Ex-Madoff Lieutenant Describes Madoff Operations

Dec 6 2013 | 2:15pm ET

Bernard Madoff's former finance chief continued to offer the most detailed description of the inner workings of the fraudster's $65 billion Ponzi scheme.

Frank DiPascali, testifying in the trial of five former Madoff employees, told the jury that the firm had a word for entering fake trades into some customer accounts: schtupping, Yiddish for having sex. The process was designed, he said, to create fake losses to reduce tax liabilities or to ensure that all investors earned roughly the same returns.

And he continued to try to show that the five former employees—Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O'Hara and George Perez—couldn't have been in the dark about what was going on. DiPascali said, despite his renown on Wall Street and his ability to keep a massive fraud running for decades, Madoff was anything but discreet. Instead, his former CFO said, he would "talk out loud" as part of a "fluid" and "open" decision-making process.

"He was never, ever, ever private," DiPascali said. "It was an open environment, and at teams he didn't know when to shut the hell up. At times, I cringed when he said things."

Madoff was "a frantic lunatic at times," DiPascali testified. In one case, after receiving a letter from the Securities and Exchange Commission in 2004, "he went on a whole rant about how Washington didn't run things, New York ran things."

Then, according to DiPascali, Madoff "dissected every word to craft a response so that no one would follow up and dig deeper." And he ordered his lieutenants to dummy up documents to show that it managed money for only a "couple of dozen" customers and that it didn't actually hold customer cash or securities. The staff were instructed to recreate documents to show that the money was actually held at banks, with Madoff telling them to "make them up."

"You could put Chase or you could put J.P. Morgan or you could put Bank of America," DiPascali said, quoting Madoff. Madoff then decided that they should use foreign banks, as government employees were "probably not allowed to make international calls."

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…