Five ex-employees of Bernard Madoff on trial accused of aiding his $17 billion fraud seek to “embarrass” Securities and Exchange Commission witnesses by asking about bungled Madoff audits, prosecutors say.
Five ex-employees of Bernard Madoff, on trial accused of aiding his $17 billion fraud, will seek to “embarrass” Securities and Exchange Commission witnesses by asking about bungled Madoff audits, prosecutors contend.
The questions, to be asked on cross-examination, should be barred because the SEC employees who will testify began probing only after Mr. 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 Mr. 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, all of whom have pleaded not guilty. Prosecutors haven'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 Judge Swain that 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.
Beginning in 1992, the SEC 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 Mr. Madoff when catching him in lies, the commission 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 Mr. 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 that 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. Judge Swain said the trial, in its third week of testimony, may last five months.
Mr. 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 also are seeking permission to tell the jury about the guilty pleas of Madoff co-conspirators who aren't testifying in the trial, including Mr. Madoff's brother, Peter Madoff, who worked for the company for decades and is serving a 10-year sentence.
“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.”
(Bloomberg News)
