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Former Madoff Director of Operations Charged With Conspiracy, Securities Fraud and Tax Crimes

LawFuel.com – American Law News Service –

PREET BHARARA, the United States Attorney for the
Southern District of New York, JOSEPH M. DEMAREST JR., the
Assistant Director-in-Charge of the Federal Bureau of
Investigation’s New York Field Division (“FBI”), and PATRICIA J.
HAYNES, the Special Agent-in-Charge of the New York Field Office
of the Internal Revenue Service (“IRS”), announced today that
DANIEL BONVENTRE, the former Director of Operations for Bernard
L. Madoff Investment Securities, LLC (“BLMIS”), was arrested this
morning on a criminal Complaint charging him with conspiracy;
securities fraud; falsifying books and records of a brokerdealer;
false filings with the U.S. Securities and Exchange
Commission (“SEC”); and filing false federal tax returns.
As alleged in the Complaint unsealed today in Manhattan
federal court:
For decades, BERNARD L. MADOFF purported to provide
investment advisory (“IA”) services through BLMIS. In fact,
MADOFF defrauded thousands of IA clients out of billions of
dollars through an elaborate Ponzi scheme.

In 1968, BONVENTRE was employed at BLMIS and served as
its Director of Operations beginning at least as early as 1978.
In that capacity, BONVENTRE was responsible for, among other
things: (a) maintaining and supervising the production of the
principal internal accounting documents for BLMIS, including its
general ledger (the “G/L”) and financial statements; (b)
maintaining the stock record for BLMIS and resolving any
discrepancies between internal and external records; (c)
supervising the use and reconciliation of BLMIS bank accounts
through which the Market Making, Proprietary Trading, and IA
business operations were funded; and (d) supervising BLMIS
employees who were responsible for accounting and other “back
office” functions, including settlement and clearing of trades
executed by the Market Making and Proprietary Trading operations.
As Director of Operations, BONVENTRE directed that
false entries be made in the G/L that concealed the scope of the
IA operations and understated BLMIS’s liabilities by billions of
dollars. From 1997 to 2008, more than $750 million of IA
investor funds were used to support BLMIS’s Market Making and
Proprietary Trading operations, but were accounted for on BLMIS’s
books and records, including the G/L, so as to conceal the true
source of the funds. Moreover, as BONVENTRE knew, the G/L did
not accurately reflect the assets contained in the bank and
brokerage accounts into which IA investor funds were deposited,
and likewise did not reflect the liability of BLMIS to its IA
clients that arose from the custody of IA client funds in those
accounts. At various points in time, the assets and associated
liabilities of BLMIS’s IA operations, which were omitted from the
G/L, ranged from millions to billions of dollars.
Between November 2005 and June 2006, BLMIS experienced
a liquidity crisis caused by IA clients’ demands for withdrawals
that exceeded cash on hand. Rather than sell securities to meet
those demands – which could not be done because BLMIS had not
actually purchased any such securities on behalf of those Clients
– BONVENTRE requested $145 million of loans from a bank, using
$154 million of an IA client’s bonds as collateral, to meet
obligations to other IA clients. During the same period,
BONVENTRE monitored lines of credit, which BLMIS drew down by
more than $340 million and used to meet IA clients’ withdrawal
requests. BONVENTRE also created false and fraudulent books and
records that had the effect of disguising $262 million worth of
payments to IA clients from the principal bank account that
funded BLMIS’s operations as purchases of bonds and other debt
instruments when, in fact, no such purchases had been made.
-3-
During the liquidity crisis, BLMIS was required to file
Financial and Operational Combined Uniform Single Reports (“FOCUS
Reports”) with the SEC. Those FOCUS Reports require the
production of basic information that amounts to a condensed
version of a broker-dealer’s general ledger. Because the G/L was
inaccurate, as BONVENTRE well knew, the FOCUS Reports were
likewise false because they failed accurately to reflect BLMIS’s
assets and liabilities. For example, one such report, for the
month of April 2006, in the midst of the above-described
liquidity crisis, failed to reflect at least $299 million in
BLMIS liabilities related to $154 million of an IA client’s bonds
and the $145 million that BLMIS had borrowed using those bonds as
collateral.
In as early as 1983, BONVENTRE also had his own IA
account at BLMIS. Between 2002 and 2006, BONVENTRE obtained more
than $1.8 million in at least three fictitious backdated trades
that appeared in his account. For example, one purported trade,
which appeared in BONVENTRE’s IA account in 2002, included a
purchase that was backdated twelve years, to 1990, and generated
purported long-term capital gains of nearly $1 million.
BONVENTRE is also charged with four counts of filing false
federal tax returns related to his accounting for the three
fictitious trades, and his failure to report a total of
approximately $273,620.24 in income that he obtained from BLMIS
bank accounts in 2003, 2004, 2006, and 2007.
BONVENTRE, 63, faces a statutory maximum sentence
totaling 77 years in prison: 5 years on Count One (Conspiracy),
20 years on each of Counts Two, Three, and Four (Securities
Fraud, Falsifying Books and Records of a Broker-Dealer, and False
Filings With the SEC), and 3 years on each of Counts Five through
Eight (Subscribing to a False Tax Return).
BONVENTRE will be presented later today before United
States Magistrate Judge THEODORE H. KATZ in Manhattan federal
court.
U.S. Attorney PREET BHARARA stated: “As Bernard
Madoff’s Director of Operations, Daniel Bonventre allegedly
authored the fraudulent books that for years effectively hid the
doomed state of an investment firm founded in fraud. Today’s
arrest reflects the Government’s ongoing commitment to ensure
that those who are criminally responsbile for this massive Ponzi
scheme will be held accountable. Together with our law
enforcement partners at the FBI and IRS, we will continue to
investigate this colossal deception.”
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FBI Assistant Director-in-Charge JOSEPH DEMAREST JR.
stated: “Bonventre’s crimes consist not merely of failing to
disclose material information about the Madoff investment
advisory business. He affirmatively fabricated basic financial
documents to conceal the dire condition of a financial empire
that was really a house of cards. Bonventre’s is just the latest
in a succession of arrests that put to lie Madoff’s original
contention that he alone was responsible for this debacle. The
FBI will continue to ensure that everyone criminally culpable in
the Madoff fraud is brought to justice.”
IRS Special Agent-in-Charge PATRICIA J. HAYNES stated:
“The public relies on people who oversee the accounting function
of a firm. They are expected to be trustworthy, dependable, and
reliable to help make sense out of complicated financial
information so the public can make sound fiscal decisions.
Compliance of the tax laws and filing accurate tax returns are
not only symbolic of the trust the public has come to rely on,
but it’s the law. IRS Special Agents will continue to devote
resources to investigate allegations of breaches of trust and
violations of the tax law.”
Assistant United States Attorneys MARC LITT, LISA A.
BARONI, and BARBARA A. WARD are in charge of the prosecution.
The charges and allegations contained in the Complaint
are merely accusations and the defendant is presumed innocent
unless and until proven guilty.
10-061 ###

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