Feb. 27 (Bloomberg) -- Bernard Madoff’s earliest investors, including two who reaped billions of dollars from the con man’s Ponzi scheme, allowed him to add backdated losses to their accounts whenever the profit was too high, a former executive on trial for fraud said.
Annette Bongiorno, accused with four ex-colleagues of aiding a $17 billion swindle at Madoff’s firm, told a jury Feb. 25 how the accounts of one customer, investment adviser Stanley Chais, were brought “in line” by altering trades on old statements that Chais agreed to return.
Chais, a close friend of Madoff’s and one of his first clients, “wasn’t annoyed” by the process because he and Madoff had a deal “about what his return would be,” Bongiorno told jurors in Manhattan federal court. Madoff “had an agreement with everybody,” she added.
The criminal trial, now in its fifth month, is the first stemming from the scheme, which collapsed after Madoff’s arrest in December 2008 revealed his investment unit hoarded customer cash instead of using it to buy securities. Bongiorno, a Madoff employee for 40 years, is the second defendant to testify.
The trial was postponed yesterday after a juror got sick.
Chais, who died in 2010 at age 84, denied knowing about Madoff’s Ponzi scheme and said he was duped by the con man. Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, claims Chais and related entities received more than $1 billion from the scheme and has sued to recover allegedly fraudulent withdrawals. The suit is pending.
In her Feb. 25 testimony, Bongiorno said revisions to the Chais accounts were “a major job” that required her to return to New York from her second home in Florida. She said she had to alter several accounts for Chais and several for each of his children and grandchildren.
“His account was way over,” she said.
A telephone call to Chais’ lawyer for comment on Bongiorno’s testimony wasn’t immediately returned.
Another client whose accounts were regularly brought in line was Jeffry Picower, whose staff often sent requests for specific backdated trades to Madoff, said Bongiorno, who managed the billionaire’s accounts for years.
“They would make suggestions, and Bernie would say, ‘Yes, we will do it,’ or, ‘No, we won’t,’” Bongiorno said. “But it was never a mystery that they were backdated. They knew it.”
Picower, who began investing with Madoff in the late 1970s, died in 2009 at age 67. His estate in 2010 agreed to forfeit $7.2 billion to victims of the fraud and the U.S. A telephone call to his attorney wasn’t immediately returned.
Bringing accounts “in line” by backdating trades was acceptable to customers so they would receive a regular rate of return, Bongiorno said. The success of the accounts prompted clients’ accountants to ask to become customers themselves -- requests Madoff denied each year, she testified.
Bongiorno, who joined Madoff’s New York-based securities company in 1968 as a 19-year-old secretary, said the process was used to reduce account balances of longtime clients who died, including Jacques Amsellem, a French customer since the late 1970s who died in the 1990s. A representative of his estate couldn’t be immediately identified.
She said she didn’t see anything wrong with the process at the time.
“At any point in your career at Madoff Securities, did the fact that Mr. Madoff was promising his clients a particular return cause you concern about the legality of what you were doing?” Bongiorno’s lawyer, Roland Riopelle, asked her.
“No,” she replied.
“Why not?” Riopelle asked.
“I just believed him, and I believed what he told me,” Bongiorno said. “I never even thought of the word ‘illegal.’”
Prosecutors allege that Bongiorno, 65, was central to the scam’s success and is feigning ignorance to avoid as long as 58 years behind bars. She got rich off the fraud and must have known backdating trades and faking reports was wrong, the U.S. says.
Bongiorno has testified that she believed Madoff’s trades were real, taken from an inventory of stock that Madoff regularly purchased in bulk using his broker-dealer business.
In testimony that continued today, Bongiorno said it wasn’t unusual for customers to withdraw more money than they deposited. As an example, Riopelle showed the jury a document from Bongiorno’s desk that indicated Andrew Madoff, the con man’s son, had deposited $17.3 million in 2005 and withdrew a total of more than $25 million over the next three years. She said she didn’t think anything of it, even when Madoff asked her to make changes to the account.
Bongiorno also testified she had no ulterior motive when in 2006 she told a colleague it wasn’t a good idea to keep all their money in Madoff’s firm. Other insiders were withdrawing money at that time, she said, and it didn’t raise any red flags because she didn’t want to have “all her eggs in one basket.”
Recalling the day before Madoff’s arrest on Dec. 11, 2008, she said Madoff and DiPascali called her into the office for a special project. They asked her to close out all the accounts of the firm’s employees and their friends and family, she said.
“I didn’t know what was going on at that point -- I had no clue,” Bongiorno said.
Defense lawyers said the trial may end next month.
The other defendants are Daniel Bonventre, Madoff’s former operations director who ran the broker dealer unit; Joann Crupi, who managed large accounts in the investment advisory business; and computer programmers Jerome O’Hara and George Perez, accused of writing code to automate the creation of fake account statements and other false documents. All five people have denied wrongdoing.
Prosecutors say the group conspired for decades to trick thousands of victims into believing their deposits were used to buy securities. Instead, the money was placed in a single bank account that paid withdrawals, financed operations and enriched employees, the U.S. says.
Madoff, 75, is serving a 150-year prison sentence in North Carolina after pleading guilty in 2009.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
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