Madoff
Also Pleads Guilty to Falsifying Books and Records and Making False Statements
to Investors.
Preet Bharara, the United States
Attorney for the Southern District of New York, Janice K. Fedarcyk, the
Assistant Director-in-Charge of the New York Field Office of the Federal Bureau
of Investigation (“FBI”), Toni Weirauch, the Acting Special Agent-in-Charge of
the New York Field Office of the Internal Revenue Service, Criminal
Investigation (“IRS-CI”), Robert L. Panella, Special Agent-in-Charge for the
New York Regional Office of the U.S. Department of Labor’s Office of the
Inspector General, Office of Labor Racketeering and Fraud Investigations
(“DOL-OIG”), and Jonathan Kay, the Director for the New York Regional Office of
the U.S. Department of Labor, Employee Benefits Security Administration
(“DOL-EBSA”), announced that PETER MADOFF, the former Chief Compliance Officer
and Senior Managing Director of Bernard L. Madoff Investment Securities LLC
(“BLMIS”), pled guilty today to a two-count Superseding Information charging
him with, among other things, conspiracy to commit securities fraud, tax fraud,
mail fraud, ERISA fraud and falsifying records of an investment advisor. The
overt acts in the conspiracy count also include, among other things, making
false statements to investors about BLMIS’s compliance program and the nature
and scope of its Investment Advisory business. MADOFF pled guilty in Manhattan
federal court before United States District Judge Laura Taylor Swain.
Manhattan U.S. Attorney Preet Bharara
said: “Peter Madoff enabled the largest fraud in human history. He will now be
jailed well into old age, and he will forfeit virtually every penny he has. We
are not yet finished calling to account everyone responsible for the epic fraud
of Bernard Madoff and the epic pain of his many victims.”
FBI Assistant Director-in-Charge Janice
K. Fedarcyk said: “The Madoff investment empire, built on a foundation of
deceit, was a house of cards that grew to skyscraper proportions. As Peter
Madoff has admitted today, he was one of the chief architects. For years he
certified that periodic reviews established the firm’s compliance with internal
and regulatory rules. In fact, Peter Madoff conducted no reviews. He certified
that his examination of the firm’s trading process established its integrity.
He did not—indeed, he could not—conduct any such examination: Despite the
façade, the investment advisory business did not actually trade any stocks.
Peter Madoff played an essential enabling role in the largest investment fraud
in U.S. history. He made a pretense of compliance; he was really about
complicity.”
IRS-CI Acting Special Agent-in-Charge
Toni Weirauch said: “This scheme relied on sophisticated teamwork to prevent
its discovery by investors and law enforcement. One of the consequences of the
concealment is that the IRS was hindered from performing its lawful duty, thus
harming our nation’s law abiding taxpayers, along with the defrauded victims.
IRS-Criminal Investigation is proud to bring our financial investigative skills
to this complex joint investigation and be part of the team that is helping to
untangle the web of lies and sort out the culpabilities of the individuals
involved. Today’s plea represents an important step forward.”
DOL-OIG Special Agent-in-Charge Robert
L. Panella said: “During today’s plea, Peter Madoff admitted to his role in a
fraud scheme that harmed the savings of thousands of investors. The
investigation that led to today’s guilty plea by Madoff serves as a stern
warning to those who would knowingly undermine the financial well-being of
workers. In addition, by conspiring to make false statements and to falsify
documents required by the Employee Retirement Income Security Act, he failed to
protect the integrity of employee benefit plan assets and personally benefited
from proceeds gained as a result of these false statements. The OIG will
continue to work tirelessly with the U.S. Attorney and our law enforcement
partners to investigate such crimes.” DOL-EBSA New York Regional Director
Jonathan Kay said: “Today’s plea is a testament to the good work and strong
collaboration among multiple federal agencies. This agency remains committed to
protecting worker benefit plans from those who would defraud them for personal
gain.”
According to the Superseding Information
to which MADOFF pled and other court filings:
MADOFF was employed at BLMIS from 1965
through at least December 11, 2008. Beginning in 1969, he became the Chief
Compliance Officer (“CCO”) and Senior Managing Director of BLMIS. In his role
as CCO, MADOFF created false and misleading BLMIS compliance documents, as well
as false reports that were filed with the U.S. Securities and Exchange
Commission (“SEC”) that materially misstated the nature and scope of BLMIS’s Investment
Advisory (“IA”) business.
Specifically, in his capacity as CCO,
MADOFF created numerous false compliance documents in which he stated that he
had performed compliance reviews of the trading in the BLMIS IA business on a
regular basis, when in reality, the reviews were never performed. The false
statements were designed to mislead regulators, auditors, and IA clients.
Further, in August 2006, BLMIS
registered as an investment adviser with the SEC. As a registered investment
adviser, on at least an annual basis, BLMIS was required to file forms with the
SEC that are used to guide the examination programs of investment advisors.
Madoff was integrally involved with both the SEC registration process and in
the creation of the forms, known as “Forms ADV,” which were materially false
and misleading. The numerous false statements in the Forms ADV created the
false appearance that BLMIS’s IA business had a small number of highly
sophisticated clients and far fewer assets under management than was actually the
case. For example, the Forms ADV stated that there were only 23 IA accounts
under management at BLMIS when in fact there were more than 4,000 at the time
of the firm’s collapse in 2008, and that its IA services were available “only
to institutional and high net worth clients.” The Forms also stated that, in
2008, BLMIS had $17.1 billion in assets under management when, on paper, it had
more than $65 billion at that time. MADOFF also misrepresented that he, as CCO,
ensured that reviews of the IA trading were being performed.
In addition, from 1998 through 2008,
MADOFF engaged in a tax fraud scheme involving the transfer of wealth within
the Madoff family in ways that allowed him to avoid paying millions of dollars
in required taxes to the IRS. Most, if not all of the “wealth,” came directly
or indirectly from IA client funds held at BLMIS. The schemes in which he
engaged also allowed Bernie Madoff to evade his tax obligations. The methods by
which MADOFF engaged in tax fraud included the following:
■MADOFF received approximately
$15,700,000 from Bernard L. Madoff and his wife, and executed sham promissory
notes to make it appear that the transfers were loans, in order to avoid paying
taxes;
■MADOFF gave approximately $9,900,000 to
family members, and in order to avoid paying taxes, executed sham promissory
notes to make it appear that the transfers of these funds were loans;
■MADOFF did not pay taxes on
approximately $7,750,000 that he received from BLMIS;
■MADOFF received approximately
$16,800,000 from Bernard L. Madoff from two sham trades, and disguised the
proceeds of the trades as long-term stock transactions in order to take
advantage of the lower tax rate for long-term capital gains;
■MADOFF charged approximately $175,000
in personal expenses to a corporate American Express card and did not report
those expenses as income. MADOFF also arranged for his wife to have a “no-show”
job at BLMIS from which she received between approximately $100,000 to $160,000
per year in salary, a 401(k), and other benefits to which she was not entitled.
In December 2008, when the collapse of
BLMIS was virtually certain, MADOFF agreed with others to send the $300 million
that remained in the IA accounts to preferred employees, family members and
friends. BLMIS collapsed before the funds were ever disbursed. On December 10,
2008, one day prior to BLMIS’s collapse, MADOFF also withdrew $200,000 from
BLMIS for his personal use.
MADOFF, 66, of Old Westbury, NY, faces a
statutory maximum sentence of 10 years in prison. The statutory maximum
sentences for each of the charged offenses are set forth in the attached chart.
Pursuant to his plea agreement with the Government, MADOFF agrees not to seek a
sentence of other than 10 years in prison. MADOFF is also subject to mandatory
restitution and criminal forfeiture and faces criminal fines up to twice the
gross gain or loss derived from the offense. He has agreed to forfeiture of
more than $143.1 billion, including all of his real and personal property. This
amount represents all of the investor funds paid into BLMIS from 1996—the start
of MADOFF’s involvement in the conspiracy—through December 2008.
As part of the defendant’s forfeiture,
the Government has entered into a settlement with MADOFF’s family that requires
the forfeiture of all of his wife Marion’s and daughter Shana’s assets, and
assets belonging to other family members. The surrendered assets include, among
other things, several homes, a Ferrari and more than $10 million in cash and
securities. Marion Madoff is being left with approximately $771,733 to live on
for the rest of her life. The forfeited assets, including the net proceeds from
the sale of the forfeited properties, will be used to compensate victims of the
fraud, consistent with applicable Department of Justice regulations.
Judge SWAIN set a sentencing date for
MADOFF of October 4, 2012 at 3:30 p.m.
Mr. Bharara praised the investigative
work of the Federal Bureau of Investigation. He also thanked the U.S.
Securities and Exchange Commission, the Internal Revenue Service and the U.S.
Department of Labor for their assistance.
These cases were brought in coordination
with President Barack Obama’s Financial Fraud Enforcement Task Force, on which
Mr. 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.
The case is being handled by the
Office’s Securities and Commodities Fraud Task Force. Assistant United States
Attorneys Lisa A. Baroni, Julian J. Moore, Matthew L. Schwartz, Arlo
Devlin-Brown and Barbara A. Ward are in charge of the prosecution.
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