A former trader at Bernard Madoff’s investment firm admitted in federal court in New York to creating fake, backdated trades in a fraud scheme that began more than 30 years ago.
During his plea hearing yesterday, David Kugel, a former supervisory trader in the proprietary trading operation of Bernard L. Madoff Investment Securities LLC, also known as BLMIS, implicated two other former Madoff employees, Joann Crupi and Annette Bongiorno.
Kugel, 66, said he provided the two with historical price information that allowed them to create fictitious, backdated arbitrage trades during the decades that Madoff’s Ponzi scheme was under way. His allegations came more than a year after both women were charged by U.S. Attorney Preet Bharara in Manhattan for their alleged roles in the multibillion-dollar fraud.
“I provided history trading information to other BLMIS employees used to create backdated trades,” Kugel told U.S. District Judge Laura Taylor Swain in Manhattan. “Specifically, by the early 1970s until the collapse of BLMIS in December, 2008, I helped create backdated trades,” Kugel said.
Kugel, who is cooperating with prosecutors, pleaded guilty to six criminal counts, including falsifying trading and business records, and securities and bank fraud.
Bongiorno first approached him in the early 1970s for the documentation, and he obtained it from the Wall Street Journal and other sources to mimic actual trades that deceived Madoff’s clients. In the 1990s he supplied the same type of information to Crupi, he said.
Bongiorno, who recruited investors and helped run Madoff’s investment advisory office, and Crupi, a keypunch operator, have denied the charges against them and are awaiting trial.
Kugel faces as long as 85 years in prison and fines of $11.75 million, said Swain, who agreed to release Kugel on a $3 million bond secured by $900,000 in cash and properties. She set the next hearing for May 4 after prosecutors asked her not to set a sentencing date.
Assistant U.S. Attorney Julian Moore, who is prosecuting the case with Lisa Baroni, said the government had no objection to Kugel’s release on bond as he has “been working with our office and with the FBI for quite some time.”
Daniel Zelenko, a lawyer for Kugel, said in a statement after the hearing, “Mr. Kugel has accepted responsibility for his actions and will continue to fully cooperate with the government.”
Separately, the Securities and Exchange Commission sued Kugel yesterday over backdated trades in his own account at BLMIS. He allegedly withdrew almost $10 million in phony profits over the years. Kugel has agreed to settle the case and forfeit any gains from the scheme, the SEC said in a statement.
Yesterday in court, Moore said Kugel also agreed to sell homes in Boca Raton, Florida and Sands Point, New York, as well as luxury vehicles and other assets purchased with funds from his Madoff accounts.
Maurice Sercarz, a lawyer for Bongiorno, said his client denies conspiring with Kugel to engage in any criminal conduct.
“If he chooses to mitigate his own sentence by implicating Annette Bongiorno, we look forward to closely questioning Mr. Kugel at her trial,” Sercarz said.
Elizabeth Harris, a lawyer for Crupi, declined to comment on Kugel’s statements about her client.
Madoff, who pleaded guilty to fraud charges, is serving 150 years in prison for the largest Ponzi scheme in U.S. history. Investors lost about $20 billion in principal, the U.S. trustee liquidating the securities business has said.
The criminal case is U.S. v. Kugel, 10-00228, and the civil case is SEC v. Kugel, U.S. District Court, Southern District of New York (Manhattan.)