Madoff Ex-Finance Chief Changes Testimony on Scam Insight

Bernard Madoff’s former finance chief contradicted himself in testimony about when he learned of his boss’s use of fake trades, casting possible doubt on the government’s key witness in the trial of five ex-Madoff workers.

Frank DiPascali, who said he was Madoff’s “right-hand man” in the con man’s defunct investment-advisory business, said today in Manhattan federal court that he learned of the scheme to trick customers by 1992 instead of in the early 1970s -- the time-frame he gave in testimony last month. Today is DiPascali’s 16th day under questioning on the stand.

“Whenever a key government witness changes his story on a fact so central to the case, it undermines his credibility and fosters reasonable doubt,” said Richard Scheff, a former federal prosecutor. “Bottom line is that this is a devastating change that helps the defense.”

DiPascali is the highest-ranking former Madoff executive to testify in the first criminal trial stemming from the world’s biggest Ponzi scheme, which was exposed after Madoff’s arrest on Dec. 11, 2008. Five of the con man’s former employees are accused of aiding his fraud for decades and getting rich in the process.

‘Obvious’ Fraud

DiPascali, who has pleaded guilty and agreed to be a government witness, testified under questioning by prosecutors on Dec. 2 that he knew about the fake trading “for as long as I could remember,” and that the practice was “obvious” by the late 1970s. Today DiPascali said he knew “by 1992.”

“Sometimes stories change because a mistake is made but here, it simply is not believable that DiPascali made a mistake amounting to 15 or more years,” said Scheff, who’s chairman of Philadelphia-based Montgomery, McCracken, Walker & Rhoads LLP and not involved in the Madoff case.

Defense lawyer Larry Krantz, who represents former Madoff computer programmer George Perez, asked DiPascali today whether he knew in his “own mind” by the late 1970s that the trades weren’t real.

“No,” DiPascali said. “It was never my intention to testify to anything other than what I just said. If it was interpreted that way, I can’t help you.”

On Dec. 11, DiPascali agreed that his testimony about the fake trading being obvious by the late 1970s differed from what he told a judge at his plea hearing in August 2009, when he said the fraud became apparent in the late 1980s or early 1990s.

Other Investments

DiPascali, who joined Madoff’s firm in 1975, when he was 19, has said that while he knew the trades were fake, he thought Madoff was investing client funds in other ways, including in real estate deals and French banks. He has said he didn’t realize Madoff was running a Ponzi scheme -- paying investors with money from other investors -- until it collapsed in 2008.

The U.S. alleges the five defendants used millions of fake trading confirmations and false account statements to trick customers into believing their money was being used to buy securities. No trading took place in the investment business, which collapsed when Madoff ran out of money to pay customer withdrawals.

DiPascali, who faces as long as 125 years in prison when he’s sentenced, is seeking leniency by testifying against the people, all of whom claim they were duped by Madoff into believing his business was legitimate.

Fake Statements

The other defendants are Joann Crupi, who managed large accounts; Annette Bongiorno, who ran the investment advisory unit; Daniel Bonventre, Madoff’s ex-operations chief; and computer programmer Jerome O’Hara, who allegedly wrote code to print millions of fake account statements and trade confirmations.

DiPascali today agreed with Krantz that he had lied to several of the defendants at various times to prevent them from discovering the fraud, including when the group created fake trading records to trick regulators and auditors.

“Did you consider yourself to be pretty good at fooling people?” Krantz asked.

“Yes,” DiPascali said.

“Do you agree you had a lot of practice at it?” the lawyer asked.

“There were many opportunities for it,” DiPascali said.

Under questioning by prosecutors, DiPascali gave details of each defendant’s involvement in the fraud, saying they all knew the trading was fake and conspired to hide it from customers and regulators.

Madoff, 75, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. At least seven others pleaded guilty, including his brother Peter Madoff, who is serving a 10-year term.

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 Manhattan federal court at

To contact the editor responsible for this story: Andrew Dunn at

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