Five former employees of Bernard L. Madoff on trial over allegations they aided in his $17 billion fraud probably scrapped plea talks involving harsh prison terms to gamble for total exoneration from a jury, ex-prosecutors said.
The U.S. had little reason to offer the group leniency in exchange for testimony against others, since Madoff and his top aides had already pleaded guilty, said Philip Hilder, a former federal prosecutor in Houston who represents defendants accused of white-collar crimes.
“It’s kind of like an airline that only has a couple seats remaining on a flight,” said Hilder, who ran the U.S. Justice Department’s organized crime strike force in Houston in the late 1980s. “There’s no reason to give a discount. They charge a full fare. That principle applies here too.”
U.S. District Judge Laura Taylor Swain in Manhattan is scheduled tomorrow to continue with jury selection, which started a week ago, with opening statements to follow. Twelve jurors and six alternates will hear what may become the fullest account of how Madoff carried out the biggest Ponzi scheme in U.S. history.
The former employees, all of whom have pleaded not guilty, are Annette Bongiorno, Madoff’s personal secretary, who worked with him for 40 years and helped recruit investors; Joann Crupi, a manager of large accounts at Madoff’s investment firm; Daniel Bonventre, operations chief; and computer programmers Jerome O’Hara and George Perez.
The five stand out for opting to challenge the strength of the government’s evidence after prosecutors secured guilty pleas from their bosses, an uncommon strategy in white-collar cases.
Three of the five were offered plea agreements that were turned down, and two had talks with prosecutors that failed to lead to formal offers, according to two people familiar with the matter who asked not to be identified because they weren’t authorized to discuss the negotiations.
Madoff, 75, admitted to federal agents in December 2008 that his company was a sham. He pleaded guilty to 11 counts and was sentenced to 150 years in prison.
The U.S. in 2009 won a guilty plea from Frank DiPascali, Madoff’s finance chief, who agreed to assist with the criminal case and is to testify. David Friehling, an accountant for Madoff, pleaded guilty to helping prepare phony tax returns and is cooperating with prosecutors.
Federal authorities also obtained guilty pleas from Peter Madoff, who helped his brother run the firm for four decades, and employees Craig Kugel, David Kugel, Enrica Cotellessa-Pitz, Irwin Lipkin and Eric Lipkin.
Peter Madoff was sentenced to 10 years in prison. The other defendants haven’t been sentenced.
The earlier guilty pleas may have deprived the remaining defendants of anyone to testify against, said Marcos Jimenez, a former U.S. attorney in Miami who’s now a criminal defense lawyer with McDermott Will & Emery LLP.
“When the people higher up the food chain have already pleaded guilty, the only people left to go after are the ones who reported to them,” Jimenez said in a phone interview. “They probably figured it would be better to take a shot with a jury exonerating them” and “hope the jury will give them a break because they were low-level employees.”
The defendants might have refused to plead guilty because they simply didn’t know about Madoff’s fraud and didn’t help him cover it up, said Hilder.
“There may be a lot of what seems to be evidence out there, but we’re not the judge or jury, and they have a presumption of innocence,” the lawyer said.
Bonventre’s lawyer, Andrew Frisch, declined to comment on any plea discussions that may have taken place. Eric Breslin, a lawyer for Crupi, didn’t return a call seeking comment on any talks.
Roland Riopelle, Bongiorno’s lawyer, declined to discuss details of his negotiations with prosecutors and said his client has “protested her innocence throughout.” Almost all of her assets have been seized, requiring the government to pay for her defense at a rate of $100 an hour, he said.
“Every cent she ever got out of this alleged conspiracy has been forfeited,” Riopelle said in a phone interview. “At this point, what’s the point of putting her in jail for the rest of her life?”
O’Hara and Perez, who started at the firm in the early 1990s, were charged with helping Madoff conceal his fraud for years by using computer codes and algorithms. The government offered both plea bargains that were turned down.
“O’Hara has steadfastly maintained his innocence for almost five years, and that’s why he’s going to trial,” his lawyer, Gordon Mehler, said in a phone interview.
Larry Krantz, a lawyer for Perez, didn’t return a message seeking comment on the plea talks.
In a pre-trial request filed with the court yesterday, Krantz asked Swain to block a government witness, Matthew Cohen from the consulting company Alix Partners, from discussing some aspects of his conversations with Perez in the days after Madoff’s arrest in December 2008 that the government has construed is an admission of guilt. Alix had been hired to help probe the workings of Madoff’s company after his arrest.
Perez seeks to block Cohen from testifying that Perez told him he and O’Hara didn’t understand the computer code because it had been written by an employee who died earlier that year and that they were “just there to keep the system running,” according to the filing. Krantz argued the statement is inadmissible because it doesn’t relate to the charges.
Plea bargains may also be unappealing to defendants because they include giving up cash, often leaving the accused criminal broke, said W. James Payne, a criminal defense lawyer in Shallotte, North Carolina.
“The government always looks to forfeiture,” Payne, who isn’t involved in the case, said in a phone interview. Forfeited assets, he said, may also include vehicles and homes.
Julie Bolcer, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, didn’t reply to an e-mail message requesting comment about plea negotiations.
DiPascali’s testimony, while central to the government’s case, might also be the key to a win for the defendants, Jimenez said.
“Clearly a big part of the defense strategy will be to convince at least one juror that he’s trying to pin blame for his conduct on others,” Jimenez said. “His credibility rightfully should be questioned.”
It’s possible the defense attorneys will seek to convince the jury that even if the defendants were involved in the fraud, they are being served up by their former bosses who were more responsible, Jimenez said.
“Jurors are human beings, and in our system of justice they can acquit a defendant without giving a reason,” Jimenez said. “If a defense attorney is able to convince at least one juror that their client should get a pass, that could happen, though in this case the odds of that are not great.”
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Erik Larson in federal court in Manhattan at email@example.com