NEW YORK (Reuters) - Madoff did not do it alone.
That is the message prosecutors will pound home as five of Bernard Madoff’s long-time employees go on trial this week accused of enabling his $65 billion Ponzi scheme.
Madoff pleaded guilty in 2009 to defrauding investors at Bernard L. Madoff Investment Securities LLC, which imploded in late 2008. He is serving a 150-year prison sentence.
Madoff said he acted alone, but prosecutors have since charged 15 of his associates.
The five who go on trial on Tuesday were paid handsomely to help Madoff dupe investors and regulators, prosecutors allege. All five have pleaded not guilty and some of them have said in court filings that they did not know about the fraud.
In an indictment in July, prosecutors said the five employees created false records and fabricated exotic-sounding transactions to explain the firm’s consistent high returns.
Whether they touted a “convertible arbitrage strategy,” a “split-strike conversion strategy” or no particular strategy, “the truth was that Madoff and his co-conspirators - with very rare exception - were not making any trades at all,” the indictment said.
The defendants are Daniel Bonventre, the director of operations for the firm’s back office, who started working for Madoff around 1968; Annette Bongiorno and Joann Crupi, who managed clients’ investment accounts; and computer programmers Jerome O’Hara and George Perez, whom prosecutors say helped the firm deceive the U.S. Securities and Exchange Commission and Internal Revenue Service, among others.
The charges include conspiracy to defraud Madoff’s clients, securities fraud and falsifying records of a broker-dealer. U.S. District Judge Laura Taylor Swain, a Brooklyn native known for her calm demeanor, will preside over the trial, which starts with jury selection Tuesday.
Swain has requested a pool of 400 potential jurors, far more than usual, for a trial that could last five months. Long lines spilled out of the federal courthouse in New York on October 1, as potential jurors waited to fill out questionnaires exploring their suitability.
A key witness expected for the prosecution is Madoff’s deputy and chief financial officer, Frank DiPascali. DiPascali, who worked for Madoff for 33 years, pleaded guilty in 2009 to helping Madoff and others carry out the fraud.
Defense lawyers will try to undermine his credibility, given his seniority at the firm and incentive to seek leniency, said Steven Feldman, a white collar defense lawyer at the law firm Herrick, Feinstein and a prosecutor in the U.S. Attorney’s Office in New York from 2002 to 2008.
“You’d characterize him as a crucial piece of the puzzle that the defense is going to attack mercilessly,” Feldman said.
The challenge for the prosecution is to prove criminal intent based on largely circumstantial evidence, Feldman said.
“The more complex the fraud and the more technical the fraud, the harder it is to prove that an individual defendant knew that he or she was doing something wrong at the time the alleged crime was committed,” Feldman said.
In a pretrial document, lawyers for O’Hara and Perez said the programmers “performed the computer tasks assigned to them mostly by” DiPascali, and that they were “lied to and misled for years” by DiPascali and Madoff.
“We believe that the government has made a tragic mistake as to George Perez, and that the trial will demonstrate that he never became a knowing participant in any of the crimes charged,” Perez’s lawyer, Larry Krantz, said in an email.
O’Hara’s lawyer, Gordon Mehler, said in an email that “we are eager to finally get underway.”
Lawyers for Crupi questioned “whether she knew of the fraud at all” in a court document filed in September.
Crupi’s lawyer, Eric Breslin, declined to comment. Lawyers for Bonventre and Bongiorno did not return requests for comment.
Prosecutors have also said that four out of the five were involved “in romantic and/or sexual relationships” with each other or with Madoff, although it is unclear if the relationships will be a factor in the trial.
Of the 15 Madoff associates indicted, nine have pleaded guilty. The most recent indictment was that of Paul Konigsberg, an accountant who worked with Madoff’s clients, who pleaded not guilty on September 26.
The case is USA v. O’Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
Reporting by Bernard Vaughan; Editing by Eddie Evans, Bernard Orr