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Three Years On, Madoff Employees Indict Their Boss

Today marks three years since Bernie Madoff confessed to stealing $65 billion from investors, in the first global financial Ponzi scheme. (It also marks a year since his son Mark committed suicide).

Some believe the Madoff family were innocent. I point to the facts contravening this assertion.

Harry Markopolos, who testified to Congress on his decade long attempt to blow the whistle on Madoff: “I personally have seen Bernie’s ponzi notes dating back to 1981. And I’ve met a witness who says his father started investing in those Ponzi notes in 1976. Personally I think he never was running a legitimate business, he learned how to be a fraudster from his parents who were both securities fraudsters. I believe it’s a poisonous family tree spanning three generations from Bernie and [brother] Peter’s parents, to Bernie & Peter, to [sons] Andrew, Mark and Shauna”, Bernie Madoff’s niece.

Former employee David Kugel last month confessed to helping Bernie run the scam hedge fund since 1970, creating fake backdated trades until the collapse in 2008. (Had the stock market not crashed–and Bernie’s investors all come back for the money at the same time–his scam might still be going on). Read Kugel’s indictment here (david kugel ecf.nysd.uscourts.gov-cgi-bin-show_temp.pl?file=9299253-0–29226,) describing how he concocted phony trades for Madoff’s hedge fund, along with other employees.

Finally, this email came to me from a former Madoff trading employee on the legitimate brokerage side. He had just watched Bernie’s wife Ruth and son Andrew on 60 Minutes: “Andy was a very experienced trader, being in the business 20 or so years. If he had an account that Bernie managed, wouldn’t he notice that the trades listed on his statements were fictitious? It really bothered me.  I am no genius, but after seeing the way Andy watched over the trading floor and poured over all the trades when I was there, I am surprised he wouldn’t have noticed that on his own personal account.  Also, I just saw that David Kugel pleaded guilty, and he was the one who oversaw all of our trades and capital limits that we traded with.  If Andy and Mark were managing David, wouldn’t they have to know what was going on?”



4 responses

  1. Gerard L

    I was also curious about some of the implications of Mr. Kugel’s plea – in particular, his admission that the backdated/falsified transactions stretched back close to 40 years. On page 184 of your book, “Too Good to be True”, you give examples of fictitious trades on Madoff statements. You also go on to say “A professional trader would have caught such an error” – a statement with which I wholeheartedly agree.
    Yet the list of Madoff victims (roughly 16,000 or so) released in one of Picard’s lawsuits reveals a plethora of victims who were not only securities professionals, but who were well-known and well-regarded in the field, such as Ira Sorkin – Madoff’s own attorney and a one time higher-up in the NY office of the SEC, I believe.
    As an attorney with training in securities, the first thing I do when I see a securities statement is check the dates of the transaction to see 1) if the company in question was publicly traded – or even existed on the given date and 2) if price given was within range of trading prices on the given date.
    Doesn’t Kugel’s plea raise the rather troubling question as to why – in close to half a century – no one – not even the likes of an Ira Sorkin – no one at all – noticed even one bogus transaction?

    January 21, 2012 at 5:44 pm

    • Gerald– Yes, some potential investors did notice, and chose not to give Madoff their money because the trades seemed too perfect. Madoff was careful to use trades that COULD have taken place based on historical prices, with the benefit of hindsight. besides, he was claiming to trade options on the top S&P 100 stocks, and yet that was a dying instrument, especially in the late 1990s.

      But mathematically his returns were too good, the equivalent of a slugger batting .900 every year. This “should-have-known” argument is what the Trustee Irving Picard is using in court against big investors like the Wilpons, the feeder funds, etc.

      January 22, 2012 at 5:24 pm

  2. Gerard L

    Thank you for the clarification on this. And thank you for your well written and researched
    book on the Madoff fiasco.

    Speaking of backdated transactions being used as an ‘investment strategy’, I’ve always been struck by the chilling irony of the following excerpt of DiPascali’s testimony before the SEC in 2006:

    “Historical data is the key to the model in my opinion. Being able to have accurate and
    efficient historical pricing information is key.”

    Eerily reminiscent, I think, of a phrase from Tony Montana’s “You need people like me” speech in “Scarface”:

    “Me, I always tell the truth. Even when I lie.”

    Source of DiPascali quote:
    PACER Case 1:10-cr-00228-LTS Document 112-9 Filed 03/18/11 Page 32 of 50

    January 23, 2012 at 4:17 pm

    • Yes, Frank DiPascali, the computer programmers and Kugel all knew what they were doing–creating lies! Erin E. Arvedlund erinarvedlund@yahoo.com 1-646-797-0759


      January 23, 2012 at 4:31 pm

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