Carl J. Shapiro and Others Agree to $625 Million Civil Forfeiture for Victims of Bernard L. Madoff’s Ponzi Scheme

Irving H. Picard to Serve as Department of Justice Special Master for Returning Forfeited Funds to Victims

NEW YORK—Carl J. Shapiro and various related people and entities have agreed to forfeit $625 million to the United States, all of which will be made available to the victims of the fraudulent investment advisory business which was owned and operated by Bernard L. Madoff. The distribution of funds to victims will be administered by Irving H. Picard in his dual capacities as the newly-appointed special master to assist the department in connection with the victim remission proceedings, and as the court-appointed trustee overseeing the liquidation of Bernard L. Madoff Investment Securities LLC, under the Securities Investor Protection Act. The agreement was submitted to and approved by U.S. District Judge Thomas P. Griesa today.

The announcement was made by Preet Bharara, U.S. Attorney for the Southern District of New York; Orlan Johnson, Chairman of the Securities Investor Protection Corporation (SIPC); Janice K. Fedarcyk, Assistant Director-in-Charge of the New York Field Division of the FBI; and Charles R. Pine, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service (IRS), Criminal Investigation Division, announced today that

According to the stipulation and order of settlement and accompanying civil forfeiture complaint filed in Manhattan federal court earlier today, the investment advisory business of Bernard L. Madoff Investment Securities LLC (BLMIS) was operated from at least as early as the 1980s as a massive Ponzi scheme, defrauding investors of billions of dollars. Rather than use client funds to invest in securities, as promised, BLMIS diverted those funds to (a) pay other clients’ redemption requests; (b) fund transactions to disguise BLMIS’s fraud; and (c) enrich Madoff, his family, and his associates. In order to support the lie that BLMIS was operating a legitimate investment advisory business, BLMIS created and disseminated fictitious account statements that, among other things, showed trades that never actually took place. During the course of the fraud, Madoff’s clients lost approximately $20 billion in funds they invested with BLMIS.

Since at least the late 1960s, Carl J. Shapiro was an investor in BLMIS, holding an account in his own name and controlling accounts held by various related individuals and entities. Over the course of his approximately 40-year relationship with Madoff and BLMIS, Shapiro invested hundreds of millions of dollars into his BLMIS accounts, but withdrew hundreds of millions more. When Madoff was arrested in December 2008 and his fraud was revealed, it became clear that Shapiro—like all of BLMIS’s investors who withdrew more money than they invested—had profited at the expense of more recent BLMIS investors.

In order to resolve any potential civil claims by the government against Shapiro and his family, the Shapiro family has agreed to forfeit $625 million to the government—an amount in excess of Carl J. Shapiro and his wife’s current net worth, as well as in excess of the fictitious profits that Shapiro and his wife took out of BLMIS. The settlement contains no finding or admission of fault against Shapiro or his family; the settlement does not, however, release any party from criminal liability.

Simultaneously with the announcement of today’s historic settlement, U.S. Attorney Bharara announced that the department has appointed Irving H. Picard as special master to assist in identifying eligible victims, verifying their losses, and distributing the forfeited funds in accordance with department regulations governing remission or mitigation of forfeitures. For approximately two years, Picard has served as the court-appointed trustee for BLMIS under the Securities Investment Protection Act (SIPA). Under the terms of today’s settlement, and a related settlement submitted to the U.S. Bankruptcy Court for the Southern District of New York, Picard will administer $550 million of the funds being returned to investors by the Shapiro family through the SIPA liquidation proceedings, and the remaining $75 million through the department’s remission or mitigation process.

“For almost 40 years, Carl Shapiro invested hundreds of millions of dollars with Bernie Madoff but withdrew far more,” said U.S. Attorney Preet Bharara. “By requiring him to forfeit this money—more than he is currently worth—the government and the SIPA Trustee have sent an important message: those who profited as a result of Bernard Madoff’s fraud should disgorge those profits, which are rightfully other people's money. We will continue to work tirelessly with our partners from SIPC, the FBI, and the IRS, to track down any and all proceeds of Madoff’s Ponzi scheme and return them to their rightful owners. And, to be clear, the criminal and civil forfeiture investigations relating to the Madoff fraud are very much ongoing.”

“The trustee used the legal tools made available under the Bankruptcy Code and SIPA to benefit the victims here,” said SIPC Board Chairman Johnson. “The Madoff case is now entering a new phase. I hope this marks the beginning of a period that will see many such settlements.”

“As we approach the two-year anniversary of the Bernard Madoff arrest, this settlement represents a significant step in the restitution of retirements, pensions, and university endowments that were robbed with blatant disregard for the law,” said FBI Assistant Director-in-Charge Fedarcyk. “It takes a special depravity to victimize so many people so severely. The investigation of prodigious fraud, like that of Madoff, remains one of the FBI's top priorities. From robbers to fraudsters, the FBI will continue to bring to justice crooks who steal.”

“Investment fraud is never a victimless crime,” said IRS Criminal Investigation Special Agent-in-Charge Pine. “Financial distress left in the wake of a crumbling investment scheme leaves victims in financial ruins and feeling betrayed by individuals they trusted would help them make a better life. The victims in the case can know that IRS Criminal Investigation has resources devoted to assisting the U.S. Attorney to hold the perpetrators accountable, and to help re-coop some of their stolen money.”

U.S. Attorney Bharara praised the work of SIPC, the SIPA Trustee, the FBI, the IRS, the Department of Labor’s Employee Benefits Security Administration and Office of the Inspector General, the Department of Justice’s Criminal Division’s Asset Forfeiture and Money Laundering Section, and the U.S. Marshals Service. U.S. Attorney Bharara also thanked the Securities and Exchange Commission for their assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Assistant U.S. Attorneys Lisa A. Baroni, Julian J. Moore, Barbara A. Ward, and Matthew L. Schwartz are in charge of the case.

Guilford Man Pleads Guilty to Fraud and Tax Evasion Charges Stemming from $2 Million Investment Scheme

David B. Fein, United States Attorney for the District of Connecticut, announced that CARLOS GARCIA, 48, of

Bayberry Lane, Guilford

, waived his right to indictment and pleaded guilty today before United States Magistrate Judge Thomas P. Smith in Hartford to mail fraud, wire fraud, and tax evasion charges stemming from a $2 million investment scheme.

“The Connecticut U.S. Attorney’s Office and our federal, state, and local law enforcement partners are committed to investigating investment fraud, prosecuting those who engineer these schemes, and seeking restitution for victims,” stated U.S. Attorney Fein.

According to court documents and statements made in court, from at least as early as 2002 until 2009, GARCIA purported to be an investment advisor/hedge fund manager, selling shares in “Paramount Equity Partners, LLC,” an investment vehicle that he represented would be used to invest client funds. GARCIA directed certain clients to cash out their stock holdings or other investments, obtain surrender checks by mail, and endorse the checks over to “Garcia Capital Management, LLC,” an entity that GARCIA controlled. GARCIA then deposited the surrender checks into the Garcia Capital Management, LLC bank account. GARCIA directed other clients to wire transfer money directly into the bank account for Paramount Equity Partners, LLC, and he then transferred those funds into the Garcia Capital Management, LLC bank account.

Instead of investing the funds as promised, GARCIA used clients’ money to pay for personal expenses for himself and his family, and to make “lulling” payments to clients. Through this scheme, GARCIA victimized at least 10 people and caused a net loss to his victims of more than $2 million.

As part of the scheme, GARCIA created and mailed bogus account statements and correspondence to his client victims that discussed the returns they were earning on their investments. In some cases, GARCIA also created false federal Internal Revenue Service Form 1065 Schedule K-1s so that victims filed false tax returns and paid taxes on returns they never earned.

GARCIA also willfully evaded the payment of income taxes for the tax years 2005, 2006, 2007 and 2008, resulting in a tax loss to the government of $38,145.

Today, GARCIA pleaded guilty to one count of mail fraud, one count of wire fraud and four counts of tax evasion. GARCIA is scheduled to be sentenced by United States District Judge Vanessa L. Bryant on January 25, 2011, at which time GARCIA faces a maximum term of imprisonment of 60 years and a fine of up to approximately $4 million. GARCIA also will be ordered to pay restitution to his victims and to resolve his outstanding tax liabilities with the IRS.

This matter was investigated by the Internal Revenue Service – Criminal Investigation and the Federal Bureau of Investigation. The case is being prosecuted by Assistant United States Attorney Susan L. Wines.

U.S. Attorney Fein noted that this prosecution falls under the umbrella of the President’s Financial Fraud Enforcement Task Force, which includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The Task Force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit: www.StopFraud.gov.

Prisoner Caught in a Scheme to Defraud the IRS Sentenced to More Than Seven Years

March 10, 2010 - SACRAMENTO—United States Attorney Benjamin B. Wagner announced today that United States District Judge Frank C. Damrell Jr. sentenced SCOTT EDWARD WHITNEY, 41, of Las Vegas, to seven years and three months in prison to be followed by three years of supervised release for conspiring to defraud the IRS.

This case is the product of a joint investigation by the IRS – Criminal Investigation, the FBI, and the Federal Bureau of Prisons at Herlong Federal Correctional Institution.

According to Assistant United States Attorney Samantha Spangler, who prosecuted the case, WHITNEY and a codefendant filled out false tax returns for other inmates seeking refunds from the IRS. In order to portray the inmates as taxpayers, they made false W-2 forms using the names of real employers, but for whom the inmates had not worked. The IRS discovered the scheme and no refunds were paid. If the scheme had been successful, WHITNEY and his coconspirators would have obtained $93,950 from the IRS. WHITNEY pleaded guilty on November 23, 2009.

At sentencing, Judge Damrell told WHITNEY that he had "made his whole life about stealing from others." He declined WHITNEY’s proposal to be placed in a gambling addiction treatment program in Las Vegas instead of prison. In imposing a sentence higher than that called for under the Federal Sentencing Guidelines, Judge Damrell pointed out that WHITNEY committed the IRS fraud while serving a sentence for his last fraud. Judge Damrell said that the need to protect the public and deter WHITNEY from committing more crimes against the public justified the sentence.