Madoff Operations Chief Charged With Assisting Ponzi Scheme

Feb 26 2010 | 11:00am ET

Another employee of Bernard Madoff has been arrested and charged with helping the arch-fraudster run a $65 billion Ponzi scheme.

The charges against Daniel Bonventre, the operations chief at Bernard L. Madoff Investment Securities, and a parallel lawsuit filed by the Securities and Exchange Commission, include new allegations in the giant scam. According to regulators and prosecutors, Bonventre funneled some $750 million from Madoff’s bogus money-management business to its market-making and proprietary trading businesses, which were “legitimate, although unprofitable,” according to the SEC.

Bonventre has been charged with conspiracy, securities fraud, falsifying records, false filings and filing false tax returns. The 63-year-old, who worked for Madoff for 40 years, faces up to 77 years in prison; he was released on $5 million bond. He is the sixth person to be charged criminally in the Madoff fraud.

After yesterday’s hearing in Manhattan federal court, Bonventre’s lawyer proclaimed his client’s innocence.

But authorities say Bonventre was a key cog in the Madoff Ponzi scheme as a top aide to Frank DiPascali, the CFO of the Madoff firm who is cooperating with prosecutors. DiPascali led investigators to Bonventre, prosecutors said.

“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,” U.S. Attorney Preet Bharara in Manhattan said.

“A fraud of this magnitude requires a coordinated effort,” SEC New York chief George Cannellos added. “Bonventre played an essential part by creating bogus financial records to give BMIS the appearance of legitimacy, when in fact the firm lost money and could not have survived without the fraud.”

According to the SEC, Bonventre knew or ignored the fact that investor money was “used for one of just three purposes—to meet investor redemption requests, to artificially improve BMIS’s reported revenues and net income, and to channel money to Madoff, his family and select BMIS employees.” The allegations against Bonventre are the first to ensnare Madoff’s market-making and prop. trading units, which Madoff claims were legitimate.

“At least portions” of them were, according to the SEC. But they were kept afloat for more than a decade by $750 million in indirect transfers from the money management business, which was a Ponzi scheme. Bonventre also oversaw a $145 million loan—using $154 million in investor money as collateral—from an unidentified bank to help the firm survive a liquidity crisis in 2005 and 2006, according to the complaints.

Bonventre also borrowed more than $340 million from Madoff’s credit lines to meet investor withdrawals, Bharara said, and illegally backdated his own trades to earn $1.8 million. Bonventre also allegedly lied to the Internal Revenue Service.

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