Preet Bharara, the United States Attorney for the Southern District of New York announced Monday that DANIEL BONVENTRE, ANNETTE BONGIORNO, JOANN CRUPI, a/k/a “Jodi,” 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.
As a result of the Government’s continuing investigation into the fraud perpetrated at BLMIS, among other things, the Superseding Indictment, expands the time-frame during which the defendants allegedly participated in a conspiracy to defraud BLMIS’s investment advisory clients. Whereas the November 2010 Indictment alleged that the conspiracy to defraud BLMIS’s clients began in or about 1992, the Superseding Indictment dates the conspiracy back to at least the early 1970s. In addition, the Superseding Indictment includes a variety of new charges against the defendants, including bank fraud charges related to both corporate and personal loans, and new tax offenses.
Bharara said: 'As we have said repeatedly since this breathtaking fraud was first discovered four years ago, we will not rest until all the alleged participants and enablers are made to answer for their conduct. With the new charges we announce today against these five previously indicted defendants, the architecture of Madoff’s house of cards and each defendant’s alleged role in it becomes clearer'.
FBI Acting Assistant Director-in-Charge Mary Galligan said: 'The charges in this indictment reinforce what we have known about the massive Madoff investment fraud for years. This largest-ever Ponzi scheme was not the work of one person. Each of the defendants in his or her way allegedly played a key role in designing, building or maintaining the house of cards. The habitual doctoring of books and records, the fictitious trades, the phantom accounts, were the core of the charade. As alleged, they were the work of these defendants'.
IRS-CI Acting Special Agent-in-Charge Toni Weirauch said: 'The complex, fraudulent paper trail uncovered in this investigation was indeed the scheme’s backbone. One of its consequences is that it hindered the IRS from performing its lawful duty, thus harming our nation’s law abiding taxpayers, along with the defrauded victims. IRS-Criminal Investigation will remain a proud member of this investigative team, as it continues to untangle the scheme and identify the culpabilities of the individuals involved'.
DOL-OIG Special Agent-in-Charge Robert L. Panella said: 'Today’s indictments serve as warning to those who would allegedly undermine the financial well-being of workers and the integrity of employee benefit plan assets. The OIG will continue to work tirelessly with the U.S. Attorney and our law enforcement partners to investigate these types of allegations'.
DOL-EBSA New York Regional Director Jonathan Kay said: 'Today’s indictments mark an important step in a well-coordinated, wide-ranging multiagency investigation. EBSA is committed to holding these individuals accountable for the alleged wrongs they committed'.
According to the Superseding Indictment filed today in Manhattan federal court:
BONGIORNO, an employee in the Investment Advisory (“IA”) business for 40 years, managed hundreds of IA accounts purportedly having a cumulative balance of approximately $8.5 billion dollars as of November 30, 2008. BONGIORNO also supervised employees who worked for the IA business.
CRUPI, an employee in the IA business for 25 years, managed several BLMIS IA accounts purportedly having a cumulative balance of approximately $900 million as of November 30, 2008. She also tracked the daily activity of the bank account into which billions of dollars of IA client money was deposited, and from which IA client redemptions were paid.
During the course of managing IA accounts, BONGIORNO and CRUPI “executed” trades in the IA clients’ accounts only on paper, based on historically reported prices of securities that they researched in the Wall Street Journal and Bloomberg. Those trades achieved annual rates of return that had been pre-determined by Madoff. BONGIORNO and CRUPI also backdated the purchase dates of purported trades so that they could control the amount of gains reflected in the IA accounts. Further, BONGIORNO processed exceptional gains in the IA accounts that purportedly occurred months before the IA accounts had been established. BONGIORNO also asked certain IA clients to return previously-issued BLMIS account statements so that she could alter them, and often include additional backdated trades.
CRUPI handled the receipt of funds sent to BLMIS by its clients for investment; transferred clients’ funds between and among various BLMIS bank accounts; handled client requests for redemptions sent to BLMIS by clients; monitored, on a daily basis, funds transferred into and out of the BLMIS bank account that was principally used to perpetrate the fraud; and prepared and assisted in the preparation of fabricated documents designed to deceive regulators and outside auditors. Further, CRUPI provided banks with false information in connection with mortgage loans for other BLMIS employees.
BONVENTRE was employed at BLMIS for 40 years and served as its Director of Operations. BONVENTRE was responsible for maintaining and supervising the production of the principal internal accounting documents for BLMIS, including its general ledger (the “G/L”), financial statements, and stock record. 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. For example, 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 not 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. The assets and associated liabilities of BLMIS’s IA operations, which were omitted from the G/L, ranged from millions to billions of dollars.
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 to accurately reflect BLMIS’s assets and liabilities. For example, one such report, for the month of April 2006, in the midst of a 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. BONVENTRE also provided false FOCUS Reports and other financial documents to banks in connection with BLMIS’s bank loans.
In addition, between 2004 and 2007, in connection with audits of Bernard L. Madoff’s U.S. Individual Income Tax Returns, Forms 1040s, BONVENTRE created false, backdated BLMIS records to show the tax auditors. Because Madoff had under-reported his income by tens of millions of dollars each year, BONVENTRE created false documents that appeared consistent with Madoff’s tax returns for the purposes of maintaining the falsity of Madoff’s tax returns and deceiving the auditors.
Further, between 2004 and 2008, BLMIS was subject to at least five reviews by the United States Securities and Exchange Commission (“SEC”) and a European accounting firm which was conducting a review of BLMIS’s operations on behalf of IA clients. As part of a concerted effort overseen by Madoff to deceive both the SEC and the European accounting firm, BONVENTRE, CRUPI, O’HARA and PEREZ participated in creating numerous false and fraudulent books and records.
O’HARA and PEREZ were employed as computer programmers at BLMIS beginning in 1990 and 1991, respectively. They were responsible for developing and maintaining computer programs that supported the operation of the BLMIS IA business. For example, O’HARA and PEREZ created special programs that, among other things: created books and records for a small subset of BLMIS IA clients to help hide the scope and nature of the IA business; changed the names of account holders to help explain why the SEC would not find IA client securities at the Depository Trust Company (“DTC”); altered details about the number of shares, execution times, and transaction numbers for trades reported on BLMIS trade blotters, by employing algorithms that produced false and random results; created false and fraudulent order entry and execution reports that included fictitious times at which orders for equities transactions purportedly were placed; generated fraudulent commission reports; and created fraudulent IA client account statements in a format different from those sent to clients. O’HARA and PEREZ knew that the special programs they developed contained fraudulent information and that they were used in connection with the SEC and European accounting firm reviews.
In addition to clarifying that the conspiracy to defraud the clients of BLMIS’s investment advisory business began as early as the 1970s – and that O’HARA and PEREZ were part of that conspiracy, in addition to BONVENTRE, BONGIORNO, and CRUPI – the Superseding Indictment contains a total of 33 counts, some of which relate to new allegations of misconduct, including bank fraud and tax fraud offenses. BONVENTRE, for example, is alleged to have participated in an accounting fraud conspiracy that, among other things, included using falsified financial statements and other documents to obtain hundreds of millions of dollars in loans and lines of credit from federally-insured financial institutions. BONVENTRE is separately alleged to have created fraudulent financial records to tax auditors, in an attempt to deceive the Internal Revenue Service and maintain the falsity of Bernard L. Madoff’s own (fraudulent) personal income tax returns. Finally, BONVENTRE is alleged to have participated in a conspiracy to obtain a “no-show job” for his son at BLMIS, and in doing so to cause misstatements to be made to the Department of Labor in connection with workplace benefits.
There are likewise new charges against each of the five defendants. For example, CRUPI is charged in a separate bank fraud conspiracy to assist David Kugel – a former supervisory trader in BLMIS’s market-making and proprietary trading operation, who pleaded guilty and agreed to cooperate with the Government in November 2011 – by creating and submitting to federally-insured financial institutions falsified documents in support of personal bank loans for Kugel. In total, the Superseding Indictment charges BONVENTRE, 65, with 22 counts; BONGIORNO, 64, with 10 counts; CRUPI, 51, with 13 counts; and O’HARA, 49, and PEREZ, 46, with 8 counts each. A chart containing a description of the charges and their maximum penalties is attached.
The charges and allegations contained in the Indictment are merely accusations and the defendant are presumed innocent unless and until proven guilty.