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Two Former Computer Programmers for Bernard L. Madoff Indicted March 18, 2010

Posted by jefhenninger in News.
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JEROME O’HARA and GEORGE PEREZ — former computer programmers for Bernard L. Madoff Investment Securities, LLC (“BLMIS”) — were indicted today by a federal grand jury in Manhattan on charges of conspiracy, falsifying records of a broker-dealer, and falsifying records of an investment adviser.

As alleged in the Indictment returned today in Manhattan federal court, as well as statements made in the course of relevant court proceedings:

Beginning in 1990 and 1991, respectively, O’HARA and PEREZ were employed as computer programmers at BLMIS. They primarily were responsible for developing and maintaining computer programs that supported the operation of the BLMIS investment advisory business (the “IA business”). Many of those programs were run on an IBM server known within BLMIS as “House 17.”

Under the federal securities laws and regulations, BLMIS was required to keep certain books and records in the ordinary course of its business. Between 2003 and 2008, BLMIS was subject to at least five reviews by the United States Securities and Exchange Commission (“SEC”) and a European accounting firm that was conducting a review of BLMIS’s operations on behalf of a European IA client. As part of a concerted effort overseen by MADOFF and his employee, FRANK DIPASCALI, JR., to deceive both the SEC and the European accounting firm, O’HARA and PEREZ developed and maintained computer programs that generated numerous false and fraudulent records.

O’HARA and PEREZ are alleged to have known that the special programs they developed contained fraudulent information and that they were used in connection with the SEC and European accounting firm reviews.

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Yet another Madoff employee charged February 26, 2010

Posted by jefhenninger in News.
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As I’ve said before, anyone connected to Bernard “Bernie” Madoff needs to get an attorney.  Hopefully, that has already happened since I think the arrests are going to keep coming.   The latest Madoff related arrest is:

DANIEL BONVENTRE, the former Director of Operations for Bernard L. Madoff Investment Securities, LLC (“BLMIS”).  He was arrested on a criminal Complaint charging him with conspiracy; securities fraud; falsifying books and records of a broker-dealer; false filings with the U.S. Securities and Exchange Commission (“SEC”); and filing false federal tax returns.

As alleged in the Complaint unsealed today in Manhattan federal court:

For decades, BERNARD L. MADOFF purported to provide investment advisory (“IA”) services through BLMIS. In fact, MADOFF defrauded thousands of IA clients out of billions of dollars through an elaborate Ponzi scheme. 

In 1968, BONVENTRE was employed at BLMIS and served as its Director of Operations beginning at least as early as 1978. In that capacity, BONVENTRE was responsible for, among other things: (a) maintaining and supervising the production of the principal internal accounting documents for BLMIS, including its general ledger (the “G/L”) and financial statements; (b) maintaining the stock record for BLMIS and resolving any discrepancies between internal and external records; (c) supervising the use and reconciliation of BLMIS bank accounts through which the Market Making, Proprietary Trading, and IA business operations were funded; and (d) supervising BLMIS employees who were responsible for accounting and other “back office” functions, including settlement and clearing of trades executed by the Market Making and Proprietary Trading operations.

As Director of Operations, BONVENTRE directed that false entries be made in the G/L that concealed the scope of the IA operations and understated BLMIS’s liabilities by billions of dollars. From 1997 to 2008, more than $750 million of IA investor funds were used to support BLMIS’s Market Making and Proprietary Trading operations, but were accounted for on BLMIS’s books and records, including the G/L, so as to conceal the true source of the funds. Moreover, as BONVENTRE knew, the G/L did not accurately reflect the assets contained in the bank and brokerage accounts into which IA investor funds were deposited, and likewise did not reflect the liability of BLMIS to its IA clients that arose from the custody of IA client funds in those accounts. At various points in time, the assets and associated liabilities of BLMIS’s IA operations, which were omitted from the G/L, ranged from millions to billions of dollars.

Between November 2005 and June 2006, BLMIS experienced a liquidity crisis caused by IA clients’ demands for withdrawals that exceeded cash on hand. Rather than sell securities to meet those demands—which could not be done because BLMIS had not actually purchased any such securities on behalf of those Clients—BONVENTRE requested $145 million of loans from a bank, using $154 million of an IA client’s bonds as collateral, to meet obligations to other IA clients. During the same period, BONVENTRE monitored lines of credit, which BLMIS drew down by more than $340 million and used to meet IA clients’ withdrawal requests. BONVENTRE also created false and fraudulent books and records that had the effect of disguising $262 million worth of payments to IA clients from the principal bank account that funded BLMIS’s operations as purchases of bonds and other debt instruments when, in fact, no such purchases had been made.

During the liquidity crisis, BLMIS was required to file Financial and Operational Combined Uniform Single Reports (“FOCUS Reports”) with the SEC. Those FOCUS Reports require the production of basic information that amounts to a condensed version of a broker-dealer’s general ledger. Because the G/L was inaccurate, as BONVENTRE well knew, the FOCUS Reports were likewise false because they failed accurately to reflect BLMIS’s assets and liabilities. For example, one such report, for the month of April 2006, in the midst of the above-described liquidity crisis, failed to reflect at least $299 million in BLMIS liabilities related to $154 million of an IA client’s bonds and the $145 million that BLMIS had borrowed using those bonds as collateral.

At this point, it looks bad but there is a difference between a loyal employee and a co-conspirator.  The difference doesn’t really impact on whether any of this was legal (assuming its all true) but it does impact the prosecution.  But it does get worse because…

as early as 1983, BONVENTRE also had his own IA account at BLMIS. Between 2002 and 2006, BONVENTRE obtained more than $1.8 million in at least three fictitious backdated trades that appeared in his account. For example, one purported trade, which appeared in BONVENTRE’s IA account in 2002, included a purchase that was backdated 12 years, to 1990, and generated purported long-term capital gains of nearly $1 million. BONVENTRE is also charged with four counts of filing false federal tax returns related to his accounting for the three fictitious trades, and his failure to report a total of approximately $273,620.24 in income that he obtained from BLMIS bank accounts in 2003, 2004, 2006, and 2007.

Yeah, that hurts.  As an attorney, you want to look to see if someone is just following orders and maybe looking the other way or if they are lining their pockets too.  As I said before, the Government may be willing to work with someone that was just stupid, naive, loyal, etc.  But when you line your pockets too, then a number of problems arise. 

First, you normally have other charges such as the false tax returns.  These charges make it much more difficult for the attorney to defend the client since the greed/profit motive will make the Government’s case stronger.  The jury will really hate the defendant as he will be seen as Madoff’s right hand man.   As a result of all of this, the Government wants to make an example out of you because they didn’t get enough mileage out of the aging Madoff.  But much like Madoff, the goal here for his attorney may be to protect his family against any fallout from all of this.