Madoff Behaved Like A Lunatic Over Fund Probe
Bernard Madoff demanded his inner circle rush to recreate years' worth of fake account documents for a feeder fund that in 1992 attracted unwanted attention from regulators, the con man's ex-finance chief told a jury.
Madoff began swearing and "throwing himself around the office like a lunatic" after hearing Avellino & Bienes, a Florida investment firm that funneled $441 million to his fraud, was being probed for failing to register its promissory notes as securities, Frank DiPascali, 57, told a jury in Manhattan federal court yesterday at the trial of five former colleagues.
Annette Bongiorno, who ran Madoff's investment advisory unit and is one of the defendants in the case, created fresh sets of fake stock purchases and randomized trading numbers for the new Avellino & Bienes statements and kept detailed notes of her efforts, said DiPascali, who pleaded guilty to aiding the fraud and is testifying in a bid for a lighter sentence.
DiPascali, who started working for Madoff as a researcher when he was 19 years old in 1975, is the highest-ranking former Madoff executive to testify in the first criminal trial stemming from the Ponzi scheme, which the U.S. has said began in the early 1970s and collapsed at the peak of the financial crisis. The scam deprived investors of $17 billion in principal.
The U.S. Securities and Exchange Commission started the investigation into Fort Lauderdale-based Avellino & Bienes, of which Madoff's father-in-law was a founder, after receiving complaints that it might be a Ponzi scheme.
When Madoff heard about the review, he worried investigators would "peel away the onion" and reveal the fraud, DiPascali said. The con man began "ranting and raving to himself about the idiocy" of the feeder fund's managers and "circled the wagons" to avoid the fallout, he said.
Madoff realized the feeder fund's statements from his investment advisory business didn't match the trading strategy that Avellino & Bienes had been disclosing to its own customers, DiPascali said. Since the discrepancy would attract too much attention, Madoff instructed his deputies to fix at least three years' worth of account documents in anticipation of an SEC request to see them, he said.
Prosecutors showed the jury several hand-written pages of notes showing what DiPascali said was Bongiorno's methodical approach to creating the new fake statements, including notations regarding how to make them look more realistic.
One such page showed Bongiorno asking that a money transfer listed on an original Avellino & Bienes monthly statement, with an "X" drawn across the page, be turned into a dividend payment of the same amount from General Motors Corp.
The change helped because a dividend would be less suspicious than a transfer from another account, DiPascali said.