Five former aides to Bernard Madoff are seen as facing tough odds in trying to convince a New York jury they were innocent bystanders to the con man’s $17 billion fraud, given what one lawyer called the “avalanche” of evidence produced by prosecutors.
After months of testimony by Madoff accomplices, industry experts and former clerical staff, the three men and two women on trial since October will begin presenting their defense cases as soon as tomorrow in Manhattan federal court. The defendants have pleaded not guilty and claim Madoff duped them.
Changing the narrative after such a long prosecution will be a “daunting task,” said Philip Hilder, a former federal prosecutor in Houston who’s now a white-collar defense lawyer and isn’t working on the case. “The ‘duped’ defense works only if someone was involved on the fringes.”
The criminal trial is the first stemming from the world’s biggest Ponzi scheme, which collapsed after Madoff’s arrest in December 2008. The outcome of the case may either validate the five-year U.S. probe or enrage thousands of victims seeking vengeance against Madoff’s inner circle.
Prosecutors accuse the group of using millions of fake trading confirmations and false account statements to trick customers into believing their cash was being used to buy securities. No trading took place in the investment advisory business, which lost $17 billion in principal and about $47 billion more in fake profit that customers thought was in their accounts.
The defendants are Annette Bongiorno, who ran the investment advisory unit at the center of the fraud; Joann Crupi, who managed large accounts; Daniel Bonventre, the ex-operations chief of Madoff’s broker-dealer; and computer programmers George Perez and Jerome O’Hara, accused of writing code to automate the deception as the scheme expanded rapidly in the 1990s.
The 33-count indictment in the case includes securities-fraud and conspiracy charges. Three of the defendants are also accused of tax violations for allegedly failing to report millions of dollars in cash payments and gifts from Madoff as income.
If convicted, the defendants’ possible sentences would range from 58 years in prison for Bongiorno to as long as 221 years for Bonventre, according to a 2012 statement from the U.S. Attorney’s Office in Manhattan.
Prosecutors said last week they have four or five more witnesses who will testify and may finish today or tomorrow. U.S. District Judge Laura Taylor Swain, who is overseeing the trial, has said the testimony will probably end this month. Inclement weather and ill jurors already have delayed the trial by several days.
Defense lawyers gave a preview of their case in opening statements to the jury in October, saying the five co-workers were kept in the dark about the fraud and were tricked by Madoff’s personality and reputation. Crupi’s lawyer, Eric Breslin, compared Madoff to “the Great Oz” hiding behind a curtain with his employees seeing him as “almost a god.”
The lawyers also have sought to cast doubt on the testimony of five former Madoff employees who pleaded guilty in the case and agreed to cooperate with prosecutors, including Madoff’s former finance chief, Frank DiPascali, who spent 17 days on the witness stand. The witnesses are liars who are implicating others to win less time behind bars, the lawyers have said.
Bonventre’s lawyer, Andrew Frisch, is seeking to call DiPascali back to testify as part of the defense case, according to a Jan. 31 letter from prosecutors to Swain seeking to block the testimony. The U.S. called such a move “extraordinary.”
Defense lawyers will probably be “focused” and brief compared with prosecutors, having already made their best points while cross-examining the government’s cooperating witnesses, said Richard Scheff, a former federal prosecutor who now works on white-collar criminal cases.
“The goal simply is to raise a reasonable doubt and not prove innocence,” said Scheff, who’s chairman of Philadelphia-based Montgomery McCracken Walker & Rhoads LLP and isn’t involved in the case.
Jurors in U.S. criminal cases may convict defendants only if they decide unanimously that the government proved its case beyond a reasonable doubt.
Letters written to Swain from several of the defense lawyers yesterday said they intended to call FBI agents to testify to highlight what they said were discrepancies between what some of the witnesses said in their trial testimony and interviews they gave to investigators in recent years.
Deciding whether to call the defendants to the stand will be the biggest challenge for the defense, said Marcos Jimenez, a former U.S. attorney in Miami who’s now a criminal defense lawyer with McDermott Will & Emery LLP. While they have a Fifth Amendment right against self-incrimination under the Constitution to not testify, keeping silent could backfire, he said.
“In white-collar cases where a significant amount of incriminating evidence has been presented, I think jurors generally expect someone will get up and explain what happened, and if they don’t testify that can hurt them, despite their Fifth Amendment rights,” Jimenez said.
The problem with taking the stand is the cross-examination by prosecutors, which can undermine the defendants in front of the jury, according to Hilder.
Defendants usually don’t testify “when there is an overriding avalanche of evidence that would point to guilt,” Hilder said. “Cross examination would be brutal.”
Breslin, Crupi’s lawyer, said in a letter to Swain filed yesterday that he had told the government he wasn’t currently planning to call his client to the stand, though he reserved his right to change his mind.
Larry Krantz and Gordon Mehler, the lawyers for Perez and O’Hara, both said today that it was unlikely their clients would testify. Bongiorno’s lawyer, Roland Riopelle, said his client probably wouldn’t testify, while Bonventre’s lawyer, Andrew Frisch, declined to comment.
Defense lawyers may call “character witnesses” to describe the former workers’ personalities in favorable ways, according to Hilder. They may also call experts whose testimony may cast doubt on the government’s evidence, making it look “faulty or unreliable,” Hilder said.
“If a person’s character seems to be completely out of sync with the allegations then that could be a basis for acquittal,” Hilder said.
Defense lawyers have called attention to the youth and inexperience of the workers when they joined Madoff’s firm, saying it explained their ignorance. Bongiorno was hired in 1968, when she was 19. Bonventre and Crupi joined in their early 20s. O’Hara and Perez, both hired in the 1990s, said they didn’t have experience in the securities industry before then.
The group’s lawyers will have a hard time portraying the group as being clueless, given their big paychecks and years working at a sophisticated company, according to Jimenez.
“If they were being paid very large amounts of money that were not commensurate with their positions it would be very difficult to convince a jury they were dumb or not sharp enough to know what was going on,” Jimenez said.
While the group is being tried together, the defense cases may look very different, according to Hilder.
The five are “not necessarily in the same boat -- each one is going to have to decide their own strategy and what may be a good move for one may not be for the other,” Hilder said.
DiPascali, who joined Madoff’s firm in 1975, when he was 19, said all five defendants were involved in the fraud, which he said was “obvious” to anyone in his position. He gave step-by-step explanations for how the group allegedly worked to trick regulators during unexpected audits and impressed Madoff with realistic-looking fake documents.
DiPascali testified that O’Hara and Perez discovered in 2006 that their code was integral to keeping the fraud alive, and extorted higher salaries and bonuses out of Madoff after confronting him in his office.
Former trader David Kugel, who pleaded guilty two years ago, told the jury on Oct. 31 that starting in the mid-1970s, he used information he gleaned from working in Madoff’s legitimate broker-dealer unit to provide Bongiorno and Crupi with the historical trading data they needed to create realistic fake trades in client accounts.
David Friehling, Madoff’s accountant for more than 20 years, told the jury on Nov. 12 that Bonventre prepared fraudulent general ledgers and other accounting documents to help reach what Madoff called “fudged” numbers for his personal tax filings. Friehling pleaded guilty to fraud in November 2009, admitting he never completed a proper audit.
Madoff’s former controller, Enrica Cotellessa-Pitz, testified in November that she helped Bonventre hide trading losses in his broker dealer unit by siphoning customer money from the investment advisory business. Cotellessa-Pitz, who joined Madoff’s firm in 1978 and became controller a decade before it collapsed, pleaded guilty in 2011 to falsifying regulatory records and committing broker-dealer fraud, though she said she wasn’t aware of the underlying Ponzi scheme.
Former employees who haven’t been charged also testified about the inner workings of Madoff’s firm, including a messenger for the company in the 1960s, a receptionist and personal secretary to Madoff for more than two decades, and office assistants who said they helped mine historical trading data to be used in backdated trades on customer statements.
Agents with the Federal Bureau of Investigation and the Internal Revenue Service testified, as did forensic accountants who probed Madoff’s Midtown Manhattan offices after the firm’s collapse. They all gave evidence against the former employees on trial, some of whom worked for Madoff since the 1960s and left extensive paper trails found in storage boxes, filing cabinets and 1980s-era computer systems.
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.
All the former prosecutors said the outcome of the trial isn’t certain.
“The government may have thrown a lot of evidence at them and had a lot of witnesses testify, but were they able to connect with the jury or was it too complex?” said Hilder. “Just because there were weeks of testimony doesn’t necessarily mean it’s insurmountable.”
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).