DiPascali, 52, of Bridgewater, New Jersey, faces a statutory maximum sentence of 125 years in jail. U.S. District Judge Richard J. Sullivan remanded DiPascali to prison, setting a sentencing date of May 15, 2010.
"DiPascali's cooperation could lead to a reduced sentence," NBCBayArea.com noted in Ex-Madoff CFO Pleads Guilty, Cooperating With Feds. However, Judge Sullivan denied DiPascali be released on bail, stating: "I'm not persuaded he will be here at the time of sentencing given the monumental sentence he's facing," as reported by Reuters in Madoff Firm's CFO Pleads Guilty, Denied Bail.
According to Reuters, "DiPascali, who worked for Madoff for 33 years from the age of 18, appeared stunned at the judge's ruling at the end of a two-hour long court hearing.
DiPascali told the court that he recorded securities trades for clients that were 'all fictitious' and that in January 2006, 'under Bernie Madoff's direction, I lied to the SEC about the activities of the firm.'"
Madoff recently began serving a 150-year prison sentence for his role leading the Ponzi scheme, which was originally described as a $65 billion fraud, including phantom profits. Madoff has claimed to date that he acted alone.
In a prepared statement read in court today, DiPascali said, as reported in this Reuters article: "I'm standing here today to tell you that from the early 1990s to 2008 I helped Bernie Madoff and other people carry out a fraud that hurt thousands of people. I am guilty."
As further noted in the NBC.com article cited above, "DiPascali described the fraud, saying he 'represented that trades were taking place when they weren't. Most of time money just went into bank accounts Bernard Madoff controlled.' He said at Madoff's direction he 'lied under oath' to the Securities and Exchange Commission. ... 'It was all fictitious,' he said. 'It was wrong, and I knew it was wrong at the time. '"
SEC Files Civil Charges
Also today, the SEC filed civil charges against DiPascali. After news of DiPascali's guilty plea to the criminal charges, the SEC's press release noting DiPascali neither admitted nor denied the SEC's civil charges was somewhat anti-climactic. The SEC press release stated in part:
Others Expected to be Charged
According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, DiPascali helped generate bogus annual returns of 10 to 17 percent by fabricating backdated and fictitious trades that never occurred. The SEC further alleges that DiPascali helped Madoff cover up the fraud by preparing fake trade blotters, stock records, customer confirmations, Depository Trust Corporation (DTC) reports and other phantom books and records to substantiate the non-existent trading.
"DiPascali and Madoff ran an extraordinary and massive counterfeiting operation that concealed their fraud from investors and regulators alike," said Robert Khuzami, Director of the SEC's Division of Enforcement.
Without admitting or denying the allegations of the SEC's complaint, DiPascali has consented to a proposed partial judgment, which if entered by the court would impose a permanent injunction against DiPascali and leave the issues of disgorgement and a financial penalty to be decided at a later time.
A number of articles say that - although Madoff maintained he acted alone - now that DiPascali has pleaded guilty and presumably turned evidence against others, others are expected to be charged in the Madoff affair.
For instance, the closing paragraph of the NBCBayArea.com article states: "Officials will not say which relatives or former co-workers at Madoff Investment Securities will face charges. But investigators have said they expect about a dozen others to be charged as probe moves forward."
Read All About It
Numerous books recently published on the Madoff affair include, perhaps most significantly, Too Good To Be True, by Erin Arvedlund (Penguin Books). As noted in a Bloomberg article published today, Madoff Got Cozy With SEC, Ran Ponzi Scheme on Old IBM [Computer], Arvedlund was virtually the sole journalist who questioned Madoff's alleged strategy years ago, in an article she wrote for Barron's in 2001. Other books on this subject, notes the Bloomberg article, include “Betrayal” by Andrew Kirtzman (Harper) and “Madoff With the Money” by Jerry Oppenheimer (Wiley).
If you are looking for a general read on Madoff and other famous fraudsters, see How to Smell a Rat: The Five Signs of Financial Fraud, published earlier this year by JW Wiley, written by Ken Fisher of Fisher Investments, with Lara Hoffmans.
Since I like to use mnemonics to remember lists (even 5 point lists) (guess I got into that habit from the Becker CPA Review Course way back when), I have reordered Fisher's five points somewhat, to align with some associated key words, as follows (phrases in quotes are the 'five signs' of fraud as outlined by Fisher in his book):
A: Assets - "Your adviser also has custody of your assets - the number one, biggest, reddest flag."
B: Too Good to "B" True: "Returns are consistently great! Almost too good to be true."
C: Complexity: "The investing strategy isn't understandable, is murky, flashy, or 'too complicated' for him (her, or it) to describe so you easily understand."
D: Due Diligence: "You didn't do your own due diligence, but a trusted intermediary did."
E: Exclusivity: "Your adviser promotes benefits like exclusivity, which don't impact results."
Up Next: SEC I.G. Report
Of course, aside from perhaps Arvedlund's book, or a potential tell-all by Madoff, DiPascali, or Madoff's auditor David Friehling (who pleaded not guilty to fraud charges on July 17, as noted in this FT.com article,) perhaps the most watched-for read will be the SEC's Report of the Inspector General on the IG's internal investigation of the SEC's handling of the Madoff affair.
SEC Inspector General David Kotz testified to the Subcommitee on Oversight & Investigations of the House Financial Services Committee on July 13 that the SEC "plan[s] to issue shortly a comprehensive investigative report detailing all the examinations and investigations that the SEC conducted of Madoff or Madoff-related entities from 1992 until the present, and analyzing the reasons why the SEC did not uncover the Madoff Ponzi scheme, notwithstanding these examinations and investigations."
He added, "We have already interviewed over 100 witnesses and reviewed millions of e-mails and documents in connection with these investigative efforts," and, "We also plan to issue two additional reports providing specific and detailed recommendations for improvement of both the SEC’s Division of Enforcement and the Office of Compliance Inspections and Examinations, which will incorporate the findings from our investigative report."
Print this post