Bernard Madoff's inner circle goes on trial

NEW YORK Mon Oct 7, 2013 7:18am EDT

Convicted swindler Bernard Madoff (C) enters his plea of guilty in Manhattan Federal Court in this courtroom drawing March 12, 2009. REUTERS/Shirley Shepard

Convicted swindler Bernard Madoff (C) enters his plea of guilty in Manhattan Federal Court in this courtroom drawing March 12, 2009.

Credit: Reuters/Shirley Shepard

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)

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Comments (6)
waggg wrote:
All they are doing is tying up loose ends to the massive sham/theft. Where are the Madoffs, who enriched themselves the most? Not where we are led to believe they are. So they orchestrate this sham trial and charge some middle level people who were just taking orders. American Just-US!

Oct 07, 2013 8:36am EDT  --  Report as abuse
matthewslyman wrote:
As a computer software developer, I simply don’t believe that a system of this complexity could have been designed without the programmers having some idea about what it was designed to do! Seriously, how can you design a system to cook the books, or a system to retrospectively generate fraudulent trading statements, unless you have some degree of knowledge that those financial statements are fraudulent?
The only question is, to WHAT DEGREE did they realise the maliciousness of the design they were working on…

Oct 07, 2013 8:49am EDT  --  Report as abuse
matthewslyman wrote:
…Thinking about this a little further, if I had been DiPascali, I would probably have said something along these lines to the software developers:
“We use a top-secret trading strategy that would not work so well if our competitors could understand it. We need to keep the lid on our trading strategy. The end results of the trading are the same: massive profits. So quid pro quo, our clients shouldn’t care which strategy we’ve used to do it! All we need is a system to enable our clients to fulfil the legal requirements of the IRS for some justification about how they made their capital gains; without tipping anyone off to the recipe of our ‘secret sauce’.”
— I can see how software developers might be hoodwinked into lowering their guard slightly, but I still can’t see how this would have made it past the “sniff test” for a moral, upstanding, professional developer.

Oct 07, 2013 9:05am EDT  --  Report as abuse
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