Legal Reference

Bernard Madoff's computer programmers busted!

Ex-Madoff computer programmers arrested

Nov. 13, 2009 10:57 AM

Associated Press

NEW YORK - Two former employees for Bernard Madoff programmed an old IBM computer to generate false records that concealed the money manager's massive Ponzi scheme and were given hush money when they threatened to stop lying, federal prosecutors said Friday.

Madoff gave orders to pay the pair "whatever they wanted to keep them happy," a criminal complaint said.

The computer programmers, Jerome O'Hara, of Malverne, N.Y., and George Perez, of East Brunswick, N.J., were arrested Friday at their homes. They were to appear in a Manhattan court to face conspiracy, falsifying records and other charges.

"Without the help of O'Hara and Perez, the Madoff fraud would not have been possible," George S. Canellos, director of the Securities and Exchange Commission's New York Regional Office, said in a statement.

Their attorneys did not immediately return calls for comment.

Prosecutors alleged that O'Hara and Perez were hired by Madoff's firm in the early 1990s to develop and maintain programs using a computer known as "House 17." The programs allowed Madoff to generate account statements for thousands of clients "that purported to confirm the purchases of securities that, in fact, had not been purchased," the complaint said.

Madoff and his chief financial officer, Frank DiPascali, directed the defendants to use their computer skills to produce other false documents designed to deceive the SEC. The agency brought similar charges against the men on Friday in a parallel civil complaint.

In what the SEC called "a crisis of conscience" in 2006, O'Hara and Perez deleted 218 of the 225 special programs from the House 17 computer, and withdrew thousands of dollars from their own accounts with the firm, authorities said.

Around the same time, the pair met with Madoff and told him they would no longer participate in the scheme. Handwritten notes found by FBI agents in O'Hara's desk read, "I won't lie any longer. Next time, I say ask Frank.' "

DiPascali, who is cooperating after pleading guilty in August, has told investigators that Madoff responded by ordering him to buy their silence. They both received $60,000 bonuses and 25 percent pay raises, the complaint said.

"Their subterfuge was designed to conceal the fraud from regulators and others, and when they told Madoff they would no longer lie for him, their continued complicity was bought for a price," Joseph Demarest, head of the FBI's New York office, said in statement.

Madoff, 71, was sentenced in June to 150 years in prison for orchestrating a decades-long Ponzi scheme in which investors are paid with other investors' money rather than actual profits on their investment. The scheme destroyed thousands of people's life savings and wrecked charities.

O'Hara, 46, and Perez, 43, face up to 30 years in prison if convicted on all counts.

Source

Programmers charged in Madoff scam

By GENE RACZ • GANNETT NEW JERSEY • November 14, 2009

EAST BRUNSWICK -- An East Brunswick man accused of helping to cover up Bernard Madoff's massive Ponzi scheme and investment fraud has been released on $1 million bond after he was arrested Friday at his Quaker Drive home.

George Perez, 43, is a former computer programmer for Madoff. Also arrested at his home Friday morning and released on a $1 million bond was Jerome O'Hara, 46, of Malverne, N.Y., another computer programmer who worked with Perez for more than 15 years at Madoff's Manhattan-based investment firm, which victimized thousands of investors before it collapsed, causing tens of billions of dollars in investor losses.

"Jerome O'Hara and George Perez allegedly helped construct Bernie Madoff's house of cards," said U.S. Attorney Preet Bharar. "The computer codes and random algorithms they allegedly designed served to deceive investors and regulators and concealed Madoff's crimes.

"Today (Friday) they have been charged for their roles in Madoff's epic fraud, and the investigation remains ongoing."

In June, Madoff, 71, was sentenced to 150 years in prison for his scheme, which in essence paid investors with other investors' money instead of actual profits made from real investment strategies.

Perez and O'Hara were released on bond after a brief court hearing Friday before U.S. Magistrate Judge Ronald L. Ellis in U.S. District Court, Manhattan.

Phone calls to Perez's home in East Brunswick were not answered Friday. Neighbors either refused to talk or did not answer calls for comment.

Perez's arrest was the second of a Central Jerseyan who had some involvement with Madoff. Madoff's former top financial aide, Frank DiPascali of Mountaintop Road, Bridgewater, pleaded guilty in August to conspiracy, securities fraud and eight other charges as part of a cooperation deal in which he's expected to help prosecutors target other suspects in the massive scam.

DiPascali, 52, who rose from a teenage assistant to Madoff to become the chief financial officer of the now disgraced financier's business, waived indictment by a federal grand jury and admitted he spent decades helping the former money manager falsify purported trading records for thousands of victimized investors.

An FBI spokesman said Perez would be represented by attorney Larry Krantz, who could not immediately be reached for comment Friday.

Perez worked at Bernard L. Madoff Investment Securities LLC from 1990 through at least Dec. 11, 2008. According to the federal complaint, Perez graduated from Pace University in 1989 and worked as a programmer and systems analyst before joining Madoff's firm. There, the complaint alleges, he worked with O'Hara in "writing, modifying and maintaining the computer programs that created investor account statements and trade confirmations, as well as programs that created reports to mislead investor trade representatives and regulators."

"O'Hara and Perez are charged with being instrumental in facilitating the Ponzi scheme that was the Bernard Madoff investment advisory business," said FBI Assistant Director-in-Charge Joseph M. Demarest, Jr. "Their subterfuge was designed to conceal the fraud from regulators and others, and when they told Madoff they would no longer lie for him, their continued complicity was bought for a price."

An FBI news release said that in August or September 2006, O'Hara and Perez met with Madoff and told him, in substance, that they would no longer lie for him. The FBI says handwritten notes found by them in O'Hara's desk stated, among other things: "I won't lie any longer. Next time, I say "Ask Frank.' " After that discussion, the complaint alleges, Madoff directed another of his employees, DiPascali, to pay O'Hara and Perez whatever they wanted in order to keep them happy. The complain alleges O'Hara and Perez each received pay increases of about 25 percent and net bonuses of approximately $60,000.

If convicted on all counts, O'Hara and Perez each face a maximum sentence of 30 years in prison.

The Associated Press contributed to this story. Gene Racz: 732-565-7306; gracz@MyCentralJersey.com

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New Jersey Real-Time News

N.J. computer programmer who worked for Bernard Madoff is arrested by FBI

By The Associated Press

November 13, 2009, 3:15PM

NEW YORK — Two former employees for Bernard Madoff programmed an old IBM computer to generate false records that concealed the crooked financier's massive Ponzi scheme and were given hush money when they threatened to stop lying, federal prosecutors said today.

Madoff gave orders to pay the pair "whatever they wanted to keep them happy," a criminal complaint said.

Mary Altaffer/APBernard Madoff, seen here arriving at federal court in March. The FBI has arrested two former computer programmers for Madoff's investment firm.

The complaint relies heavily on inside information provided by Madoff's chief financial officer, Frank DiPascali, who is cooperating after pleading guilty in August.

The computer programmers, Jerome O'Hara, of Malverne, N.Y., and George Perez, of East Brunswick, N.J., were arrested at dawn today at their homes on charges including conspiracy and falsifying records.

Both were released on $1 million bond after a brief hearing today in federal court in Manhattan. Their attorneys had no comment.

The SEC brought similar charges against the men on today in a parallel civil complaint.

O'Hara and Perez were hired by Madoff's firm in the early 1990s to develop and maintain programs using a computer known as "House 17." The programs allowed Madoff to generate account statements for thousands of clients "that purported to confirm the purchases of securities that, in fact, had not been purchased," the complaint said.

DiPascali has told investigators that in 2001, Madoff become alarmed by news report that his phony returns were too good to be true. Madoff "attempted to prepare for increased scrutiny" by the SEC by having O'Hara and Perez fabricate a second set of books that would throw regulators off the trail, the complaint said.

DiPascali said that at a meeting the pair told Madoff "that they would no longer lie for him." Handwritten notes found later by FBI agents in O'Hara's desk read, "I won't lie any longer. Next time, I say 'ask Frank.'"

DiPascali said Madoff responded by ordering him to buy their silence. They both received $60,000 bonuses and 25 percent pay raises, the complaint said.

O'Hara, 46, and Perez, 43, face up to 30 years in prison if convicted on all counts.

Source

Ponzi Schemer Madoff Describes SEC Investigator as an "Idiot"

Tuesday 03 November 2009

by: Mary Susan Littlepage, t r u t h o u t | Report

SEC investigators received tips about Bernie Madoff's Ponzi scheme during the last 17 years, but didn't detect fraud until much later. (Photo Illustration: Jared Rodriguez / t r u t h o u t) Bernard Madoff, who became known as the operator of the Ponzi scheme thought to be the largest investment fraud in Wall Street history, said he wasn't impressed by the people that the Securities and Exchange Commission sent to investigate him in 2006. He even called one SEC investigator a "blowhard," who talked tough but didn't examine anything well.

Madoff offered such details in an interview with SEC Inspector General H. David Kotz. The SEC released the interview details late Friday. The report indicates that the SEC received tips about Madoff's scheme during the last 17 years, but didn't detect the fraud until much later.

In March, Madoff pleaded guilty to 11 felonies and admitted to turning his wealth management business into a massive scheme that defrauded thousands of investors of billions of dollars. Madoff created the Wall Street firm Bernard L. Madoff Investment Securities LLC in the 1960s, and he was its chairman until he was arrested in December of last year. FBI agents charged him with securities fraud, and in June he was sentenced to 150 years in prison.

The US Securities and Exchange Commission Office of Inspector General conducted examinations of Madoff's business going back to 1992. Here are highlights from the documents released Friday detailing Kotz's interview with Madoff:

During a June interview, Madoff said that the prosecutor and trustee in the criminal case "misunderstood" things he said and that as a result, a lot of misinformation is being circulated about the scandal. However, he said, "I'm not saying I'm not guilty."

Madoff described Peter Lamore and William Ostrow as "two young fellows," who spent two months, and they "spent 90 percent of their time looking through emails." He said that this is "routine for the SEC now; they feel that's the way they find things."

Ostrow and Lamore looked through bank reconciliations, expense accounts and checks. Madoff said he didn't understand what they were looking for; he said that he had "tons of capital" and so he "didn't understand why they were looking at that stuff." Also, Madoff said that Ostrow was "so cryptic" and that he spent a "huge amount of time looking at invoices for expenses." Ostrow looked at canceled checks and phone bills, so Madoff reckoned that Ostrow was looking for wrongdoing pertaining to something going on in the industry at that time.

Madoff also noted that during the 2006 investigation, Ostrow kept asking for computer runs. Investigators "kept asking (the computer programmer) to do different runs" and to reformat the material.

Madoff said that Ostrow and Lamore asked him, "Do you do a retail business?" to which he replied, "No." He said, however, that "at this time [in 2006], I was trying to conceal." He also told them, "I don't manage money."

Madoff said, "Everything the SEC did prior to 2006 was a waste of time."

Also, he said that during this exam, they "never looked at front running." He said that two months after Ostrow and Lamore left, he got a letter citing him for "two ridiculous violations," which they were wrong about; the violations they cited were incorrect, he said. He went on to say that when he submitted a response to the SEC letter and copied it to the Financial Industry Regulatory Authority (FINRA), FINRA responded, "What the heck? Are you nuts with this nitpicking?"

Madoff said, "After two months, they found two to three nitpicky things, and they were wrong about those things." He said he didn't provide false documents to the Office of Compliance Inspections and Examinations (OCIE) examiners, except the client statements. He stated that he did not provide or make false records for the SEC. He added that they "never asked for Depository Trust Company (DTC) records" or other records that needed to be prepared.

Ostrow and Lamore "never really got into books and records as related to stock records or DTC records." Madoff said that "they never even looked at my stock records" or did a "box count"; he was "astonished" that they didn't ask for DTC records.

He said that if they had gone to DTC, they would've seen his market-making position and that it "would've been easy for them to see" the Ponzi scheme.

Madoff said, "I got away lucky" during an enforcement investigation, but that he thought it was just "a matter of time" before he would be caught and that "that was the nightmare I lived with."

Enforcement investigators "asked all the right questions, but it was still focused on front-running," Madoff said. He said that the investigators dismissed the allegation of a Ponzi scheme as "inconceivable to them."

Madoff said he got the impression through all the exams and investigations that "it never entered the SEC's mind that it was a Ponzi scheme." And he said he "was relieved" when he got a letter from Enforcement indicating the case was over.

However, he said that there were two points when he thought "the jig was up":

* During the on-site OCIE exam, because he thought it was routine for the SEC to check with an independent third party

* Right after his testimony during the enforcement investigation when they asked him "what's your DTC account number?"

Madoff said he was "worried every time" he was examined or investigated by the SEC, and that "it was a nightmare for me" because "it was very basic stuff." He added, "I wish they caught me six years ago, eight years ago...."

Madoff noted that every firm keeps books and records differently, and having an examination is "like getting a tax audit; it's a pain in the ass." Also, he said that you can deal with investigations by making things difficult for examiners or by cooperating and making things easy, which is "what we always did."

Talking about Ostrow, Madoff said he "was very cryptic" and was "doing things that made no sense to us at all." He added that Ostrow was a "total asshole" and "an idiot." Madoff also described Ostrow as a "blowhard" who "talked tough, but didn't look at anything."

Madoff said that reconciling records with DTC was something they "should've done in '06." When questioned as to whether the Ponzi scheme would have been uncovered by the SEC if it had gone to DTC, he said, "Yes. It's very easy to do."

In trying to discover a Ponzi scheme, he said, "It's very easy if you want. You must do a third party check. It's absolutely a must." He went on to add that "It's Accounting 101 to look at DTC, do a box count" if you are looking for a Ponzi scheme.

When asked, "Did you ever have fake DTC records ready in case the SEC asked for them?" Madoff answered, "No."

Madoff also said that he was the only representative from BLM that dealt with SEC staff because that was the way he "always" handled exams. He said, "I always dealt with the exams. My brother handled the market making exams."

He also said that 2003 was the first time he could've been caught by the SEC. He denied that he ever acted as a reference for an SEC employee who was seeking a job. And he said that he never called anyone at the SEC or Congress to influence an examination of his firm.

Talking about beginning the Ponzi scheme, Madoff said the "problem occurred when I made commitments for too much money and then I couldn't put the strategy to work." He stated, "I had a European bank, I was doing forward conversion, they were doing reverse conversion." He stated that the returns he typically generated, "I thought I was going to be able to do." He explained that when that didn't happen, he thought, "Fine, I'll just generate these trades and then the market will come back and I'll make it back ... and it never happened." He added, "It was my mistake not to just be out a couple hundred million dollars and get out of it."

Madoff noted that he was in the securities industry for 50 years prior to his arrest and that he "wrote a good portion of the rules when it comes to trading." He said, "I'm very proud of the role I played in the industry ... of course I destroyed that now."

When dealing with the SEC, there was "never any hint" that the SEC was looking for signs of a Ponzi scheme or that they were looking at his trading, Madoff said. He said that this was "primarily because of the reputation I had." He had not been aware of the specificity of the complaints brought to the SEC's attention.

Even if somebody said he was doing a Ponzi scheme, he said, they'd "probably discount this accusation" because they'd think 'Why would he do a Ponzi scheme?' He added, "Of course they'd be shocked it's a Ponzi." He stated that they would be "astonished."

The only problem with SEC headquarters is that he had "too much credibility with them and they dismissed the Ponzi," Madoff said. "You can't have the transparency the regulators want you to have because it's proprietary and detrimental." He added, "By and large the industry is honest" and "I got myself in a terrible situation, it's a nightmare ... The thing I feel worst about besides the people losing money is that I set the industry back."

Madoff noted that he "did work in the industry long before I did anything wrong." He added, "It's a tragedy, it's a nightmare."