Bernard Madoff walks back to his apartment in New York in this December 17, 2008 file photo.
Bernard Madoff walks back to his apartment in New York in this December 17, 2008 file photo.

‘Fake trades, a fridge used in Madoff fraud’

By Reuters Time of article published Dec 3, 2013

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New York - Bernard Madoff's longtime lieutenant testified on Monday that several former colleagues were deeply enmeshed in Madoff's decades-long Ponzi scheme, using everything from fake trades to a refrigerator to hide the truth about the fraud.

Frank DiPascali, Madoff's one-time chief financial officer, told jurors in New York federal court that the scheme stretched back “as far as I can remember,” to his earliest days at the firm as a 19-year-old in the mid-1970s.

DiPascali, 57, is the government's star witness in its case against five former Madoff employees charged with abetting Madoff's fraud. It is the first criminal trial stemming from the scheme, which imploded in late 2008 and cost investors an estimated $17 billion.

The five defendants in the case are Daniel Bonventre, the director of operations for the firm's back office; Annette Biongiorno and Joann Crupi, who managed clients' investment accounts for the unit where the fraud took place, and computer programmers Jerome O'Hara and George Perez.

They all claim that Madoff tricked them into believing his investment business was legitimate.

Madoff, who is serving a 150-year prison sentence, has said he acted alone.



On Monday, DiPascali testified that Biongiorno inserted fake trades into customer statements, including hedges that were never placed, in order to make it seem as though clients had not lost money when the stock market cratered in 1987.

He also said Crupi aided Biongiorno in creating falsified statements and hiding the fraud from customers.

O'Hara and Perez, meanwhile, helped write computer programs to conceal the fraud from regulators and outside auditors, he said.

At one point, when an auditor from KPMG came to look at documents, DiPascali prepared fake records from certain days to show him.

The auditor, however, asked for a specific day for which records had not been created.

“Now I have a big problem,” DiPascali testified. He called O'Hara and, with the auditor standing over his shoulder, asked him to go “into the archives” for the nonexistent records.

Later that day, DiPascali said, he walked into an office where Crupi, O'Hara and Perez were throwing the newly created documents around “like a medicine ball.”

They had put the papers, still hot from the printer, in a refrigerator to cool them down and were now trying to make them seem used, DiPascali said.



He also described Madoff's reaction to the news that accountants Frank Avellino and Michael Bienes were under US Securities and Exchange Commission scrutiny for selling unregistered shares to clients and promising returns between 13.5 percent and 20 percent.

Since the accountants invested all of their clients' money with Madoff, he was concerned that the SEC's investigation would unravel the fraud.

An enraged Madoff stalked the hallway outside DiPascali's office, swearing and “throwing himself around the office like a lunatic,” DiPascali said.

“He could not afford to have the SEC dig any deeper,” he said.

Biongiorno led an effort to revise Avellino's and Bienes' statements to corroborate the supposed trades in their account, DiPascali said.

DiPascali began his testimony by describing the morning of December 11, 2008, when Madoff awakened him at home with a phone call to tell him the FBI was in the office.

“I said, 'Why are you calling me?'“ DiPascali said.

“And I threw my phone across the room.”

He had already learned that the firm was “entirely bust,” he said.

When Assistant US Attorney John Zach asked what that meant for DiPascali, he replied, “That I was going to jail.” Within days, he said, he and his lawyers were arranging to cooperate with government investigators.

DiPascali pleaded guilty in 2009.

He faces up to 125 years in prison.

He said that by agreeing to cooperate, he was hoping for a “substantially” lighter sentence.

His testimony is expected to last several days, including cross-examination by lawyers for the five defendants, who have said DiPascali is a chronic liar in search of a deal.

The case is USA v. O'Hara et al, US District Court, Southern District of New York, No. 10-cr-0228. - Reuters

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