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Yet another Madoff employee charged February 26, 2010

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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.

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Peter Madoff, Bernie’s brother is under fire January 31, 2010

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Anyone associated with Madoff should have retained an attorney by now.  Family members, employees and associates have been either arrested or are the subject of various investigations.  This week its Peter Madoff who is subject to both a criminal investigation and a civil suit brought by the charitable foundation of U.S. Senator Frank Lautenberg.

Numerous blogs picked up on this story including:

http://www.senseoncents.com/2010/01/peter-madoff-subject-of-criminal-probe/trackback/

And be sure to check out Madoff A to Z at

http://www.hedgeworld.com/blog/wp-trackback.php?p=321

Bernard Madoff “arrest net” widens with more arrests November 13, 2009

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Thought the Bernie Madoff saga was over?  Think again.  The Government will not pack up shop with Madoff’s plea and sentencing.  They will continue to arrest and prosecute just about anyone who can be connected to Madoff’s ponzi scheme. 

The latest arrests are for two former computer programmers for Bernard Madoff’s investment firm on charges they helped cover up his massive fraud for more than 15 years.  Jerome O’Hara and George Perez are charged with  conspiracy, falsifying books and records of a broker-dealer, and falsifying books and records of an investment adviser.  The Securities and Exchange Commission has alleged that they provided technical support to produce false documents and trading records.

Of course, the Government will have to prove that these men shared Madoff’s intent which may be very difficult.  However, the fact that these men are even associated with Madoff will make it very difficult for the defense.  In my opinion, this case turns on whether or not these men are just associated with Madoff or if there is some actual evidence such as cooperating witnesses, documents or emails that show the conspiracy. 

The amount they were paid may impact the case as well since if they were over paid, then the extra compensation will make it more likely that they were in on it.  If their salary was normal, then it will be less likely that they risked criminal prosecution with no “skin in the game”. 

Story is here.

Ponzi schemes continue to roll up July 30, 2009

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Some of the ponzi schemes that surfaced over the past year are starting to plea out.  The latest includes Marcia Sladich, the former operator of a Clifton-based real estate investment program.  She admitted that she fraudulently stole more than $15 million from hundreds of investors.  She pleaded guilty on Thursday in federal court to a one-count information charging her with mail fraud.  Under federal sentencing guidelines, she faces up to 78 months in prison but of course, the guidelines are no longer mandatory.

After the circus that was the Madoff case, I would want a few more of these cases to shake out first before tempting fate.  Conventional wisdom has traditionally been that a good attorney can shave years off the sentencing guidelines in a white collar crime case.  My firm has made that a reality.  Of course, post-Madoff, some judges might want to send an example especially when the victims are in the hundreds.  A six and a half year sentence in a  $15 million case is pretty good deal so we’ll have to see what the judge hands down.

Story is here.

Madoff gets 150 years but I’m still confused June 29, 2009

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I’m still shocked by the whole Madoff situation.  I really don’t understand why he didn’t fight this.   I’m hoping someone can explain to me how this makes sense.  At his age, just about any sentence would have been a life sentence.  Due to his age, his life expectancy would be much shorter in prison.  I know his lawyer said 13 years so they were hoping for 12, but I don’t think that he would have survived a 12 year sentence. 

 There have been some studies published on how prison rapidly ages everyone, especially an elderly convict but most lawyers don’t make this argument.  As a result, most judges are reluctant to except it.  However, in this case, I guess it doesn’t matter.

As an attorney, I also fail to understand 100+ year sentences.  Just for fun, I would file an appeal and ask for 120 years.  Why not a million years? It is all such a bunch of nonsense.

The other nonsense part of this is that the sentence was so high so it will deter others.  This is another thing that has no rationale basis behind it but it is a cornerstone of just about every sentencing scheme.  

In my opinion, the only person this will deter is someone else who thinks about taking a plea instead of rolling the dice at trial.  But again, that is the big thing that totally confuses me on this.  At his age, why plea out?  Why not drag this out for every last second so that you can stay out of prison as long as possible?  

I try to let my clients do what they want even if it is against my advice as long as they understand it.  However, unless Madoff has a great reason for throwing his life away, I would get his head examined before I would even allow him to do this.

Anyone have any thoughts?

The politics of a plea; what did Madoff do? March 10, 2009

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It looks like Madoff (Bernard L. Madoff Investment Securities or BLMIS), is going to plea out and as a result, die in prison.  He will also have to pay back a ton of money.  However, the Government claims that there is no plea agreement.  I can’t buy this.  I see no reason why you would give up your right to stall in an effort to delay going to prison to die.  I see no reason why your attorneys would work so hard for months only to just throw in the towel so early.  Why even get a good attorney?  What are you even paying them to do.

Here’s what this boils down to.  He is going to take the hit and give back money in exchange for something.   My guess is that this something, this  bargain, involves his family.  However, the Government wants to look like the white knight here with no blood on their hands.  It is all politics.  They say there was no plea agreement and maybe they are right in a technical sense.  However, I’m sure there is an agreement that we don’t know about that makes Madoff decide to avoid the trial of the decade (or even century)and plea out so early. 

When the media feeds you this garbage, don’t buy it.  Article is here.

Does Allen Stanford have enough money to bankroll a defense? February 19, 2009

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Unless you live under a rock, you have probably heard of Allen Stanford by now.  He is accused, but not charged criminally yet, with billions of dollars in fraud.  While still not at the level of Madoff, his case might be more complex due the reach of his bank.  As big as the Madoff story is, it is more of a New York story although his investors were spread out all over the place.  Stanford’s case reaches numerous countries and as a result, it could much more complex that Madoff’s case.

Just as an example of what is going on now, Mexico’s banking regulator is investigating a local Stanford bank for possible violation of banking laws.  While this may not yet involve Stanford directly, it probably will soon.  This is a world wide situation that is going to get worse. 

Stanford is going to need huge team of attorneys to deal with all of this and his company will need their own attorneys.  These attorneys are going to have to dedicate just about all of their time to this case.  Of course, that is incredibly expensive especially if you have to get teams of lawyers in different countries to deal with the issues that will come up in each country.  It is going to be incredibly tough to bankroll all of this and then eventually bankroll a defense in the criminal case. 

If I am running the defense team, I am making sure the defense in the civil case is handled so that the defense for the criminal charges that will be filed is started.  I would also make sure that resources are not wasted but used carefully because money will be running out eventually.  Everything has to be geared towards the criminal defense but you don’t just want to roll over on the civil case either. 

It should be interesting to see just when he will be arrested.  The public may force the Government to arrest him earlier than they would like to.  I say that because Stanford was found in Virginia a few hours ago if you didn’t see that breaking news yet.  He was not in Antigua or some other country as some have speculated.

Story about the Mexico investigation is here.

Female financial planner arrested for alleged ponzi February 3, 2009

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Judith Zabalaoui’s case may seem like every other ponzi scheme that has made the news over the past few months.  However, the fact that she is female and there are no males involved that she was working for makes her case very unique.  Unfortunately for her, I doubt this will really help her out here. 

Like many of the other cases out there, the first sign of trouble involved a law suit.  She is also 71 which, like some of the other cases, make plea deals rather difficult to work out since 10 years could be a life sentence.  She is alleged to have stolen over $3 million from 1993 to 2007. 

Another interesting aspect of her case is that the evidence against her seems to be incredibly strong.  At least Madoff and others had companies.  Prosecutors allege that her companies were fake and she even crafted fake letters between herself and fake employees!  That is so incredible that I would want to have her head examined.   While mental health issues may not prevent a conviction, it can be used in mitigation.  Most criminals take advantage of her situation but for an older female to go to this length to pull off a scam like this is rather unique. 

Story is here.

Ponzi scheme hits Long Island, New York January 26, 2009

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This is really starting to get out of hand.  Arrests for Ponzi schemes are just exploding in the past few weeks.  It is actually getting a little boring, at least for me as it is an old scam and not a very creative one.  Nevertheless, I’ll continue to blog about the more interesting stories and since I’m in the NY media market, I feel compelled to discuss this one.

Authorities allege that Nicholas Cosmo, founder of Agape World Inc in Hauppauge. New York stole over $380 million from investors by using a Ponzi scheme.  He has a big problem as he is a convicted felon. 

In 1997, Cosmo was working as a stockbroker at Continental Broker-Dealer Corp. where he was accused of misappropriating funds. He pleaded guilty to a federal charge in 1999 and was sentenced to serve 21 months in prison.  Not only will this increase his exposure for sentencing but the Government may be able to use this prior conviction against him in what is known as 404(b) evidence.  As if his attorneys didn’t have it hard enough huh?

I’m sure there will be many reasons why it will be difficult for his attorneys to find legitmate excuses for his actions.  Besides his prior conviction, another one will be that he said Agape started in 1999 even though he didn’t get out of prison until 2000. 

Story is here.

Joseph Forte, yet another alleged Ponzi scheme January 20, 2009

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Another day, another Ponzi scheme.  Is this getting boring yet?  I would really like to see some of these cases get litigated but it’ll probably never happened. 

Anyway, this latest allegation involves Joseph Forte, a Philadelphia based fund manager.  He is alleged to have stolen $50 million from 80 investors over 10 years.  He has two big problems that others like Madoff and Art Nadel don’t have.  One is his age.  At only 53, a lengthy prison sentence will actually mean something to him.  With an older defendant, it is hard to scare them with a long prison sentence since they will likely die in prison if it is 5 years or 20. 

His other problem is that he admitted to the scam.  I can understand that average person not understanding how the police work, but how does this guy admit guilt here?  He must have a team of attorneys working for him.  How did they ok that?  I’d really like to know more as that makes no sense at all. 

Story is here.