By Patricia Hurtado
July 1 (Bloomberg) -- U.S. officials pursuing their investigation of Bernard Madoff’s Ponzi scheme are focusing on close associates of the convicted con man who insist they didn’t know of any wrongdoing, a person familiar with the matter said.
The continuing investigation of Madoff’s $65 billion fraud may implicate as many as 10 other people, some of whom deny any knowledge of the massive fraud, the person said.
Madoff, 71, was sentenced on June 29 to 150 years in prison for operating what prosecutors called a crime of “unprecedented proportion.” He was charged with using his New York-based firm, Bernard L. Madoff Investment Securities LLC, to take money from new investors to pay off old ones.
“Investigators’ first focus will be on whether those around him either from the start or over time had actual knowledge of the fraud,” said Daniel Richman, a professor at Columbia Law School in New York and an ex-federal prosecutor. “Investigators are at least skeptical of the claims of those around him that at no point did they know of the fraud or its dimensions.”
Madoff’s scam ran since at least the early 1990s and defrauded thousands of victims. He was charged with fraud and money laundering after the government said he confessed to his sons and the Federal Bureau of Investigation. FBI agents have spent the last six months interviewing individuals in the U.S. and overseas, including customers and employees, as they attempt to unravel Madoff’s fraud scheme, the person said.
‘Well Orchestrated’
“It was a calculated, well orchestrated, long-term fraud, that this defendant carried out month after month, year after year, decade after decade,” Assistant Manhattan U.S. Attorney Lisa Baroni told U.S. District Judge Denny Chin at Madoff’s sentencing. “He created literally hundreds and hundreds of thousands of fake documents every year.”
Federal authorities are now scrutinizing those who worked in close proximity to Madoff at his firm, the person familiar with the probe said. The government doesn’t believe Madoff acted alone because, considering the scope of the fraud, the duration of his crimes and number of victims, he would have needed help, the person said.
Rebekah Carmichael, a spokeswoman for Acting Manhattan U.S. Attorney Lev Dassin, declined to comment beyond saying that the investigation is continuing.
Madoff said in court that he “deceived” his 200 employees, his wife, Ruth, as well as his brother and two sons, “who spent their whole adult life helping to build a successful and respectful business.”
Only a few employees worked closely with Madoff on the 17th floor of his firm’s Midtown Manhattan building, where their boss ran an investment-adviser business that was off-limits to most other workers, two people familiar with the matter have said.
FBI Agents
Since December, FBI agents have been working out of an office on that floor, the person familiar with the investigation said.
Frank DiPascali, who worked for Madoff as his chief financial officer, is under investigation, people familiar with the matter have previously said. He joined Madoff’s firm in 1975 and spent five years as assistant to the managing director and then six years as director of research, according to his resume.
DiPascali worked on the 17th floor, said a person familiar with the matter, and met often with Madoff.
DiPascali has denied wrongdoing. Marc Mukasey, his lawyer, didn’t return a call seeking comment yesterday.
May Be Scrutinized
Another Madoff employee who may be scrutinized by investigators is his longtime aide Annette Bongiorno, the person said. Bongiorno worked as Madoff’s personal secretary in the 1980s, a former employee has previously said and also had clerical duties at the firm. Bongiorno and DiPascali worked together on the 17th floor at Madoff’s firm. Bongiorno didn’t return a voice-mail left at her Florida home seeking comment. Neither has been accused of any wrongdoing.
Supporting its contention that Madoff couldn’t have done it alone, the U.S. has stated that Madoff hired unqualified workers for his investment advisory business to generate documents showing fictitious returns for investors.
The money manager sought to give the appearance of “operating a legitimate investment advisory business” in which client funds were traded, when “no such business was actually being conducted,” prosecutors said in court papers.
Madoff’s accountant, David Friehling, is the only other person charged so far in connection with the Ponzi scheme.
Friehling was sole proprietor of the Friehling & Horowitz accounting firm, which occupied a 550-square-foot space in New City, a northern suburb of New York City, and served as auditor to Bernard L. Madoff Investment Securities since 1991, prosecutors said.
Deceived Investors
Prosecutors alleged that Friehling deceived investors by falsely certifying that he had audited the financial statements of Madoff’s firm. The accountant isn’t accused of knowing about the Ponzi scheme.
His case was delayed until July 16 after prosecutors and his lawyer began discussing a possible “disposition” of his case, according to court papers.
Columbia’s Richman said former Madoff associates who may have turned a blind eye to criminal activities will not be permitted to escape unscathed. The professor noted that the government has prosecuted individuals who launder crime proceeds for drug dealers.
The theory is called “conscious avoidance” of guilt, Richman said.
“Even if Madoff fell into or initiated his scheme on his own, investigators will need to find out, whether over time, those around him became aware over of what was happening and continued helping the fraud along by promoting his business or moving money,” Richman said. “That involves looking at statements they may have made indicating such knowledge or actions that circumstantially suggested such knowledge.”
The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net.
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