Bernard L. Madoff’s ex-controller told a jury the con man held a meeting of his inner circle in 2005 to discuss ways to hide mounting losses in his legitimate broker-dealer unit, saying, “We all know what we do here.”
Enrica Cotellessa-Pitz, who pleaded guilty to aiding Madoff’s $17 billion fraud and faces as long as 50 years in prison, didn’t know what Madoff was talking about at the time and “just kept quiet,” she testified in the trial of five former colleagues yesterday in Manhattan federal court.
“I was almost embarrassed,” Cotellessa-Pitz told the jury, adding that the gathering was her first closed-door meeting with Madoff in almost three decades of employment. “I was not really sure what we do here.”
Cotellessa-Pitz, who joined Madoff’s firm in 1978 and became controller a decade before it collapsed, is one of about half a dozen former employees who pleaded guilty in the case and plan to testify. 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.
Daniel Bonventre, who ran the broker-dealer unit and is one of the five on trial for allegedly helping Madoff hide his fraud, attended the 2005 meeting, as did Frank DiPascali, Madoff’s finance chief, Cotellessa-Pitz testified.
She told the jury that while she helped inflate profit at Madoff’s broker dealer, she didn’t know about the Ponzi scheme at the investment advisory unit, where thousands of customers were made to believe they owned securities that didn’t exist.
Cotellessa-Pitz admitted filing false records with regulators and lying in accounting documents about the source of millions of dollars she helped funnel from the investment adviser to the broker-dealer, where real trading took place and where losses were mounting in the years before Madoff’s arrest.
At the meeting, Madoff suggested hiding the losses by accounting for the transfers as wires from his London-based unit. When Cotellessa-Pitz pointed out that trading in the investment adviser was already taking place in London, she inadvertently revealed she believed one of the main lies used to hide the scheme, she said. No such trading took place.
An “uncomfortable silence” fell over the meeting and it ended “very quickly” after her remark, Cotellessa-Pitz said. “Bernie said, ‘We can think about doing that.’”
After Madoff’s arrest on Dec. 11, 2008, investigators determined the purported London trading was a ruse to make it difficult for anyone to find out the business was fake. Instead of investing new customers’ money, Madoff used it for withdrawals by earlier investors.
The other defendants are Annette Bongiorno, a Madoff employee for 40 years 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, who allegedly automated the production of fake account statements for customers of Bernard L. Madoff Investment Securities LLC.
Cotellessa-Pitz testified today that Bonventre sought loans from JPMorgan Chase & Co. using as collateral bonds that belonged to Madoff’s investment advisory clients. Bonventre told the bank the bonds belonged to Madoff, she said.
Jurors were shown numerous documents related to the loans, including a letter to JPMorgan in January 2006 that had been typed by Cotellessa-Pitz and signed by Bonventre. The letter requested an additional $50 million be added to Madoff’s existing $95 million loan.
Cotellessa-Pitz said the general accounting ledger for the company, which was overseen by Bonventre, didn’t include the $50 million loan when it was produced at the end of that month, and a copy of the document was shown to jurors as evidence.
Cotellessa-Pitz testified yesterday she witnessed Bonventre work with Madoff in the early 1990s on an eight-week project to create a template for fake statements from Depository Trust Co., which holds physical securities for broker dealers.
Bonventre and another employee worked for weeks to make the document look realistic, Cotellessa-Pitz said, including by choosing the right kind of paper and font and determining the correct placement of asterisks used by the DTC.
“I saw the change in paper, the change in font, the format changes -- I saw the evolution of the work,” Cotellessa-Pitz said. “The DTC statement was an unusually formatted report” and the fake one “looked like a DTC report,” she said.
The reports ultimately tricked regulators into believing Madoff traded in securities for his investment advisory clients, prosecutors have said.
Cotellessa-Pitz also testified yesterday that she helped Bonventre and Madoff by falsifying historical records to fool regulators during audits, and by carrying out Madoff’s plan to pay less personal taxes by understating the profit at his firm, which was his sole proprietorship.
“We had to change the back office numbers to agree with Bernie’s numbers,” Cotellessa-Pitz said. It was “a cumbersome task” and “I felt it to be quite difficult,” she said.
Cotellessa-Pitz began her testimony Nov. 18 by describing her first interview at the securities company, where she sought a receptionist position after graduating from high school in 1976. Though she wasn’t hired, she met DiPascali during the interview and started a three-year relationship with him, she said.
She pleaded guilty in 2011 to four counts including broker-dealer fraud and filing false reports with regulators. At a plea hearing two years ago, Cotellessa-Pitz said she wasn’t aware of the Ponzi scheme during almost a decade of working on the company’s accounting.
DiPascali pleaded guilty in August 2009 to 10 counts, including conspiracy, fraud and money laundering. He is to be a prosecution witness and is cooperating with prosecutors. He hasn’t been sentenced.
All five defendants have pleaded not guilty. Their lawyers said in opening statements to the jury that the government witnesses are willing to lie and implicate others to win lighter sentences.
Irving Picard, the trustee who’s liquidating Madoff’s company to help repay victims, sued Cotellessa-Pitz and her husband, Thomas Pitz, in 2010, seeking the return of money he said they received from the fraud. Picard claims she knew about the fraud and made at least $3.25 million in compensation for her role.
Cotellessa-Pitz testified that her $3.5 million personal investment advisory account at Madoff’s firm disappeared when the fraud was exposed. She said she started the account in 1986 with $30,000 obtained by refinancing her home, and continued to add savings and earnings over the years. When Bongiornio in 2006 told her “as a friend” that she should consider withdrawing some of her money -- as Madoff family insiders were doing at the time -- Cotellessa-Pitz said she spoke directly to Madoff before deciding to leave her money in.
“I told Bernie everything I own is in there and asked if I should diversify,” Cotellessa-Pitz testified. “He said to me ‘absolutely not’ and there was ‘no reason to worry.’”
Madoff, 75, pleaded guilty to fraud and is serving a 150-year prison sentence.
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