From the start, few believed Bernard Madoff's claim that he acted alone in creating and managing his $65 billion Ponzi scheme. On Aug. 11, in a Manhattan courtroom, that claim was revealed to be just another of Madoff's lies. Madoff's former chief financial officer, Frank DiPascali, pleaded guilty to 10 criminal charges relating to his involvement in the scam and agreed to cooperate with prosecutors. "I was loyal to him. I ended up being loyal to a terrible, terrible fault," he said in U.S. District Court.
DiPascali's guilty plea is a big victory for prosecutors. As CFO, DiPascali was the face of Madoff's asset management business. When investors had questions, they spoke with DiPascali and it was he who usually explained Madoff's investment strategies to investors. In court, DiPascali said he helped Madoff prepare false documents for investors, accountants, and regulators, shifted money between accounts in New York and London, and otherwise helped make a fictitious business look real. "This guy knows where the bodies are buried," says Robert Lamb, a professor at New York University's Stern School of Business.
DiPascali, 52, said he began working for Madoff in 1975, just after he finished high school, and had joined in Madoff's fraud by the 1980s or early 1990s—when he knew that he and Madoff were promising investors that transactions were being made when they were not.
Rush to Talk? "This Isn't the Mafia" DiPascali says the transactions were "all fake. It was all fictitious. It was wrong and I knew it was wrong at the time." He said he thought "for a long time" that Madoff had other assets to cover the claims of any investors who might demand their money back.
With DiPascali cooperating, others should start talking, too. Once people see that the government has a cooperating witness, they don't want to be the last one on the outside looking in. "This isn't the Mafia," says Kenneth Springer, president of Corporate Resolutions, an investigation and consulting firm, and a former FBI agent. "No one's going down with the ship."
Still, prosecutors have their work cut out for them. While the Ponzi scheme itself is relatively easy to unravel, the scale and time frame of Madoff's scam will prove to be a challenge. DiPascali will play a key role in helping investigators determine whether anyone else was involved—his feeder funds, other employees, or relatives—and to locate any money that may be sitting in bank accounts here or abroad. "There is more money to be found," says Kenneth Yormark, leader of consulting firm LECG's (XPRT) forensic accounting practice.
DiPascali Jailed Without Bail The charges against DiPascali include conspiracy; international money laundering; and securities, investment adviser, mail, and wire fraud. "Prosecutors are charging him with every crime he could be charged with," says Robert Mintz, the head of the Government Investigations and White Collar Criminal Defense practice group at McCarter & English and former Assistant U.S. Attorney for New Jersey. "They want maximum leverage and to be able to tell any jury down the road that they didn't play favorites."
Judge Richard Sullivan ordered DiPascali jailed without bail. He faces 125 years in prison if sentenced to maximum jail time on each count.
Madoff, who pleaded guilty in March, is serving a 150-year sentence.
Sullivan said he did not believe "the quest for truth ends today." He said he expects to learn much more before DiPascali's sentencing, which isn't scheduled to take place before May 2010.
"There will be more information and the court will sentence on the basis of additional information," Sullivan said.
LIMITED-TIME OFFER SUBSCRIBE NOW