(Corrects spelling of consultant’s name in second paragraph.)
A former employee of Bernard Madoff on trial for allegedly aiding the con man’s $17 billion fraud told investigators in 2008 that he closed his personal investment account two years before the Ponzi scheme unraveled because the consistently high returns made him feel “sick.”
Daniel Bonventre, who oversaw Madoff’s legitimate broker dealer and proprietary trading units, “said he woke up with a sick feeling in his stomach” in 2006 and later closed his account at the company’s investment advisory business, Meaghan Schmidt, a consultant who helped unravel the fraud after its discovery, told jurors yesterday in federal court in Manhattan.
Bonventre made the comment, Schmidt said, to her two days after Madoff’s Dec. 11, 2008, arrest, as employees of the consulting firm AlixPartners LLP, where Schmidt works, fanned out across the three floors of Madoff’s high-rise offices to secure documents and ascertain where the business stood.
AlixPartners had been hired by a court-appointed receiver through the U.S. Securities and Exchange Commission, she said. At the time, Bonventre hadn’t been accused of any crime.
Schmidt told the jury that while she was examining Madoff’s office the day after his arrest, she found a stack of about 100 checks on his desk that had been written a few days earlier, totaling about $175 million.
Among them were checks for $8.2 million to Marion Madoff, the wife of Madoff’s brother Peter Madoff, who helped run the company for four decades; $1.37 million to former employee David Kugel and about $725,000 to Joann Crupi, who managed large accounts and is also on trial.
During the testimony, photographs of Madoff’s office were displayed for the jurors on flat-screen panels. The images showed Madoff’s black desk covered in papers, black leather chairs, a black table covered in framed personal photographs, and bright modern artwork on the wall, including paintings and large prints of two stylized bulls.
Bonventre and Crupi have pleaded not guilty in the case, as have the three other defendants, computer programmers George Perez and Jerome O’Hara, and Annette Bongiorno, who worked for Madoff for 40 years, including as his personal secretary. Bongiorno helped run the company’s investment advisory business.
The five former Madoff employees are accused of conspiring for decades to hide Madoff’s fraud by creating millions of fake documents to trick customers and regulators.
Schmidt was the fourth witness to testify in the first criminal trial stemming from the world’s biggest Ponzi scheme, which deprived investors of $17 billion in principal and billions more in fake profit. U.S. District Judge Laura Taylor Swain said the trial may last as long as five months.
Schmidt testified that the general ledger for the units overseen by Bonventre regularly received wire transfers of money from the fraudulent investment advisory business, as a result of trades “purportedly” executed overseas. She said he expressed confusion that he’d been receiving transfers of commissions from trades that weren’t actually taking place.
Earlier yesterday, Matthew Cohen, an AlixPartners consultant, testified about a conversation he said he had with Perez in the days after Madoff’s arrest. Perez told him that Madoff had asked him in 2006 to alter core computer programs to permit changes to past account statements for the investment advisory unit, according to Cohen’s testimony.
Perez said he accepted extra money from Madoff to overcome discomfort about the requested changes, Cohen said. Perez made the remark in response to informal questioning about his personal investment account, he said.
Perez’s account, and another in O’Hara’s name, “stood out” in a probe of about 8,000 customer accounts because “they were opened the same day with roughly the same amount,” Cohen said under questioning from U.S. prosecutors. “I later learned that no cash had been deposited in order to open these accounts.”
The U.S. alleges O’Hara and Perez were given $100,000 each and were permitted by Madoff to name their own salary increases and annual bonuses after they confronted him about their discomfort with altering the code. According to the U.S., O’Hara and Perez extorted Madoff after realizing their code was being used for fraud. Both men have denied that allegation.
Cohen, formerly a lawyer at Skadden Arps Slate Meagher & Flom LLP, said he alerted federal investigators to Perez’s remarks and didn’t pursue the matter himself because it wasn’t part of his responsibility in reconstructing the operations of Madoff’s company.
Under cross-examination by Perez’s lawyer, Larry Krantz, Cohen said he wasn’t biased in the case even though his employer, which has a profit-sharing plan with its partners, made $75 million from the Madoff case in the past five years.
Cohen testified that the day after Madoff’s arrest, a Friday, he began securing the 17th through 19th floors of the lipstick-shaped skyscraper in Midtown Manhattan where Madoff’s offices were located. He disabled employees’ key cards to the elevators and hired security guards for each floor, he said.
Cohen said that during his initial sweep of Madoff’s offices, he found fax machines surrounded by hundreds of faxed redemption requests from customers seeking to close their accounts because of Madoff’s arrest just hours before.
Over that weekend, Cohen said, a colleague purchased wire cutters at a Home Depot (HD:US) so he could cut the electrical cords on all the paper shredders that might be accessible to employees the following Monday. He said he also turned off the e-mail and BlackBerry servers, blocked external access to computer systems and disabled employees’ computer accounts so that when they reported to work they just sat at their desks. No employees were allowed on the 17th floor, where the fraudulent investment advisory business was located, he said.
Employees who reported to work after Madoff’s arrest were asked to sign agreements that they wouldn’t alter, destroy or remove files. Cohen testified that Peter Madoff, a compliance officer at the company, was later caught by security guards using a “beach bag” to try to remove his personal life insurance documents and his last will and testament from the offices.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
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