Madoff Ex-Aide ‘Corporate Psychopath’ Defense Challenged

A former Bernard Madoff executive on trial for aiding his $17 billion Ponzi scheme should be barred from calling a witness on “corporate psychopaths” to claim he was relentlessly manipulated, prosecutors said.

Paul Babiak, described by a defense lawyer as “one of the world’s leading experts on corporate psychopaths,” shouldn’t be allowed to testify for Daniel Bonventre, the ex-operations chief of Madoff’s broker-dealer unit, because he’s never met Madoff or diagnosed him, Assistant U.S. Attorney Matthew Schwartz said in a filing yesterday in Manhattan federal court.

Babiak, an author and licensed psychologist, can’t “reliably diagnose Mr. Madoff as a psychopath and testify about his skills in manipulating those around him on the basis of news reports and YouTube videos,” Schwartz wrote.

The trial of Bonventre and four of his former colleagues is the first stemming from the swindle, which collapsed after Madoff’s arrest in December 2008. Madoff, 75, is serving a 150-year sentence in a federal prison in North Carolina after pleading guilty in 2009 to the unprecedented fraud.

Prosecutors began presenting testimony by industry experts, Madoff’s accomplices and his former clerical staff in October.

First Sign

Babiak’s proposed testimony is the first sign of how the defense lawyers will seek to prove their claim that Madoff had the ability to hide the U.S.’s biggest Ponzi scheme from his inner circle for decades.

Prosecutors sought to narrow the defense case by challenging the qualifications of proposed witnesses in letters to the court this week, while defense attorneys tried to justify using them. U.S. District Judge Laura Taylor Swain, who is overseeing the trial, will decide on Babiak’s testimony.

Babiak would testify that “the psychopath sees people as objects, each presenting him with an opportunity to contrive a tailored presentation designed to lure the object into serving the psychopath’s needs,” according to a letter by Bonventre’s lawyer, Andrew Frisch.

Schwartz told the judge that claims about Madoff’s skill as a liar “say nothing about whether Mr. Bonventre was either lied to or fooled.” Testimony about Bonventre’s supposed vulnerability is “wildly inappropriate,” Schwartz wrote to Swain.

Frisch told Swain in court today that it was “unlikely” he would call Babiak as a witness, though a final decision hasn’t been made.

Fake Trades

Prosecutors accuse the group of using millions of fake trading confirmations and false account statements to trick customers into believing their money was being used to buy securities. No trading took place in the investment advisory business, where the fraud allegedly started in the early 1970s and lost $17 billion in principal from thousands of investors.

The other defendants are Annette Bongiorno, who ran the investment advisory unit at the center of the fraud; Joann Crupi, who managed large accounts; and computer programmers George Perez and Jerome O’Hara, accused of writing code to automate the deception as the scheme expanded in the 1990s.

The defendants pleaded not guilty and claim Madoff duped them by hiring them when they were young and inexperienced. Bonventre started working for Madoff in the 1960s, when he was 22. Bongiorno was hired after high school in 1968. The others were brought in after college or before they worked in the securities industry, their lawyers have said.

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 tricked by Madoff’s personality and reputation.

‘Great Oz’

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 government’s key witnesses, former Madoff employees who pleaded guilty to crimes stemming from the fraud, also said they were duped by Madoff and didn’t know about the Ponzi scheme.

Babiak’s testimony about Madoff would be based on court documents, a transcript from his sentencing hearing, two newspaper articles and two YouTube videos, according to the prosecution’s court filing.

Babiak, who says corporate psychopaths view employees as objects to be juggled, co-wrote a book called “Snakes in Suits: When Psychopaths Go to Work,” Frisch, Bonventre’s attorney, said in his letter.

‘Parasitic Living’

Madoff displayed the defining features of corporate psychopaths, including “grandiosity, pathological lying, conning and manipulating others, callous disregard of others, lack of empathy and parasitic living,” according to Frisch’s letter. “The longer an object’s relationship with the psychopath, the greater the object’s vulnerability.”

Madoff pleaded guilty to fraud in 2009. At least seven others pleaded guilty, including his brother Peter Madoff, who is serving a 10-year term.

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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