Bernard Madoff’s former computer programmers sought to confuse and delay fraud investigators in the months after the con man’s 2008 arrest for running a $17 billion Ponzi scheme, prosecutors said.
Jerome O’Hara and George Perez, on trial for creating millions of fake documents to fool investors, allegedly told a colleague in early 2009 to hinder a probe by Irving Picard, the trustee unwinding Madoff’s fraud, according to a Jan. 28 filing in federal court in New York.
Haresh Hemrajani, a former Madoff employee who is scheduled to testify as a government witness as soon as this week, said O’Hara told him “to drag things out and not give the trustee everything they were asking for in a timely fashion,” according to the filing.
The criminal trial is the first in the U.S. stemming from the world’s biggest Ponzi scheme, which collapsed after Madoff’s confession and arrest in December 2008. O’Hara, Perez and three other ex-employees went on trial in October over accusations they got rich aiding the fraud for decades.
The focus of recent testimony has been on O’Hara and Perez, who are accused of creating computer code that make fake trade confirmations, customer statements and other documents that tricked customers and regulators. The men have said they were following orders and didn’t know how their programs were used. They and the other defendants deny wrongdoing.
In the Jan. 28 court filing, lawyers for O’Hara and Perez asked U.S. District Judge Laura Taylor Swain, who is overseeing the trial, to block Hemrajani’s proposed testimony, saying prosecutors alerted them too late. The U.S. told the lawyers about the details the same day, they said. The lawyers’ filing summarized the government’s new allegations.
Assistant U.S. Attorney Matthew Schwartz, one of three prosecutors in the trial, hasn’t given defense lawyers enough time to review material, has changed the order of witnesses with little warning, and has adopted a “win-at-all-costs” approach to the trial, Perez’s lawyer, Larry Krantz, said in a Jan. 20 letter to Swain made public yesterday.
“Mr. Schwartz has played things so close to the vest that there is a very serious danger that the last two weeks of the case against Mr. Perez and Mr. O’Hara -- which are critical -- will be trial by ambush,” Krantz said in the letter.
In another Madoff-related case, a group of the con man’s victims who managed to withdraw more money from his firm than they invested asked to be excluded from JPMorgan Chase & Co.’s $543 million settlement of claims stemming from the fraud.
A group of 193 investors said in a Jan. 28 filing in U.S. Bankruptcy Court in New York that the accord between JPMorgan and Picard doesn’t cover “net winners.” They asked for permission to not be part of the settlement.
The group’s lawyer, Helen Davis Chaitman of Becker & Poliakoff LLP in New York, said she intends to file a new lawsuit on behalf of these and other victims who say they were harmed in Madoff $17 billion Ponzi scheme, even though they didn’t lose their principal.
The alleged conversations with Hemrajani at issue in the trial took place a few months after Madoff’s arrest, and before the programmers were charged, according to the Jan. 28 filing. Earlier witnesses have also testified about the men’s behavior during that time.
After Madoff’s arrest, while O’Hara was on sick leave, Perez allegedly told Hemrajani, a “long-time” Madoff employee, that he shouldn’t fulfill Picard’s technical requests because he wasn’t familiar with the computer system, according to the filing. Perez also asked Hemrajani for details about what he’d told the trustee’s investigators.
When O’Hara returned from leave, he allegedly told Hemrajani “not to be too helpful” with Picard, and to not explain the computer systems and code “in common English,” according to the filing.
O’Hara became angry when Hemrajani refused to tell him about a conversation with an agent from the Federal Bureau of Investigation in a glass-walled conference room in Madoff’s offices, according to the filing. Hemrajani told prosecutors that O’Hara walked by while he was working with the agent on a computer program that later became evidence in the case.
Later, O’Hara “asked Mr. Hemrajani what the FBI was asking about,” according to the filing. “When Mr. Hemrajani refused to tell Mr. O’Hara, Mr. O’Hara pressed for more information, and ultimately expressed his anger and walked away.”
The U.S. is planning to use Hemrajani as a “back door” expert witness in the case, even though he did programming work for Madoff’s broker dealer unit, and only worked with code from the investment advisory unit “after the fact,” Krantz, Perez’s lawyer, said in his Jan. 20 letter.
Hemrajani has been working as an FBI consultant for the past four years, making more than $200,000 during the time, Krantz said.
Richard Dietrich, a senior technician at International Business Machines Corp. (IBM), testified Jan. 28 that O’Hara and Perez created a web of simple equations to make thousands of fake transaction numbers, dates and time stamps appear realistic on documents used to trick auditors. Dietrich, an expert witness for the U.S., analyzed computers seized from Madoff’s Manhattan office.
The other defendants are Annette Bongiorno, an employee for 40 years who ran the investment advisory unit where the fraud occurred; Joann Crupi, who managed large accounts; and Daniel Bonventre, who oversaw the broker-dealer and proprietary trading operations where real trading took place.
Madoff, 75, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. Seven of his employees also pleaded guilty to associated crimes.
The criminal case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
The liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-bk-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Erik Larson in New York at email@example.com