SEC charges two in continuing Madoff investigation

Nov 19, 2010 by Charles Gubert

The Securities and Exchange Commission (SEC) has charged two long-time Bernard Madoff employees for their part in the $65 billion Ponzi scheme.

The SEC alleges Annette Bongiorno, who began working for Bernard Madoff Investment Securities (BMIS) in 1968, regularly created false records and books. She is also accused of misleading investors in telephone conversations, account statements and trade confirmations that reported securities that never happened and non-existent positions. Bongiorno also created false trades in her own BMIS accounts that enabled her to cash out millions of dollars more than she deposited.

JoAnn Crupi, who was responsible for supervising the primary bank account used in BMIS’s investment advisory operations, is accused by the SEC of helping to facilitate the fraud by misleading investors, auditors and regulators into believing the company was a legitimate enterprise. When the fraud was on the verge of collapse, Crupi helped decide which account should be cashed out and prepared cheques for selected investors – many of them friends and family of Madoff.

"Bongiorno and Crupi helped create an elaborate edifice of fake accounts, fake trades, and fake profits," said George Canellos, director of the SEC's New York regional office. "Without their active and ongoing assistance, Madoff's world of lies would have been unsustainable,” he added.

According to the SEC's complaint against Bongiorno filed in the U.S. District Court for the Southern District of New York, Bongiorno created trades that were chosen with the benefit of hindsight to generate large "gains" in BMIS accounts. The trades and positions reported in investor accounts, however, were fictional. Bongiorno also fabricated trades in her own BMIS accounts, depositing approximately $920,000 into these accounts but withdrawing approximately $14.5 million. The high balances and withdrawals were made possible only through the sham, backdated, highly profitable "trades" that Bongiorno fabricated.

In the SEC's complaint against Crupi, also filed in U.S. District Court for the Southern District of New York, she was hired in 1983 as a keypunch operator in BMIS's investment advisory operations and reported to Bongiorno. She eventually supervised some lower-level BMIS employees and worked closely with Frank DiPascali, another high-level BMIS lieutenant charged by the SEC last year. Crupi had exclusive control over two important aspects of the BMIS fraud - she handled the primary bank account used in the Ponzi scheme and she created false trading portfolios and account statements related to a purported hedging strategy using baskets of stock for a group of limited partnership funds managed by a longtime BMIS investor.

The SEC alleges that Crupi knew the true financial condition of Madoff's Ponzi scheme and its dwindling assets. On December 3, 2008, DiPascali told Crupi that the scheme was on the verge of collapse and they met to discuss the implications of the collapse in more detail. Crupi continued to process client deposits during this time period, depositing approximately $59 million of client checks into the Ponzi scheme bank account from December 4 to December 12. In the final days of the fraud, when the money available to meet investor redemptions had dwindled to a few hundred million dollars, DiPascali convinced Madoff to use the remaining funds to liquidate the accounts of family and friends of the firm, including employees, and not to honour redemption requests by the larger institutional investors. Crupi helped DiPascali review BMIS investor lists and identify which accounts should be cashed out. Madoff approved these actions and Crupi prepared checks for the selected investors totaling more than $350 million. Madoff was arrested and the cheques were seized before they could be distributed.

The SEC's investigation is continuing.


Regulation , Legal

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