tasks that prevented them from seeing the big picture. Several of the defendants claimed they thought the trading was taking place in London, and that the trades depicted on customer statements were coming out of Mr. Madoff's inventory of securities.

Defense lawyers argued the five co-workers were kept in the dark about the fraud and were tricked by Mr. Madoff's personality. Ms. Crupi's lawyer, Eric Breslin, compared Madoff in October to “the Great Oz” hiding behind a curtain with his employees seeing him as “almost a god.”

The U.S.'s case was bolstered by testimony from five of former Mr. Madoff employees who pleaded guilty and agreed to cooperate, including the former finance chief, DiPascali, who spent 17 days on the witness stand.

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 23

Webcast

Active Isn't Dead: The Case for Refining Your Clients' Portfolios

There is a myth that active investment managers cannot outperform their benchmarks. But the death of active investing has been greatly exaggerated.The economic climate in the past eight years has generally been conducive for U.S.... Learn more

Accepted for 1 CE Credit from the CFP Board. Approved by IMCA for 1 CIMA®/CIMC®/CPWA® CE credit. Approved for 1 CFA Credit.

Latest news & opinion

DOL Fiduciary Rule: What you need to know about Acosta's decision

Labor Secretary Alexander Acosta confirmed that the agency's fiduciary rule will become applicable on June 9. Find out what advisers and firms should know when it goes into effect.

Acosta declines to extend delay of DOL fiduciary rule

Labor Secretary finds no legal basis to delay implementation; rule to become applicable June 9

Phyllis Borzi says opponents of DOL fiduciary rule face uphill climb to further delay or dilute it

Former assistant Labor secretary who crafted the rule says President Trump won't be able to get rid of it simply because he doesn't like it.

Advisers go on the offensive, getting clients ready for the next market correction

Some proactive planners are spelling out for clients the impact of a 10% or 20% correction.

Shrinking talent pool puts strain on advisory firms

Attrition, cuts in training programs and new competition make it difficult to fill job openings

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print