May 6, 2009 / 3:14 PM / in 10 years

Madoff firm "piggy bank" for family, inner circle

NEW YORK (Reuters) - Swindler Bernard Madoff’s firm was a “piggy bank” that enriched his extended family, supported their lavish lifestyle and paid for the house or personal expenses of at least two loyal longtime employees, according to court documents.

Booking mug shot of Bernard Madoff released to Reuters on March 17, 2009. REUTERS/UNITED STATES MARSHALS SERVICE/FOIA/Handout

The papers, filed on Tuesday night by the court-appointed trustee winding down the firm to recover assets for defrauded customers worldwide, provide more details about the $65 billion fraud to which Madoff pleaded guilty on March 12.

For decades “Bernard L. Madoff Investment Securities (BLMIS) was Bernie Madoff and Bernie Madoff was BLMIS, each the alter ego of the other” lawyers for trustee Irving Picard said in the filing in U.S. Bankruptcy Court in New York.

“This entanglement permitted Madoff, at his whim and desire, to engage in innumerable financial transactions wherein he essentially used BLMIS as his personal ‘piggy bank’ having BLMIS pay for his lavish lifestyle and that of his family.

“Madoff used BLMIS to siphon funds which were, in reality, other people’s money, for his personal use and the benefit of his inner circle. Plain and simple, he stole it.”

Picard’s lawyers have said they have recovered only about $1 billion so far, but they have asked investors to voluntarily return about $735 million in profits and sought billions from so-called “feeder funds” that dealt with Madoff.

Madoff’s firm funneled millions to the extended family, paid their country club memberships, salaries of boat captains, housekeepers and others who did not work for the company, according to the documents. Several family members had corporate

credit cards paid for even though they were not employed with the firm.

The boat captain of one longtime employee, Frank DiPascali, was on the company payroll, according to the filing.

Only Madoff and his outside accountant have been charged in the scandal that led to calls for tighter regulation of Wall Street, but Fortune magazine reported in April that DiPascali, Madoff’s top deputy of 33 years, is trying to negotiate a plea bargain with federal prosecutors

DiPascali’s lawyer did not return calls for comment.

The documents said the firm paid for the purchase of a $2.2 million suburban home in New Jersey for JoAnn Crupi, who worked for Madoff’s investment advisory unit for 25 years.

A lawyer for Crupi did not return calls for comment.

The trustee argues the personal wealth and Madoff firm are inseparable and any proceeds are due to his defrauded customers. He revealed the details in a motion seeking to consolidate two cases before the bankruptcy court.

Two trustees, Picard for the firm and lawyer Alan Nisselson for the personal assets, have been approved by a judge.

“This motion makes little difference,” said Jonathan Landers, a lawyer who petitioned on behalf of investors to get personal assets under court control. “The two trustees are going to try to work well together.”

Madoff, 71, was arrested last December for running a massive Ponzi scheme in which early investors are paid with the money of new clients. He is jailed awaiting sentencing in June.

Madoff’s lawyer Ira Lee Sorkin declined comment on the trustee’s filing as did Peter Chavkin, a lawyer for the swindler’s wife Ruth Madoff. Lawyers for other family members were not immediately reached to comment.

The cases are Securities Investor Protection Corp (SIPC) v Bernard L. Madoff Investment Securities 08-01789 and Bernard L. Madoff 09-11893 in U.S. Bankruptcy Court for the Southern District of New York (Manhattan)

Reporting by Grant McCool; Editing by Derek Caney and Andre Grenon

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