NEW YORK (Reuters) - Bernard Madoff’s multibillion-dollar fraud began in the early 1970s with several employees working together to fake records when no trades actually took place, a former trader at Madoff’s firm said in pleading guilty to criminal charges on Monday.
The former trader, David Kugel, told a Manhattan federal court judge that he and two other longtime Madoff employees, Annette Bongiorno and Joann Crupi, used rates of returns on client statements that were pre-determined by Madoff himself.
“I worked together with them to create the false trades and make them appear on investment advisor client statements and confirmations,” Kugel, 66, said in admitting to six charges.
Kugel, who is cooperating with the government investigation, said the trades were executed only on paper. “Specifically between the early 1970s to December 2008 I helped create fake back-dated trades.”
Kugel told the court that he and other employees defrauded banks by using false information to obtain loans. He could face up to 30 years in prison on a charge of bank fraud, but he is cooperating with the government.
When Madoff pleaded guilty in March 2009, he admitted to having begun his fraud in the 1990s, so Kugel’s cooperation and admissions confirm suspicions that the scheme had gone on for much longer.
The U.S. Securities and Exchange Commission, which has been criticized for not catching Madoff, said on Monday that it had filed civil charges against Kugel.
The SEC said that Kugel was asked by Madoff to provide the firm’s investment advisory unit with backdated arbitrage trade information to be changed into fictitious trading on investors’ account statements. The agency accused Kugel of withdrawing nearly $10 million in “profits” from the fictitious trading over several years.
Other former employees are cooperating with the government as part of plea bargains, including Madoff’s former right-hand man, Frank DiPascali. He is under house arrest.
Bongiorno and Crupi have pleaded not guilty to criminal charges of helping Madoff run a Ponzi scheme that prosecutors have said amounted to as much as $65 billion. A Ponzi scheme is one in which early investors are paid with the money of new clients.
One of Bongiorno’s lawyers, Maurice Sercarz, said in a statement that he believed Kugel was facing an effective life prison term and “decided to apportion blame to our client. Annette Bongiorno denies any conspiracy with Mr Kugel.”
Crupi’s lawyer was not immediately available to comment.
U.S. prosecutors publicly released a letter last Wednesday telling the judge that Kugel was ready to plead guilty [ID:nN1E7AF223].
Bernard L. Madoff Investment Securities LLC collapsed with the December 2008 arrest of Madoff. The disgraced financier pleaded guilty three months later and is serving a 150-year prison term.
Kugel was released on $3 million bail with strict travel restrictions by U.S. District Judge Laura Taylor Swain after pleading guilty to charges including bank fraud, securities fraud, conspiracy and falsifying records.
The case is USA v David Kugel, U.S. District Court for the Southern District of New York, No. 10-228.
Reporting by Grant McCool in New York; editing by John Wallace, Dave Zimmerman