Bernie Madoff Scheme

Chrismalice T. Obrero   BSA- V                                                                                                        February 8, 2017

Management 19 – B6

BERNIE MADOFF FRAUD THE HISTORY OF THE $50B PONZI SCHEME SCAM

Background

Bernard Madoff, a graduate with Political Science, started an investment firm, along with his wife. He named it the Bernard L. Madoff Investment Securities LLC. He invested the full money he had earned from his previous venture in his investment firm. The firm had begun as just a penny stock trader in the initial years. Bernie Madoff got a lot of help from his father in law who referred him to a larger circle of people helping him expand his business. He even got celebrity clients to his firm. His firm became reputed within a very short period of time. It guaranteed annual returns of 10% or more and won the support of more and more investors gradually. So much so that by the 1980’s the firm was controlling around 5% of the volume in the New York Stock Exchange.

Now what Madoff’s investment firm did was develop stock quotes with the help of computer technology. Hence they came to develop the National Association for Securities Dealers Automated Quotations. The NASDAQ as it came to be known as found its chairman in Bernie Madoff, who served the chair until his arrest in 2008. Now as his firm was expanding, more and more family members of the Madoff family were engaged in it. Madoff’s brother, his two sons and his niece all came to be a part of the company he owned.

Who were the people involved in the scheme?

1. Paul Konigsberg. In June 2014, Konigsberg pleaded guilty in connection to the Madoff case and will consequently face up to 30 years in prison. On July 9, 2015, U.S. District Court Judge Laura Taylor Swain agreed with prosecutors that Konigsberg did not know about Madoff's scheme and had cooperated fully with investigators. Swain ruled that Konigsberg had earned lenience from federal sentencing guidelines and did not have to serve any time in prison.
2. Norman F. Levy. Evidence is being gathered by investigators on a U.S.-U.K. task force that Konigsberg and Levy are believed to be involved in an international transfer of money. Levy is believed to have helped Paul Konigsberg funnel checks to London. And investigators in New York say there were billions of dollars' worth of checks going back and forth between Madoff and Levy.
3. David G. Friehling. Madoff's "listed" accountant, the sole practitioner at Friehling & Horowitz CPAs, waived indictment and pleaded not guilty to criminal charges on July 10, 2009. 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 Securities and Exchange Commission. He faced up to 105 years in prison on all of the charges. Federal prosecutors had until about June 17, 2009 to produce a grand jury indictment against him, or a plea bargain to end the case.
4.  Peter B. Madoff. A Chief Compliance Officer, who helped create the computerized trading system used by the firm. On June 29, 2012, Peter pleaded guilty in Federal court to a variety of charges and agreed to a 10-year prison term. Peter Madoff sometimes signed many weeks of compliance reports in one sitting, intentionally changing pens and ink colors to make it appear he had signed them at various times, according to prosecutors. He admitted hiding millions of dollars from the I.R.S. to avoid taxes, and took $200,000 from the firm for charitable donations even after the fraud was exposed. On December 20, 2012, he was sentenced to 10 years in prison for his involvement in the Ponzi scheme.
5. Frank DiPascali. Referred to himself as "director of options trading" and as "chief financial officer" at Madoff Securities, pleaded 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 admitted to the Court that he learned in the late 1980s or early 1990s that no trading was occurring in Mr. Madoff's investment-advisory client accounts. He faced a maximum of 125 years in prison. Prosecutors sought more than $170 million in forfeiture, the same amount sought from Madoff, which represents about double the funds deposited by investors and later disbursed to other investors. In December, 2013, at a court hearing, he gave detailed information how Madoff was meticulous in the management of the fraud.On May 7, 2015, while still awaiting sentencing, DiPascali died of lung cancer.
6. Enrica Cotellessa-Pitz. A Controller at Bernard L. Madoff Investment Securities LLC but not a licensed certified public accountant. 
7. Annette Bongiorno. Personal secretary and aide to Madoff. She is accused of directing two assistants, Semone Anderson and Winnie Jackson, to generate fictitious trading tickets for customer accounts. Bongiorno was arrested in November 2010 and charged with conspiracy, securities fraud and tax evasion. She then faced up to 75 years in jail. In December 2014, Bongiorno was sentenced to a 6-year prison term for her involvement in the Madoff Ponzi scheme.
8. Daniel Bonventre. He worked as company director of operations and as an accountant for Madoff since the 1960s. He was arrested in 2010 and charged with allegedly having created false and fraudulent books and records, conspiracy, securities fraud, and tax-related charges. He is also being sued by the SEC for falsifying records. On those initial charges he may be sentenced to a maximum of 77 years in prison if convicted. On December 8, 2014, Bonventre was sentenced to 10 years in prison after being convicted on securities fraud and tax-evasion charges for his involvement in Madoff's $17.5 billion fraud.
9. Joann Crupi. Former investment advisor to Madoff. Jury found her guilty, and on December 15, 2014 Crupi was sentenced to 6 years in prison for her role in the scam. 
10. George Perez. Former computer programmer of Madoff. The jury found him guilty, and on December 10, 2014 Perez was sentenced to 2 1/2 years in prison for his role in the scam. 
11. Jerome O'Hara. A former computer programmer of Madoff. On December 9, 2014, he was sentenced to 2 1/2 years in prison for his role in the scam. 

How He Got Caught

His business came to be under the doubts of various financial analysts as early as 1999. They believed that the returns claimed by the company were only theoretically impossible. But organizations such as the Securities and Exchange Commission (SEC) completely ignored the doubts and Madoff continued with his overtures for almost another 10 years. He finally got caught in December 2008. He was trapped after he confessed about his dishonesty to his very own sons. He confessed to his sons of his investment business being nothing but a big Ponzi scheme. His sons now reported his father’s fraud to the Federal Bureau of Investigation. Though Bernie confessed to have had started his Ponzi scheme in the 1990’s, investigators think otherwise. They believe the Ponzi scheme and defrauding of investors had begun in the 1980’s itself.