We have blogged in the past on recovery for fraud victims from the professionals that a fraudster uses to perpetrate his fraud: see our blog: Fraud Victims Often Need to Look to the Fraudster’s Professionals for Recovery.
The Madoff case has provided many lessons for fraud recovery and prosecution lawyers, including but not limited to recovery from those who benefited from the scheme, such as the early investors in the Ponzi scheme. Many of the court documents related to the Madoff recovery and retribution efforts of the US Courts in New York are on line for review at:

http://www.justice.gov/usao/nys/vw_cases/madoff.html .


Recovery From a Fraudster’s Employees

The latest lesson learned from the Madoff case relates to seeking recovery and retribution against a fraudster’s employees – see:

http://www.justice.gov/usao/nys/madoff/S10%20Indictment%20(ECF).pdf .

 Various Madoff Securities employees were charged with the following offences:

  1. conspiracy to defraud investment clients;
  2. conspiracy to commit securities fraud and falsify books and records;
  3. conspiracy to commit accounting fraud and defraud banks;
  4. conspiracy to commit tax fraud;
  5. conspiracy to commit fraud related to fictitious jobs at Madoff Securities;
  6. securities fraud on Madoff investment clients;
  7. securities fraud related to European Accounting Firms;
  8. securities fraud related to Madoff Securities’ Accounting Practices;
  9. falsifying records of a broker (fake trading documents);
  10. falsifying records of a broker (related to European Accounting Firms);
  11. falsifying records of a broker (related to Madoff Securities’ accounting documents);
  12. falsifying records of an investment advisor (fake trading documents);
  13. falsifying records of an investment advisor (related to European Accounting Firms);
  14. falsifying records of an investment advisor (related to Madoff Securities’ accounting documents);
  15. false filing with the SEC (false accounting documents);
  16. conspiracy to commit bank fraud;
  17. bank fraud (Kugel Bank loans);
  18. bank fraud (Madoff Securities bank loans);
  19. falsifying statements(related to fictitious employment);
  20. creating a false tax return for fictitious person;
  21. obstructing justice; and
  22. tax evasion


The US law also permits its securities regulators to seek forfeiture orders, such as all property derived, directly or indirectly, from proceeds related to the above offences, and all property traceable to such property. US law also permits its securities regulators to seek disgorgement from third parties who came into possession of property or money obtained from the employees involved in the above offences.


The following summary of the story is taken from Reuters’ new service:
(Reuters) – Five former aides to investment manager Bernard Madoff were convicted on Monday of charges that they helped their boss conceal his multibillion-dollar Ponzi scheme for years.
A federal jury in New York found back-office director Daniel Bonventre, portfolio managers Annette Bongiorno and Joann Crupi, and computer programmers Jerome O’Hara and George Perez guilty on all counts, including securities fraud and conspiracy to defraud clients.
The five-month trial was one of the longest white-collar criminal trials in Manhattan federal court history, featuring dozens of witnesses and thousands of documents. It is the first criminal trial stemming from Madoff’s fraud.
The five defendants will be sentenced in late July.
“The scheme these defendants helped perpetrate cost innumerable investors their life savings,” U.S. Attorney Preet Bharara said in a statement. “Now it likely will cost the defendants their freedom.”
Madoff, 75, is serving a 150-year-prison sentence after pleading guilty in March 2009 to running the Ponzi scheme, estimated to have cost investors more than $17 billion of principal. He was arrested in December 2008.
Nine other people have pleaded guilty in connection with Madoff’s fraud, some of whom testified at the trial as cooperating government witnesses.
As the jury foreman said “guilty” 59 times in a row, there was no visible reaction from the defendants, who each faced anywhere from eight to 20 charges. 
“The list of Bernard Madoff’s victims now includes these five former employees,” Andrew Frisch, a lawyer for Bonventre, said after the verdict, adding that he plans to appeal.
There was little dispute that various defendants engaged in activities such as backdating fake trades and creating false documents. Instead, the case turned on whether they knew at the time that they were aiding Madoff’s fraud.
 The defendants claimed Madoff duped them into becoming unwitting accomplices, using a potent combination of charm and deception.
“Why wouldn’t she believe him?” Roland Riopelle, the lawyer for Bongiorno, said during his closing argument. “He was the head of the firm and the chairman of NASDAQ. She was by design, by Mr. Madoff’s design, living in her own little bubble.”
But prosecutors pointed to internal documents seized from Madoff’s investment firm, including handwritten notes from the defendants, as clear evidence they knew what was happening.
 “The notion that these defendants didn’t know the trading was fake is an absurdity,” Assistant U.S. Attorney Randall Jackson said at the end of the trial.
 The key government witness was Madoff’s right-hand man, Frank DiPascali, who testified as part of a plea deal and implicated each of the five defendants in the fraud.
Defense lawyers urged the jury to disregard his claims, calling him an inveterate liar desperate to avoid a lifelong prison term. But several jurors interviewed after the verdict said they found DiPascali’s testimony credible.
“It was pretty captivating,” said Sheila Amato, an art teacher. By contrast, jurors scoffed at the testimony of Bongiorno and Bonventre, who surprised trial observers by taking the stand in their own defense to deny knowing about any fraud. Nancy Goldberg, an instructional assistant for at-risk public school students, said the testimony was “embarrassing.”
Riopelle said he did not regret putting Bongiorno on the stand, as it was the only way to show the jurors she “never understood the consequences of her actions.”
The government said Bonventre helped conceal the fraud by manipulating the firm’s general ledger. He also deceived regulators, auditors and bankers, filed false tax returns and helped Madoff evade taxes as well, prosecutors said.
Prosecutors accused Crupi and Bongiorno of backdating fake trades in customer accounts months, and sometimes years, after they purportedly occurred.
And O’Hara and Perez were accused of writing computer programs that generated fake trade records to fool auditors, prosecutors said.
The trial provided an intimate look at Madoff’s fraud and the intricate structure of lies that kept it afloat, with Madoff fooling even his most trusted aides into believing he had assets stashed somewhere. 
No one at the firm knew the entire truth; even DiPascali, who was deeply involved in the fraud, said he didn’t realize it was a Ponzi scheme until Madoff confessed to him just days before his arrest that he had run out of money.
Asked whether the defense could have anything differently, Eric Breslin, a lawyer for Crupi, said, “Madoff was a tall mountain to climb.”
The case is U.S. v. O’Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-00228.


Coordinating civil recovery prosecutions with criminal complaints is something most fraud victims should canvas with their fraud recovery lawyers before commencing either process – that is, at the outset of responding to a loss when the case is being triaged. See our blogs “Triaging” Your Fraud Case, and Coordinating Criminal and Civil Justice as a Means of Recovery for Fraud Victims. For further information or to have your case assessed, please contact us.

Norman Groot, LLB, CFE, CFI – March 25, 2014