A Bank of New York Mellon Corp. vice president told a jury she helped boost Bernard Madoff’s credit line by $225 million in 2006, based on data provided by a former Madoff executive accused of aiding his $17 billion fraud.
Daniel Bonventre, one of five ex-Madoff employees on trial in Manhattan, won an increase in the investment firm’s secured credit line to $300 million from $75 million to pay for what he said was a boost in trading activity, Monika Arora, who works in BNY Mellon’s securities industry banking division, testified today in federal court in Manhattan.
Bonventre had requested a new limit of $500 million, an increase the bank deemed “quite large” before settling on $300 million as a more “realistic” figure, Arora said. “If we needed to revisit it, it would be easier to do it from that point on,” she said.
The five former colleagues are accused of helping Madoff hide his fraud from customers and regulators for years, and getting rich in the process. It’s the first criminal trial stemming from the scheme, which prosecutors say started in the early 1970s and imploded at the peak of the financial crisis.
BNY Mellon, which isn’t accused in the criminal case, has faced civil lawsuits by funds that lost money in the fraud and accuse the New York-based bank of negligence. The lawsuits include claims the bank funneled billions of dollars into the Ponzi scheme while reaping millions of dollars in fees.
Prosecutors claim Madoff and his co-conspirators tapped banks for loans and credit increases as the Ponzi scheme became unsustainable.
Kevin Heine, a spokesman for BNY Mellon, declined to comment on today’s testimony. The bank has denied wrongdoing related to the fraud.
Arora, who has worked at BNY Mellon since 2004, said she proposed the credit increase based on financial statements and other documentation provided by Bonventre and one of his employees, Enrica Cotellessa-Pitz.
The data, now known to be false, showed Madoff’s firm had assets of $977 million at the time, according to documents displayed on flat-screen monitors for jurors. Financial statements given to the bank were affirmed by Madoff’s external accountant for more than 20 years, David Friehling, the papers showed, increasing their perceived validity, Arora said.
Madoff, who was arrested in December 2008, pleaded guilty to fraud and is serving a 150-year sentence. Cotellessa-Pitz and Friehling also pleaded guilty and are awaiting sentencing based on their cooperation in the case.
Friehling testified yesterday that he never conducted an audit of Madoff’s company as required by accounting rules.
Arora recalled a meeting at the offices of Bernard L. Madoff Investment Securities LLC, where Madoff and his sons Mark and Andrew were present, along with Bonventre. BNY Mellon had arranged the meeting with a consultant on a new trading strategy that Madoff was interested in pursuing, though he ended up never using it, Arora said.
The increased credit limit was needed to finance what Bonventre said was a boost in proprietary trading by Madoff’s firm, Arora said. Madoff had already started hiring additional staff for the trading and had begun tapping its earlier $75 million credit line at a faster rate than usual, she said.
“The team will be doing the same proprietary trading that is currently taking place, but in larger volumes,” Arora wrote in a March 31, 2006, proposal to BNY Mellon’s credit department. “The new team is expected to increase business significantly.”
Arora said she later heard from colleagues at BNY Mellon that Madoff’s firm wasn’t drawing on the credit line as expected, depriving the bank of anticipated fees. When she asked Bonventre about the development, he cited market conditions and said the plan had changed, she said.
Bonventre, who oversaw the broker-dealer and proprietary trading operations of Madoff’s company, pleaded not guilty and has denied involvement in the fraud, saying he was duped like thousands of others.
The other defendants in the case, all accused of helping make fake documents for decades, are Annette Bongiorno, who ran the investment advisory business at the center of the fraud; Joann Crupi, who managed large accounts, and computer programmers George Perez and Jerome O’Hara. All five have pleaded not guilty.
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 firstname.lastname@example.org