February 25, 2010 / 1:36 PM / 8 years ago

U.S. accuses ex-Madoff exec with broad role in fraud

NEW YORK (Reuters) - A former executive for imprisoned swindler Bernard Madoff’s firm was arrested on Thursday on charges of concealing the scope of the multibillion-dollar fraud and using at least $750 million of investor money to support the company’s trading arm.

Daniel Bonventre, was described by investigators as the director of operations of the Madoff firm from at least 1978 until its collapse in December 2008, when Madoff was arrested.

Investigators and the trustee winding down Bernard L. Madoff Investment Securities LLC (BLMIS) have said the fraud took place in the firm’s investment advisory arm (IA), but the charges against Bonventre directly link the investment and proprietary trading operations.

Madoff’s brother, Peter, and sons, Andrew and Mark, were executives in the trading unit. They are not among six people criminally charged.

Madoff, 71, pleaded guilty in March to running Wall Street’s biggest investment fraud of as much as $65 billion. He is serving a 150-year prison sentence.

U.S. prosecutors and the FBI said in a statement that Bonventre, 63, who started working for Madoff in 1968, had broad responsibility for the general ledger, financial statements, accounting records and supervising back office staff.

Bonventre is accused of concealing the scope of the investment arm’s operations and understating BLMIS’s liabilities by billions of dollars, prosecutors said.

“From 1997 to 2008, more than $750 million of IA investor funds were used to support BLMIS’s market making and proprietary trading operations, but were accounted for on BLMIS’s books and records, including the general ledger, so as to conceal the true source of the funds,” they said.

Bonventre supervised “the use and reconciliation of BLMIS bank accounts through which the market making, proprietary trading, and IA business operations were funded.”

He also supervised “settlement and clearing of trades executed by the market making and proprietary trading operations.”

Investigators say few equity securities trades were ever bought or sold on behalf of IA clients. Madoff admitted to running a classic Ponzi scheme in which early investors are paid with the money of new clients. It was exposed during the market downturn when an overwhelming number of redemption requests were received.

U.S. Magistrate Judge Theodore Katz ordered Bonventre released on a $5 million bond. Bonventre, who was arrested at his Manhattan apartment by the FBI on Thursday, said nothing at his initial court appearance. His lawyer, Andrew Frisch, had no immediate comment.

Prosecutors, who have told judges their investigation hinges on the extensive cooperation provided by Madoff’s longtime right-hand man Frank DiPascali, vowed to catch everyone involved in the global multibillion-dollar fraud.

The criminal complaint with which Bonventre is charged describes how he worked with Madoff, DiPascali, two computer programmers and unidentified others to keep the deception going.

“He fabricated basic financial documents to conceal the dire condition of a financial empire that was really a house of cards,” FBI Assistant Director-in-Charge Joseph Demarest said.

DiPascali pleaded guilty in August and is awaiting sentencing. The firm’s outside accountant, David Friehling, has also pleaded guilty and is cooperating while awaiting sentencing, court records show.

Two computer programmers, Jerome O’Hara and George Perez, were charged in November.

Bonventre is charged with securities fraud, conspiracy to commit securities fraud, falsifying books and records of a broker-dealer, false filings with the U.S. Securities and Exchange Commission and filing false tax returns. He faces a maximum sentence totaling 77 years in prison.

In a separate civil action, the SEC charged him with falsifying accounting records and siphoning at least $1.9 million in investor funds into a personal BLMIS account.

The case is USA v Daniel Bonventre, U.S. District Court for the Southern District of New York, No. 10-mag-385.

Reporting by Grant McCool; Editing by Dave Zimmerman, Maureen Bavdek, Tim Dobbyn and Leslie Gevirtz

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