The Manhattan U.S. District Attorney and several other government agencies announced new and revised charges yesterday for five former employees who worked for infamous scam artist Bernie Madoff.
Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara, and George Perez were indicted back in November 2010 on charges relating to the conspiracy to defraud clients investing with Bernard L. Madoff Investment Securities, dating back to 1992.
The revised indictment includes 33 total charges and dates some of their involvement back to the early 1970s.
“The charges in this indictment reinforce what we have known about the massive Madoff investment fraud for years. This largest-ever Ponzi scheme was not the work of one person,” FBI Assistant Director Mary Galligan said in a release.
“Each of the defendants in his or her way allegedly played a key role in designing, building, or maintaining the house of cards. The habitual doctoring of books and records, the fictitious trades, the phantom accounts, were the core of the charade. As alleged, they were the work of these defendants.”
On the most basic level, BLMIS operated as an investment company that didn’t actually invest in anything. When a client got ready to pull its investment from the company, BLMIS drew from one large bank account, in which Madoff deposited his clients’ money.
BLMIS had to create false investment reports, accounts, financial statements, and other documentation in order to maintain the scam. This operation allowed those investing with the company to believe they gained returns from actual investments, and not from the money of other clients. It also made it difficult for watchdog agencies to detect wrongdoing.
“As we have said repeatedly since this breathtaking fraud was first discovered four years ago, we will not rest until all the alleged participants and enablers are made to answer for their conduct,” Manhattan U.S. Attorney Preet Bharara said in a release. “With the new charges we announce today against these five previously indicted defendants, the architecture of Madoff’s house of cards and each defendant’s alleged role in it becomes clearer.”
The indictment gives examples of the kinds of dirty deeds the employees would carry out. For instance, BLMIS got itself in a jam in 1992 when the Securities and Exchange Commission sued an investment fund called Avellino & Bienes, which invested heavily with BLMIS.
As a part of its investigation, the SEC required BLMIS to liquidate its account with the fund and provide account records. A&B was aware of the ways in which BLMIS operated, and for years knowingly reported false gains with BLMIS to its clients.
Bongiorno, Crupi, and other employees spent months creating “historical records and account statements to hide from the Receiver [on behalf of A&B customers] and the SEC the existence of, and transactions in, certain IA [Investor Advisor] accounts,” the indictment states.
A 1989 account statement revealed an illegal transaction between the A&B account and another BLMIS account. Bongiorno altered the statement to make it look like the transfer to the A&B account came from an investment gain through General Motors instead.
Because investments such as the General Motors one didn’t actually exist, BLMIS didn’t have the hundreds of millions of dollars due to the SEC. To cover their asses, Madoff took out loans using securities on investments from two non-related clients.
Aware of what the loans were used to pay for, Bonventre doctored books and records to make it appear as though the loans were used to acquire assets for the company, according to the indictment.
BLMIS operated in a similar manner for years, narrowly avoiding major crises through meticulous data manipulation.
O’Hara and Perez were primarily the technology guys. They created and maintained computer programs that allowed them to quickly generate fake business-investment data.
The FBI, the Manhattan U.S. Attorney’s office, and the U.S. Department of Labor collaborated to investigate the Madoff employees and deliver the indictment. The maximum sentence for each of the 33 charges ranges from three to 30 years in prison.
The trial has been set for October of next year.