Bernard Madoff’s sons deleted e-mails to obstruct a 2005 U.S. Securities and Exchange Commission investigation that could have exposed their father’s $17.5 billion Ponzi scheme, the trustee unwinding his company said.
The trustee said Andrew Madoff and Mark Madoff labeled printouts of some e-mails as “trash” before deleting them from a server during an SEC probe into Madoff’s investment advisory business, according to an amended complaint filed today in U.S. Bankruptcy Court in Manhattan.
Thousands of investors lost a total of $17.5 billion in principal when the fraud unraveled three years later, after client withdrawals exceeded what Bernard L. Madoff Investment Securities LLC, or BLMIS, could afford to pay. Prosecutors called it the biggest Ponzi scheme in U.S. history. The brothers, who worked for the company, denied involvement and were never charged. Mark Madoff killed himself in 2010.
“The Madoff brothers, Madoff family members, and other employees were behind the scenes deleting e-mails that could have exposed the fraud -- or at the very least would have alerted the SEC examiners that the information BLMIS was providing to them was false,” Irving Picard, the trustee, said.
Picard is seeking at least $35.3 million in damages from Andrew Madoff, the estate of Mark Madoff and his widow, Stephanie Mack. The claim could rise to $153.3 million if an appeals court backs Picard’s method of calculating damages.
Mack benefited from the fraud for years because her late husband used customer money to support her and buy homes in Manhattan, Nantucket, Massachusetts, and Greenwich, Connecticut, Picard said.
Martin Flumenbaum, a lawyer for the brothers, called the latest allegations unfounded. Mack’s lawyer, Michael Klein, didn’t immediately respond to a request for comment on the trustee’s claims.
The deleted e-mails included messages between the brothers and other employees in which they discussed altering trading account information being given to the SEC, the company’s true trading profits and losses, concern about the performance of Madoff’s broker-dealer unit and messages showing Andrew’s supervision of the company’s London subsidiary, where his father laundered money, according to the complaint.
Picard, who previously accused the brothers of involvement in the scheme, added new detail in the complaint to bolster his claim, including what he called evidence the men took out millions of dollars in fake loans from the company that they never intended to repay.
The money came from the bank account of the investment advisory business, in which they hoarded customer cash instead of using it to buy securities, Picard said.
The loans demonstrated the brothers’ “unapologetic abuse of BLMIS as their own personal cookie jar,” Picard said in the complaint.
Bernard Madoff, 76, is serving a 150-year prison sentence in North Carolina. Mark Madoff, the con man’s elder son, committed suicide by hanging himself with a dog leash from a pipe in the living room of his Manhattan apartment on Dec. 11, 2010 -- exactly two years after his father’s arrest.
Many of the new claims in the amended complaint -- the third against the Madoff family members since 2009 -- come from the testimony of Madoff’s former finance chief, Frank DiPascali, who was a key government witness in the trial of five ex-Madoff aides.
A jury in March found the five guilty of conspiring to create fake trade confirmations and account statements, and other charges, following a five-month trial.
Picard has “forgotten” that Mark and Andrew Madoff are the ones who turned in their father to the authorities and ended the fraud, Flumenbaum, their lawyer, said in a phone interview today.
“As we have stated from the outset, neither Andrew nor Mark knew of, or knowingly participated in, the father’s criminal conduct,” Flumenbaum said.
The brothers used Madoff’s investment advisory deposits from thousands of customers as a “personal piggy bank,” Picard has claimed. They also had personal investment advisory, or IA, accounts which they inflated to support luxurious lifestyles, the trustee said.
“Andrew Madoff was able to obtain fake account statements showing large balances in his IA accounts on demand and whenever it suited his needs,” Picard said in the complaint.
Andrew Madoff used one such account statement in 1994 to show a fictitious balance of $2.45 million in his investment advisory account to win approval for an apartment purchase, the trustee said.
The amended lawsuit removes as a defendant Bernard Madoff’s brother Peter, the chief compliance officer of BLMIS, who pleaded guilty to enabling his brother’s fraud -- though he denied knowing the business was a sham until the firm collapsed.
A settlement reached with Peter Madoff’s family required the forfeiture of assets held by his wife, Marion, his daughter, Shana Madoff Swanson, and other family members, prosecutors said at the time. Shana Madoff was also removed from the amended complaint as a result of the accord.
The Madoff liquidation is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-bk-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).