LAWFUEL.COM – Legal Newswire Service
LEV L. DASSIN, the Acting United States Attorney for
the Southern District of New York, JOSEPH M. DEMAREST, JR., the
Assistant Director-in-Charge of the New York Field Office of the
Federal Bureau of Investigation (“FBI”), and ALAN D. LEBOWITZ,
the Deputy Assistant Secretary of the United States Department of
Labor, Employee Benefits Security Administration (“DOL-EBSA”),
announced the filing today of a Criminal Information in Manhattan
federal court charging BERNARD L. MADOFF with eleven felony
charges including securities fraud, investment adviser fraud,
mail fraud, wire fraud, three counts of money laundering, false
statements, perjury, false filings with the United States
Securities and Exchange Commission (“SEC”), and theft from an
employee benefit plan. There is no plea agreement between the
Government and the defendant.
If found guilty of all counts, MADOFF, 70, faces a
statutory maximum sentence of 150 years’ incarceration. MADOFF
is also subject to mandatory restitution and faces fines up to
twice the gross gain or loss derived from the offense. The
Criminal Information filed today also includes forfeiture
allegations which would require MADOFF to forfeit the proceeds of
the charged crimes, as well as all property involved in the money
laundering offenses and all property traceable to such property.
The statutory maximum sentences for each of the charged offenses
are set forth in an attached chart.
Specifically, the Criminal Information alleges that:
BERNARD L. MADOFF is the founder, and served as the
sole member and principal, of Bernard L. Madoff Investment
Securities LLC, and its predecessor, Bernard L. Madoff Investment
Securities, (collectively and separately, “BLMIS”). BLMIS was a
broker-dealer, with its principal place of business in New York
City, which engaged in three principal types of business: market
making; proprietary trading; and investment advisory services.
Madoff Securities International Ltd. (“MSIL”) was an affiliate of
BLMIS incorporated in the United Kingdom, which engaged
principally in proprietary trading. MADOFF owned the majority of
the voting shares of MSIL, and served as the Chairman of MSIL’s
Board of Directors.
From at least the 1980s until his arrest on December
11, 2008, MADOFF perpetrated a scheme to defraud the clients of
BLMIS by soliciting billions of dollars of funds under false
pretenses, failing to invest investors’ funds as promised, and
misappropriating and converting investors’ funds to MADOFF’s own
benefit and the benefit of others without the knowledge or
authorization of the investors.
To execute the scheme, MADOFF solicited and caused
others to solicit prospective clients to open trading accounts
with BLMIS, based upon his promise to use investor funds to
purchase shares of common stock, options, and other securities of
large, well-known corporations, and representations that he would
achieve high rates of return for clients, with limited risk.
However, as MADOFF well knew, these representations were false.
MADOFF failed to invest the BLMIS investment advisory clients’
funds in securities as he had promised. Instead, notwithstanding
representations that MADOFF made and caused to be made on tens of
thousands of account statements and other documents sent to BLMIS
clients throughout the operation of the scheme, MADOFF operated a
massive Ponzi scheme in which client funds were misappropriated
and converted to the use of MADOFF, BLMIS, and others.
In connection with the Ponzi scheme, MADOFF accepted
billions of dollars of investor money — cumulatively, from
individual investors, charitable organizations, trusts, pension
funds, and hedge funds, among others — and established on their
behalf thousands of accounts at BLMIS.
Among the false representations he made to clients and
prospective clients about his investment strategies, MADOFF
marketed an investment strategy referred to as a “split strike
conversion” strategy. Clients were promised that BLMIS would
invest their funds in a basket of approximately 35-50 common
stocks within the Standard & Poor’s 100 Index (the “S&P 100”), a
collection of the 100 largest publicly traded companies in terms
of their market capitalization. MADOFF claimed that he would
select a basket of stocks that would closely mimic the price
movements of the S&P 100. MADOFF further claimed that he would
opportunistically time those purchases, and would be “out of the
market” intermittently, investing clients’ funds in these periods
in United States Government-issued securities such as United
States Treasury bills. MADOFF also claimed that he would hedge
the investments that he made in the basket of common stocks by
using investor funds to buy and sell option contracts related to
those stocks, thereby limiting potential losses caused by
unpredictable changes in stock prices.
Further, to induce new and continued investments by
clients and prospective clients, MADOFF promised certain clients
annual returns in varying amounts of up to approximately 46
percent per year. MADOFF also told certain clients that the fee
for his services would be based on an approximately $0.04 per
share commission on the stocks that MADOFF traded for such
clients.
Contrary to promises that he would use investor funds
to purchase securities on their behalf and invest client funds
pursuant to the strategies he had marketed, MADOFF used most of
the investors’ funds to meet the periodic redemption requests of
other investors. In addition, MADOFF took some of these clients’
investment funds as “commissions,” which he used to support the
market making and proprietary trading businesses of BLMIS, and
from which he and others received millions of dollars in
benefits
MADOFF created and caused to be created a broad
infrastructure at BLMIS to generate the impression and support
the appearance that BLMIS was operating a legitimate investment
advisory business in which client funds were actively traded as
he had promised, and to conceal the fact that no such business
was actually being conducted. Among other things, MADOFF hired
numerous employees — many of whom had little or no prior
pertinent training or experience in the securities industry — to
serve as a “back office” for this investment advisory business.
MADOFF directed those BLMIS employees to communicate with clients
and generate false and fraudulent documents, including monthly
client account statements and trade confirmations purporting to
reflect the purchases and sales of securities which MADOFF
claimed were conducted on behalf of BLMIS’s clients.
Furthermore, account statements and trade confirmations sent to
clients reflected fictitious returns consistent with the returns
that had previously been promised to them.
Moreover, to support BLMIS’s market making and
proprietary trading businesses, between at least 2002 and about
2008, MADOFF caused more than $250 million of BLMIS investment
advisory clients’ funds to be directed, through a series of wire
transfers, to the operating accounts that funded the operations
of these businesses. Specifically, MADOFF caused those investor
funds to be sent from a BLMIS account in New York City (the
“BLMIS Client Account”) to accounts held by BLMIS-affiliate MSIL
in London, United Kingdom (the “MSIL Accounts”). He then further
caused funds to be transferred from the MSIL Accounts to either
the BLMIS Client Account or to another bank account in New York
City, which was principally used to fund BLMIS’s operations.
MADOFF directed these funds transfers, in part, to give
the appearance that he was conducting securities transactions in
Europe on behalf of the investors when, in fact, he was not.
MADOFF also directed the transfer of funds from the MSIL Accounts
to purchase and maintain property and services for the personal
use and benefit of MADOFF, his family members, and associates.
To conceal his scheme, MADOFF, among other things,
withheld information from regulators and repeatedly lied to the
SEC in written submissions and in sworn testimony.
In furtherance of the scheme, MADOFF caused fraudulent
certified financial statements for BLMIS, including balance
sheets, statements of income, statements of cash flows, and
reports on internal control, to be created. MADOFF further
caused such fraudulent financial statements to be sent to clients
and prospective clients and to be filed with the SEC. MADOFF
knew that the certification attached to the BLMIS financial
statements falsely averred that those statements had been
prepared in accordance with Generally Accepted Auditing Standards
and Generally Accepted Accounting Principles.
As of November 30, 2008, BLMIS had approximately 4,800
client accounts. On December 1, 2008, BLMIS issued account
statements for the calendar month of November 2008 reporting that
those client accounts held a total balance of approximately $64.8
billion. In fact, BLMIS held only a small fraction of that
balance on behalf of its clients.
* * *
MADOFF is expected to appear at a plea proceeding on
March 12, 2009, at 10:00 a.m. before United States District Judge
DENNY CHIN in Manhattan federal court. Pursuant to an order
issued by Judge CHIN on March 6, 2009, any individual who wishes
to be heard during that proceeding must send notice via e-mail to
the U.S. Attorney’s Office for the Southern District of New York
at usanys.madoff@usdoj.gov by 10:00 a.m. on March 11, 2009.
Mr. DASSIN praised the investigative work of the FBI
and the DOL-EBSA. Mr. DASSIN also thanked the SEC for its
assistance.
“The charges reflect an extraordinary array of crimes
committed by Bernard Madoff for over twenty years. While the
alleged crimes are not novel, the size and scope of Mr. Madoff’s
fraud are unprecedented. As a result, Mr. Madoff faces one
hundred fifty years in prison, mandatory restitution to the
victims of his crimes, forfeiture of his ill-gotten gains, and
criminal fines. The Government has not entered into any
agreement with Mr. Madoff about his plea or sentencing,” said
Acting United States Attorney LEV L. DASSIN. “The filing of
these charges does not end the matter. Our investigation is
continuing.”
Assistant United States Attorneys MARC LITT, LISA A.
BARONI, WILLIAM J. STELLMACH, BARBARA A. WARD, and SHARON FRASE,
are in charge of the prosecution.
The charges and allegations contained in the Criminal
Information are merely accusations, and the defendant is presumed
innocent unless and until proven guilty.
09-054 ###
-6-
STATUTORY MAXIMUM SENTENCES
United States v. Bernard L. Madoff
Count Charge Maximum Penalties
ONE Securities Fraud
20 years in prison; 3 years’ supervised release;
fine of the greatest of $5 million or twice the
gross gain or loss from the offense; and
restitution
TWO Investment
Adviser Fraud
5 years in prison; 3 years’ supervised release;
fine of the greatest of $10,000 or twice the
gross gain or loss from the offense; and
restitution
THREE Mail Fraud
20 years in prison; 3 years’ supervised release;
fine of the greatest of $250,000 or twice the
gross gain or loss from the offense; and
restitution
FOUR Wire Fraud
20 years in prison; 3 years’ supervised release;
fine of the greatest of $250,000 or twice the
gross gain or loss from the offense; and
restitution
FIVE
International
Money Laundering
To Promote
Specified
Unlawful Activity
20 years in prison; 3 years’ supervised release;
fine of the greatest of $500,000 or twice the
value of the monetary instruments or funds
involved, or twice the gross gain or loss from
the offense; and restitution
SIX
International
Money Laundering
To Conceal and
Disguise The
Proceeds Of
Specified
Unlawful Activity
20 years in prison; 3 years’ supervised release;
fine of the greatest of $500,000 or twice the
value of the monetary instruments or funds
involved, or twice the gross gain or loss from
the offense; and restitution
SEVEN Money Laundering
10 years in prison; 3 years’ supervised release;
fine of the greatest of $250,000 or twice the
gross gain or loss from the offense; and
restitution
EIGHT False Statements
5 years in prison; 3 years’ supervised release;
fine of the greatest of $250,000 or twice the
gross gain or loss from the offense; and
restitution
NINE Perjury
5 years in prison; 3 years’ supervised release;
fine of the greatest of $250,000, or twice the
gross gain or loss from the offense; and
restitution
TEN
Making a False
Filing with the
SEC
20 years in prison; 3 years’ supervised release;
fine of the greatest of $5,000,000 or twice the
gross gain or loss from the offense; and
restitution
ELEVEN
Theft from an
Employee Benefit
Plan
5 years in prison; 3 years’ supervised release;
fine of the greatest of $250,000, or twice the
gross gain or loss from the offense; and
restitution
