Madoff Ex-Worker Trial to Shine New Light on Ponzi Scheme
Bernard Madoff’s former personal secretary is among five of the con man’s ex-employees who will be the first to face a jury in a criminal trial for their alleged roles in carrying out the world’s biggest Ponzi scheme.
The former employees, all of whom have pleaded not guilty, include Annette Bongiorno, who worked with Madoff for 40 years and helped recruit investors. Jury selection for the trial, which the judge estimated could last five months, is slated to start Oct. 7 in federal court in Manhattan.
The proceeding will offer the fullest public accounting yet of how Madoff carried out the fraud, which cost thousands of investors $17 billion in lost principal and billions more in imaginary profit. A bankruptcy court trustee is still selling assets and re-paying victims. Earlier guilty pleas by Madoff, 75, and some of his top aides averted a trial until now.
“People have always wondered what was known inside Madoff’s operation and this trial will be our first window into that world,” said Stephen Miller, a former federal prosecutor and a lawyer at Cozen O’Connor in Philadelphia. “There hasn’t been an insider telling their story publicly yet.”
Prosecutors allege Madoff hid the fraud for decades with help from the defendants: Bongiorno, who helped run the investment advisory business; Joann Crupi, a back-office worker who managed large accounts; ex-operations chief Daniel Bonventre and computer programmers Jerome O’Hara and George Perez.
Madoff was arrested Dec. 11, 2008, after telling federal agents that his company, which occupied three floors of a lipstick-shaped skyscraper in midtown Manhattan, was a sham.
Four months later, he pleaded guilty to 11 charges including securities fraud and wire fraud and was sentenced to 150 years in prison. While Madoff confessed to swindling his clients, he refused to admit to a conspiracy charge that would have required him to implicate others, people familiar with the case said at the time.
In August 2009, the U.S. won a guilty plea from Frank DiPascali, Madoff’s finance chief, who agreed to cooperate with prosecutors and explain how he and others helped Madoff defraud investors. David Friehling, an accountant for Madoff, also pleaded guilty to helping him prepare phony tax returns and is cooperating with prosecutors.
O’Hara and Perez, Madoff’s former computer programmers, were arrested in November 2009 and accused of using their technical skills to help build Madoff’s scheme.
Prosecutors said they found a handwritten note in O’Hara’s desk from 2006 saying, “I won’t lie any longer.” The U.S. said the men got salary increases and bonuses from Madoff as hush money.
“The computer codes and random algorithms they allegedly designed served to deceive investors and regulators and concealed Madoff’s crimes,” Manhattan U.S. Attorney Preet Bharara said in a statement at the time.
Bonventre, an aide to DiPascali, was arrested in February 2010, and accused of creating bogus financial records to give Madoff’s firm the appearance of legitimacy. Bonventre was hired as an auditor by Madoff in 1968.
Madoff’s secretary, Bongiorno, was arrested in November 2010 at her home in Boca Raton, Florida. She reported to DiPascali. Crupi, who worked for Madoff for 27 years, was arrested the same day at her home in Westfield, New Jersey.
“A house of cards is almost never built by one lone architect,” Bharara said in a statement on the day Bongiorno and Crupi were detained.
Bongiorno managed Madoff investor accounts in November 2008 that purportedly held a balance of about $8.5 billion, while Crupi controlled accounts with a balance of about $900 million, prosecutors said.
Claiming to execute trades for clients, the two women simply posted fabricated transactions in their records and backdated them with historical prices to show a gain, the U.S. said.
Madoff’s former accountant, Paul Konigsberg, pleaded not guilty on Sept. 26 to charges he helped the convict carry out the Ponzi scheme as early as 1992 by fabricating books and trading records.
Prosecutors allege Madoff steered important clients to Konigsberg, who the U.S. described as a “willing outsider” required to carry on the fraud. Konigsberg’s lawyer, Reed Brodsky, has said his client was a victim of Madoff. Konigsberg isn’t a defendant in next week’s trial.
Federal prosecutors obtained guilty pleas from Peter Madoff, who helped his brother run the firm for four decades and employees Craig Kugel, David Kugel, Enrica Cotellessa-Pitz, Irwin Lipkin and Eric Lipkin. Peter Madoff was sentenced to 10 years in prison. The other defendants haven’t been sentenced.
Bernie Madoff’s oldest son, Mark Madoff, committed suicide in December 2010 on the second anniversary of his father’s arrest. He was never accused of a crime.
U.S. District Judge Laura Taylor Swain, who will preside over the trial, issued a ruling Oct. 3 barring prosecutors from showing the jury evidence that O’Hara and Perez gained unauthorized access to Madoff Securities’ computer systems in early 2009, when they were assisting the bankruptcy trustee in liquidating the firm.
The men claim they needed to print out computer codes to show prospective employers, according to court filings. Prosecutors allege the code was outdated and worthless on a resume, and that they printed it for “nefarious” reasons.
Evidence of the computer access “is quintessentially the sort of proof that should be put before the jury,” Assistant U.S. Attorney Matthew Schwartz said in a letter to the judge on Oct. 1.
“The probative value of this evidence,” which is not “facially indicative of any attempt to destroy or alter information, is significantly outweighed by the risks of unfair prejudice, juror confusion and waste of time,” Swain said.
Swain ruled Sept. 26 that jurors wouldn’t be told about Mark Madoff’s suicide or about luxury items bought by several defendants. Prosecutors may tell jurors about a beach house Crupi bought with a $2.7 million bonus, the judge said.
The biggest challenge for the defense team is “the sheer scope of the fraud,” said Miller, the former prosecutor who isn’t involved in the case. “It was so massive in terms of dollars and it went on for so long, I think it’ll be difficult for people to believe at first blush that only one person or a few people knew about it.”
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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