Bernard Madoff’s account statements were full of discrepancies that could be found by comparing the purported trades to published data, a forensic accountant told jurors in the trial of five of the con man’s former employees.
The majority of securities trades on the customer statements exceeded actual market volume for the indicated day or had prices outside the reported range of highs and lows, Bruce Dubinsky, a government witness who analyzed the fraud in 2011, testified today in federal court in Manhattan.
In other cases, trades would “magically” move from original statements to other versions of the same document, Dubinsky said. “Things would appear and disappear -- it was smoke and mirrors with account statements.”
Dubinsky’s commissioned report on the fraud is being used in civil lawsuits by Irving Picard, the trustee liquidating the defunct company to help repay victims. The report will help the 12-member jury understand exactly how Madoff’s company operated the “world’s biggest Ponzi scheme,” Dubinsky said.
Dubinsky told jurors he often found the real trading prices and volumes by searching newspapers in the New York Public Library and other pre-digital sources. He also looked for historical dividend payments and other data points from the real world to see if they appeared on Madoff’s statements.
The five defendants, accused of creating millions of fake documents to trick customers and regulators, are Annette Bongiorno, who worked for Madoff for 40 years; Daniel Bonventre, who oversaw Madoff’s broker-dealer and proprietary trading units; Joann Crupi, who managed large accounts, and computer programmers George Perez and Jerome O’Hara.
Bongiorno and Crupi, who ran Madoff’s investment advisory business at the center of the fraud, used a mix of trading data to create fake statements that appeared real, while Perez and O’Hara wrote computer code to help automate the process, the U.S. alleges. All five former employees deny any wrongdoing and say Madoff duped them for years.
Several examples of false documents were displayed on flat-screen monitors in the jury box today, including statements for the accounting investment firm Avellino & Bienes, a so-called feeder fund that directed clients’ money into Madoff’s securities company starting decades ago.
One such statement showed Madoff bought 3,594 shares of Cooper Industries for about $404,000 on May 19, 1980. Dubinsky checked New York Stock Exchange data for that day and found “no volume traded that day” for the company, he said.
“There are many, many, many examples of that,” Dubinsky said.
Dubinsky, who said he examined millions of corporate documents and deconstructed Madoff’s computer code to write his report, said dividends that should have been paid to customers didn’t show up on their account statements with Madoff in the way they would have had the trading been real. In other cases, convertible securities appeared to have been traded by Madoff even after the companies had converted the securities into stock, he said.
Dubinsky testified earlier that Madoff’s firm was insolvent by December 2002. Dubinsky’s probe included searching thousands of boxes in Madoff’s off-site warehouse, analyzing BlackBerry and e-mail data and hiring two former computer programmers who worked at International Business Machines Corp. decades ago to help retrieve data from Madoff’s outdated storage devices and computer equipment.
Dubinsky, a managing director at Duff & Phelps LLC, is the sixth witness to testify in the first criminal trial stemming from the Ponzi scheme, which deprived investors of $17 billion in principal and billions more in fake profit. U.S. District Judge Laura Taylor Swain said the trial may last as long as five months.
Defense lawyers argued during opening statements that Madoff began training his employees when they were young and inexperienced so they would help carry out his fraud without knowledge and without training in the securities industry.
Witnesses during the first week of the trial included forensic accountants with AlixPartners LLP who secured the offices of Madoff’s firm after his arrest on Dec. 11, 2008, and two clerical aides who worked closely with Bongiorno and Crupi.
Witnesses have testified that Bonventre wrote company checks to himself as a “vendor” for tens of thousands of dollars about once a year, and that Crupi used her corporate credit card to pay for family trips to Walt Disney World.
Madoff, 75, pleaded guilty to 11 counts and was sentenced to 150 years in prison. He claimed all along that he worked alone and refused to implicate anyone else.
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 New York at firstname.lastname@example.org