Madoff Investment Scandal - Investigation Into Involvement of Others

Investigation Into Involvement of Others

Investigators are looking for others involved in the scheme, despite Madoff's assertion that he alone was responsible for the large-scale operation. Harry Susman, an attorney representing several clients of the firm, stated that "someone had to create the appearance that there were returns", and further suggested that there must have been a team buying and selling stocks, forging books, and filing reports. James Ratley, president of the Association of Certified Fraud Examiners said, “In order for him to have done this by himself, he would have had to have been at work night and day, no vacation and no time off. He would have had to nurture the Ponzi scheme daily. What happened when he was gone? Who handled it when somebody called in while he was on vacation and said, ‘I need access to money’?”

“Simply from an administrative perspective, the act of putting together the various account statements, which did show trading activity, has to involve a number of people. ... You would need office and support personnel, people who actually knew what the market prices were for the securities that were being traded. You would need accountants so that the internal documents reconcile with the documents being sent to customers at least on a superficial basis,” said Tom Dewey, a securities lawyer.

1. Cohmad Securities Corp. of which Madoff shares 10–20% ownership stakes. The brokerage firm lists its address as Madoff's firm's address in New York City. Its chairman, Maurice J. Cohn, his daughter and COO Marcia Beth Cohn, and Robert M. Jaffe, a broker at the firm, are accused by the SEC of 4 counts of civil fraud, "knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud". Another lawsuit filed by bankruptcy trustee Irving Picard is seeking funds for Madoff victims. Jaffe has requested the Court dismiss the charges in both cases.
2. Stanley Chais, of the Brighton Company. On May 1, 2009, Picard filed a lawsuit against Stanley Chais, 82. The complaint alleges he "knew or should have known" he was involved in a Ponzi scheme when his family investments with Madoff averaged 40% return. It also claims Chais was a primary beneficiary of the scheme for at least 30 years, allowing his family to withdraw more than $1 billion from their accounts since 1995. The SEC filed a similar civil suit mirroring these claims. On September 22, 2009 Chais was sued by California Attorney General Jerry Brown seeking $25 million in penalties as well as restitution for victims, saying the Beverly Hills investment manager was a 'middleman' in Madoff's Ponzi scheme.
3. Madoff Securities International Ltd. in London.
4. Carl J. Shapiro, women's clothing entrepreneur, self-made millionaire and philanthropist, and one of Madoff's oldest friends and biggest financial backers, who helped him start his investment firm in 1960. He was never in the finance business. In 1971, Mr. Shapiro sold his business, Kay Windsor, Inc. for $20 million. Investing most with Madoff, that sum grew to hundreds of millions of dollars and possibly to more than $1 billion. Shapiro personally lost about $400 million, $250 million of which he gave to Madoff 10 days before his arrest. His foundation lost more than $100 million.
5. David G. Friehling, 49, the sole practitioner at Friehling & Horowitz CPAs, waived indictment and pleaded not guilty to criminal charges on July 10, 2009. He agreed to proceed without having the evidence in the criminal case against him reviewed by a grand jury at a hearing before U.S. District Judge Alvin Hellerstein in Manhattan. Friehling was charged on March 18, 2009, with securities fraud, aiding and abetting investment adviser fraud, and four counts of filing false audit reports with the SEC. On November 3, 2009 Friehling plead guilty to the charges.
6. Peter B. Madoff, 63, Chief Compliance Officer, worked with his brother Bernie for more than 40 years, and ran the daily operations for the past 20 years. He helped create the computerized trading system.
7. Ruth Madoff, Bernard's wife, agreed as part of Bernie's sentencing issues, to keep $2.5 million of her claim of more than $80 million in assets and to give up all of her possessions. The money is not protected from civil legal actions pursued by a court-appointed trustee liquidating Madoff's assets or by investor lawsuits. On July 29, 2009, she was sued by trustee Picard for $45 million, which supported her "life of splendor". According to court filings, she received more than $3 million from the business over the last six years to pay personal expenses charged to her American Express card, and $2 million in payments to a business called PetCare RX. “Ruth Madoff was never an employee of BLMIS yet millions of dollars belonging to BLMIS and its customers found their way into her personal accounts and investments without any legitimate business purpose or any value to BLMIS, simply because of her relationship with Bernard Madoff.” She is also required to itemize any expenditures over $100. The case is Picard v. Madoff, 1:09-ap-1391, U.S. Bankruptcy Court, Southern District of New York (Manhattan). On November 25, 2008, she withdrew $5.5 million and $10 million on December 10, 2008, from her brokerage account at Cohmad, a feeder fund which had an office in Madoff’s headquarters and was part-owned by him. In November, she also received $2 million from her husband's London office, Madoff Securities International Ltd. She has not been charged with any crime, and has not been questioned by prosecutors. She has been seen riding the N.Y. subway and did not attend her husband's sentencing.
8. Madoff's sons – Mark, 45, and Andrew, 42, worked in the trading arm in the New York office, but also raised money marketing the Madoff funds. Their assets were frozen on March 31, 2009. The two have been estranged from their father, since December 10, 2008, and haven't spoken with their mother in the wake of the fraud, but some contend that was a charade in order to protect their assets from litigation. On October 2, 2009 a civil lawsuit was filed against them by trustee Picard for a judgment in the aggregate amount of at least $198,743,299. Peter Madoff and daughter, Shana are also defendants. On March 15, 2010, they filed a motion to dismiss. On December 11, 2010, the second anniversary of Madoff's arrest, Mark Madoff was found hanging from a ceiling pipe in the living room of his SoHo loft apartment.
9. Frank DiPascali, 52, who referred to himself as "director of options trading" and as "chief financial officer" at Madoff Securities pled guilty on August 11, 2009, to 10 counts: conspiracy, securities fraud, investment advisor fraud, mail fraud, wire fraud, perjury, income tax evasion, international money laundering, falsifying books and records of a broker-dealer, and an investment advisor. He has agreed to connect the dots and to name names, with sentencing in May 2010. He is awaiting bail. Prosecutors are seeking more than $170 billion in forfeiture, the same amount sought from Madoff, which represents funds deposited by investors and later disbursed to other investors. The same day, a SEC civil complaint was filed against DiPascali.
10. Enrica Cotellessa-Pitz, controller Bernard L. Madoff Investment Securities LLC, but not a licensed certified public accountant. Her signature is on checks from BMIS to Cohmad Securities Corp. representing commission payments. She was the liaison between the SEC and BLMIS regarding the firm's financial statements. The SEC has removed the statements off its website.
11. Fairfield Greenwich Group, based in Greenwich, Connecticut, had a "Fairfield Sentry" fund which was one of many feeder funds that gave investors portals to Madoff. On April 1, 2009, the Commonwealth of Massachusetts filed a civil action charging Fairfield Greenwich with fraud, breaching its fiduciary duty to clients by failing to provide promised due diligence on its investments. The complaint seeks a fine and restitution to Massachusetts investors for losses and disgorgement of performance fees paid to Fairfield by those investors. It alleges that in 2005 Mr. Madoff coached Fairfield staff about ways to answer questions from SEC attorneys who were looking into Harry Markopolos' complaint about Madoff's operations. The Secretary of State has no plans to settle the lawsuit in spite of the fact that Fairfield Greenwich has offered to repay all Massachusetts investors, and is expected to force Fairfield to explain e-mails and other evidence he has uncovered that appear to show company officials knew about potential problems with Madoff but failed to disclose them to clients. On May 18, 2009, the hedge fund was sued by trustee Picard, seeking a return of $3.2 billion during the period from 2002 – Madoff's arrest in December 2008. However, the money may already be in the hands of Fairfield’s own clients, who are likely off-limits to Picard, since they weren’t direct investors with Madoff.
12. J. Ezra Merkin, a prominent investment advisor and philanthropist, has been sued for his role in running a "feeder fund" for Madoff. On April 6, 2009, New York Attorney General Andrew Cuomo filed civil fraud charges against J. Ezra Merkin alleging he "betrayed hundreds of investors" by moving $2.4 billion of clients' money to Bernard Madoff without their knowledge. The complaint states, he lied about putting the money with Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds, Ascot Partners LP with Ascot Fund Ltd., Gabriel Capital Corp. and Ariel Fund Ltd. He promised he would actively manage the money, but instead, he misguided investors about his Madoff investments in quarterly reports, in investor presentations, and in conversations with investors. "Merkin held himself out to investors as an investing guru...In reality, Merkin was but a master marketer."
13. Jeffry Picower and his wife, Barbara, of Palm Beach, Florida, and Manhattan, had two dozen accounts. He was a lawyer, accountant, and investor who led buyouts of health-care and technology companies. Mr. Picower's foundation stated its investment portfolio with Madoff was valued at nearly $1 billion at one time. On October 25, 2009, Picower, 67 was found dead of a massive heart attack at the bottom of his Palm Beach swimming pool. He was buried three days later in Mount Ararat Cemetery in Farmingdale, New York, Section 60, Range C, Lot 15.
14. Tremont Group Holdings started its first Madoff-only fund in 1997. That group managed several funds marketed under the Re Select Broad Market Fund.
15. The Maxam fund invested through Tremont. Sandra L. Manzke, founder of Maxam Capital, had her assets temporarily frozen by the same Connecticut court.
16. Daniel Bonventre, former operations director for Bernard Madoff Investment Securities.
17. Joann Crupi (Westfield, NJ) and Annette Bongiorno (Boca Raton, FL) were arrested in November 2010. Both were back office employees and according to the Associated Press "authorities previously said Bongiorno was a staff supervisor and was responsible for answering questions from Madoff's clients about their purported investments. They allege she oversaw the fabrication of documents."
18. Jerome O’Hara and George Perez long-time employees of Bernard L. Madoff Investment Securities LLC (BLMIS), were charged in a 33-count superseding indictment.