I think she wrote the best book on Madoff. BUSINESS A decade after Bernie Madoff’s arrest, FBI agents reveal more about his Ponzi scheme by Erin Arvedlund, Posted: December 6, 2018 FRANK FRANKLIN II / AP FILE Bernard "Bernie" Madoff, who ripped off investors for the colossal sum of $64.8 billion. What you may not know? His crimes lasted roughly 45 years, according to FBI agents now speaking publicly about the case for the first time, a decade after Madoff's arrest. Special Agent Patrick J. Duffy of the Federal Bureau of Investigation helped oversee the government's probe. A South Jersey native and 2002 LaSalle University graduate, Duffy worked as a KPMG accountant in Philadelphia until joining the FBI in 2008. He and Special Agent Paul E. Roberts, who trained as an actuary, present regularly to business and fraud investigator conferences about the FBI's six-year-long Madoff investigation. But this is the first time FBI case agents have publicly broken down the notorious Madoff crime, which required the efforts of 14 agents, forensic accountants and financial analysts, not to mention a platoon of prosecutors. They also describe what it took to convict Madoff and his fraudster co-conspirators and aspects of the investigation not released to the public, such as the duration and scale of the crime. It's a fascinating study of a scandal that cost victims billions and a trial that resulted in the convictions of five Madoff employees on 31 guilty counts. But in many ways, the scandal was not a surprise to the investors who were fleeced. "A lot of Madoff victims thought it was too good to be true. But they were OK with that, they went along with it," Roberts said. "Greed can silence people." Dec. 11, 2008 Duffy had only recently joined the FBI when he got a call from Pat Carroll, supervisor of a white-collar crime squad. With an accounting background, Duffy was quickly assigned to the investigation of Madoff, who had confessed to stealing a staggering $64.8 billion. Duffy's first thought: "Who's Bernie Madoff?" The FBI would soon learn that the Wall Street financier had pulled off a crime for the ages. He promised investors that he would never lose money, and his hedge fund delivered enviable 10 percent annual returns even when the markets tanked. "When we talk to groups about the case, their eyes widen. A lot of people know Madoff's name, but not the scale of the crime," Duffy said. Net cash lost? About $20 billion. Roughly $15 billion has been recovered, about 75 cents on the dollar. "It's hard to know the true number, because there were so few bank account records before 1981," Roberts said. "We're very proud of that" recovery, Duffy added. "In most Ponzi schemes, the rate of recovery is zero." How many victims? At least 10,000 investors lost money. And the biggest surprise? Madoff's crime dated to the Lyndon Johnson presidency and possibly earlier. "In the early to mid-1960s, the scam began after Madoff opened up shop," and later his brother Peter Madoff joined, Roberts explained. He kept raising new money to pay off earlier investors. To uncover the truth, FBI agents spread out in Madoff's offices on the 17th floor of New York's Lipstick Building on the city's tony east side to investigate. "We knew it was ground zero for the fraud. We needed a chain of custody for all the documents. It was important to organize," Roberts said. There, the FBI discovered nearly 1,500 boxes of paper documents and the keys to a Queens, N.Y., warehouse storing an additional 10,000 boxes of records — much of which the team combed through by hand. How did Madoff get away with the crime for decades? More than a dozen Madoff employees helped manufacture phony statements, account balances, and profits, the agents found. Madoff kept his darkest secrets from everyone — his investors, regulators and financial examiners, and even the workers upstairs at the legitimate broker-dealer one floor up. At the time that Madoff started his phony hedge fund, Bernie and his brother Peter started a legitimate trading firm that grew to represent as much as 10 percent of all the volume on the New York Stock Exchange. Though successful for some years, the brokerage ended up becoming just a storefront for the Ponzi scheme. A pathological liar, Madoff held no regard for his investors. He would kick them out when they revealed that he was their money manager. Agents said his attitude was typified by Soft Screw, a large table-top Claes Oldenburg sculpture that sat by his office window. Madoff would hide the giant screw in the bathroom ceiling when regulators and investigators showed up. "The judge wouldn't allow it into evidence at trial, but we think it's evidence of his frame of mind," Roberts said. Madoff would turn down Palm Beach and Hollywood millionaires, knowing the rejections would attract them even more. And it worked on everyone from director Stephen Spielberg and actor Kevin Bacon to former Eagles owner Norman Braman and Mets owner Fred Wilpon. The Inquirer interviewed many of Madoff's victims after his sentencing to prison for 150 years. Among them were middle-class Pennsylvanians such as Michael DeVita and his elderly mother, Emma. The DeVitas, of Chalfont, had opened accounts with Madoff in the early 1990s, believing the fund was a great retirement savings opportunity. "The Securities and Exchange Commission failed me," Emma DeVita told me at the time. Others I won't forget: a woman at Madoff's sentencing who resorted to dumpster-diving for food, and Holocaust survivor Elie Wiesel, whose foundation lost $15 million to Madoff. Wiesel said afterward: "We have seen worse." The Madoff Crew His crimes date to 1964 when Madoff hired Irwin Lipkin, the first non-family employee at Madoff Investments, joining Madoff and his wife and eventually becoming controller. Prosecutors alleged that Lipkin, at Madoff's direction, "made false and misleading entries" concerning the company's profits and losses in the general ledger and stock records. Lipkin and his wife had their own investment accounts at the firm and "on multiple occasions" asked Madoff's secretary, Annette Bongiorno, to "execute fake, backdated trades" to reduce his capital gains income and taxes, prosecutors charged. It was the model for a crime Madoff would replicate over and over — into the billions. When Lipkin retired, he instructed his successor, Enrica Cotellessa-Pitz, how to manipulate company revenues and finances. Lipkin helped Madoff build the firm from a "two-man operation" to an enterprise handling a river of money. Prosecutors found that Lipkin's wife was on the payroll for a no-show job from 1978 to 2001, and eventually so was Lipkin, remaining on the payroll after he retired. Over the years came a motley crew of criminal helpers. The key players were "the Madoff five," Duffy said. They included Daniel Bonventre, who ran Madoff's legitimate broker-dealer unit and who kept hidden a JPMorgan Chase bank account handling the fund's money; Bongiorno, a Madoff secretary for 40 years who also ran the investment advisory business; Joann "Jodi" Crupi, who managed large accounts; and computer programmers George Perez and Jerome O'Hara, who automated the production of fake records. What was the key to Madoff's made-up profits? "There was never any real trading going on" at Madoff's hedge fund, Duffy said. Madoff's staff would look at the day's real trading from the upstairs brokerage firm, cherry pick winners, and create phony profits and losses using an IBM/AS 400 computer dating to the 1980s. They would then print out paper statements and mail them out — for decades. Madoff would wire millions in and out of his checking account at JPMorgan Chase entitled Account 703. And yet the bank didn't flag Madoff for suspicious activity reports because "it was too profitable," Roberts said. Before the 1980s? "We found handwritten statements on graph paper," Roberts said. "Those were based on fake trades, too." Charities, foundations, pension funds, very wealthy investors, and investors of more limited means gave Madoff billions of dollars on the promise that he would invest the money in stocks. Not every Madoff investor earned 10 percent. Some earned much more. Those special investors were tracked in the "shtup file," a manila folder for early money recruiters such as the accounting firm Avellino & Bienes, partner Maurice "Sonny" Cohn, and Minneapolis investor Mendel Engler. Shtup is a Yiddish vulgarism for sexual intercourse and "that was Bernie's way of saying we're giving them extra juice," Roberts said. Then there were the billionaires: Carl Shapiro, Norman Levy, Jeffry Picower and Stanley Chais. Picower, who was found dead in his Palm Beach, Fla. pool in 2009, was receiving 40 percent annually on his account, and was likely the most knowing co-conspirator among the biggest investors, withdrawing $7.2 billion over the life of his investment with Madoff. Then there was the "BLM Special" file that Bernie used to wire money to himself, his wife, and his sons for their million-dollar homes in Manhattan and Connecticut; to his brother Peter; and to employees such as Jodi Crupi to pay for her beach house. Madoff and his wife, Ruth, bought residences in Manhattan, Montauk on Long Island, Cap d'Antibes in the south of France, and Palm Beach, Fla., as well as several boats. December 2008 The markets were crashing; Madoff investors were calling every day, trying to get money out. By Dec. 8, 2008, the mastermind "knew the firm was running out of money. He told a key employee, Frank DiPascali, and they printed out a list of feeder-fund investors" who would get the last remaining dollars, Roberts recalled. "No. Family first," DiPascali told Madoff. The boss then wrote out checks for roughly $270 million to himself, his brother, family, workers, and key investors. The FBI found those un-cashed on Madoff's desk. But it was too late. By Dec. 10, 2008, Madoff's sons claimed they were turning in their father to regulators. And the FBI showed up at Madoff's penthouse on Dec. 11, 2008, to arrest him. DiPascali "knew it was over. He became the most cooperative of Madoff's employees," Duffy said. "He gave us intricate details of where we could find the missing documents and money. It would have been so much harder to go to trial without DiPascali." DiPascali revealed how Madoff's team created fake statements and wired money from the hedge fund to prop up the brokerage firm, which by the late-1990s was bleeding money. "Once, when KPMG auditors came to visit the office, Perez, O'Hara, and Joann Crupi would print out statements that were supposed to be old. To cool them off, they'd put the papers in the freezer, and throw them around to make them look old," Duffy explained. Upstairs, DiPascali was soft-shoeing with the auditors, buying time. The Trial What came out that the FBI says was overlooked? "The cover-up," Duffy contends. "The cover up was just as bad as the crime." The trial of Madoff's conspirators lasted about six months, ending in March 2014, and ranks as one of the U.S. government's longest-ever white collar criminal trials. "Madoff confessed to a solo crime — he wouldn't rat out anyone. Once he got out of the way, then our work began," Duffy said. Madoff didn't help in the investigation. It fell to his lieutenant DiPascali, who cooperated fully, to help the FBI sort out the records, which they did using the same techniques as an organized-crime case. "We couldn't have done it without computer programmer Haresh Hemrajani," who was working on the legitimate brokerage firm side, Duffy said. Annette Bongiorno insisted she hadn't committed any crimes and lived modestly — despite buying a Bentley, a $6.5 million condo in Florida, and working three weeks a month in Boca Raton. At the time of her arrest, she had phony accounts worth $50 million at Madoff's firm. Bongiorno kept boxes of old stationery to re-create statements, making them look original, the FBI agents found. "She started making stuff up even on the stand, and that's when she just buried herself," Duffy said. O'Hara and Perez, the computer programmers, "automated the fraud," making sure the financial statements looked authentic. They even confronted Madoff in 2006, saying they weren't willing to fabricate returns anymore and "suggested he pay them in diamonds," Duffy said. Instead, Madoff began paying them $400,000 a year for their silence. In 2014, a jury unanimously found the five guilty on 31 separate charges. Was the FBI happy with the short sentences? "Not really. The judge was pretty lenient," Roberts said. But "we took everything from this group — their money, their homes, and their freedom." Bernie's brother Peter Madoff and Daniel Bonventre both received 10-year prison sentences; Bongiorno and Crupi received 6 years; and O'Hara and Perez received 2½-year sentences. A chain smoker, DiPascali died of cancer in 2015 before sentencing. The Family What of Madoff's family? It's a good assumption that both sons were being groomed to take over the massive Ponzi scheme. But the truth went to the grave. Madoff's sons Mark and Andrew were never charged, but were both under criminal investigation at the time of their deaths, the FBI confirmed. Mark Madoff committed suicide in 2010, and Andrew Madoff died of cancer in 2014. Ruth lives in Connecticut and received $2.5 million to live on. She was never charged. Peter Madoff is still serving a 10-year prison sentence. What have we learned? "Complacency can put us in a bad spot. Because of Bernie's stature, regulators may have taken a lighter look at him. No matter who the person is," Roberts said, "trust but verify." By The Numbers Ponzi scheme total: $64.8 billion Net cash lost: $20 billion Money recovered: $15 billion Victims: 10,000-plus Madoff's arrest: Dec. 11, 2008 Years of criminal activity: 45
And for ALL those 45 years, the Fed, the DOJ, the SEC, the whatever did nothing, did absolutely f***ing nothing!! It's incredible. Total incompetence! I can't believe they are actually willing to expose this to reveal further of their incompetence. LOL I suspect another reason why the recovery of the losses is so fast is there could be "interesting" money from the "other world" is involved. If the crime had gone on for 45 years and the return is that good, the word is going to get around and there is NO WAY it wouldn't reach the "other world", no way. They can brush off the ordinary pensioners who've lost their life savings but they are not gonna dare to brush off somebody who's lost their "business savings" that they are not interested of getting exposed in court. So you either make them whole or you get made whole. I am sure Picard has used that line in his recovery efforts, I am sure since he's seen the books.
JSOP> I heard that Picower was the front man for the mob. It makes sense, why else would he receive $7 billion over the years. Funny that this wasn't really investigated.
I think there is "interesting" money involved but picower is not it. If he's the front man, he would've distributed the money to his "clients" to keep them happy. He wouldn't dare not to and his "clients" would have no reason to kill him. No, I think somebody from the "other world" wanted their returns and was not made whole anymore and somehow they got the wind of Picower being the biggest investor who's still getting his returns so they decided to do something about it that is all assuming Picower really died under suspicious circumstances. Nevertheless "interesting money" must've been involved. Must have. Look how quickly Picower's estate settled with Picard. They ended up coughing up the entire $7.2 billion that they withdrew from Madoff's "fund" right away of course after first claiming "shock and non-knowledge".
I'm not sure how any of those 3 letter agencies would have gone about figuring it out. I mean mechanically, what does that look like? They send an agent in to actually perform an audit? Of what, any firm that has positive returns for more than 5 years in a row? Can you imagine the cries of outrage? Where there any big issues that they should have been aware of from the required reporting that could have been sifted from the tens of thousands of other required reports? Victimless crime like a ponzi scheme that hasn't gone bust yet is incredibly hard to suss out from a LE perspective without a very high level of intrusiveness. Most of the guys who get caught are morons who are operating without the right licenses or something else obvious, Madoff knew enough not to make any of those catchable mistakes that could have led to more scrutiny.
Well yes, there were red flags all over the place. Harry Markopolos was telling anyone who'd listen, including the SEC, that Madoff was a fraud. And he was saying it loudly and for years. Internal memos from Merrill, Rentec, MS and others showed that many on Wall St. were aware that the stated returns were suspect and wouldn't touch Madoff's fund with a ten foot poll. And as far back as the late 90's I recall an article in MAR-Hedge that cast serious doubts on the Madoff story line.
Again though, if you're law enforcement you can't just go with "internal memos" (which you wouldn't have access to in any event) or articles in MAR-Hedge or Harry Markopolos complaining to the SEC. I someone complaining to the SEC was all it took then Interactive Brokers wouldn't be in business any longer! You would need this pesky thing called probable cause. What kind of evidence that rose to that level was provided, remembering that hindsight is 20/20.
Markopolos compiled his evidence and arguments in a fairly extensive write-up and more or less published it (made it widely available anyway). I'm sure I have a copy of it somewhere. I will dig it up and post it here and you can judge the pre-arrest evidence for yourself. This main point, IIRC, is that Madoff's claimed strategy was not capable of either handling the size he was running nor producing the preternaturally consistent returns he was claiming.