Thursday, 30 March 2017
Last updated 11 hours ago
Dec 11 2013 | 2:18pm ET
In the months before his $65 billion Ponzi scheme collapsed, Bernard Madoff carefully planned his downfall—although not carefully enough, his top lieutenant testified yesterday.
Madoff, who was arrested five years ago today, was apparently extremely concerned to avoid being paraded out of his Third Avenue offices in handcuffs, in front of his 200 employees.
"One of the last things I want is to go out of this office in handcuffs in front of all the employees," Frank DiPascali, Madoff's finance chief, said his boss told him. "I want to do this on my terms."
Madoff would be arrested at his Manhattan apartment, instead, and would eventually be sentenced to 150 years in prison.
DiPascali is the government's star witness against five former Madoff employees, Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O'Hara and George Perez, all of whom deny knowledge of Madoff's fraud. DiPascali earlier testified that would have been "impossible."
On Dec. 3, 2008, days before his arrest, Madoff called DiPascali into his office to break the news. "He turned to me and said, crying, I'm at the end of my rope," DiPascali, himself holding back tears, told the jury hearing the case against five former Madoff employees.
"What do you mean?" DiPascali asked.
"I mean I have no more goddamned money," a "delirious" Madoff responded, according to DiPascali. "Don't you get it? The whole goddamned thing was a fraud."
DiPascali testified yesterday that he didn't get it: While he knew that Madoff's firm was committing fraud, and while he himself had helped create millions of bogus trades and phony account statements, DiPascali said he had no idea that he was co-managing a Ponzi scheme.
"I literally thought we were doing the customers a favor by offering them these extraordinary returns, because I thought the assets were there to back the liabilities," he said. "I thought the fraud to be something entirely different from what it was."
DiPascali said the news hit him hard. "My knees were buckling. I was going to jail." Madoff's former CFO said his boss had tricked him and others into believing he was rich, leaving documents about "private placements on very big real estate deals around the world" lying around for others to see. "They were a prop," DiPascali said.
"He obviously thought out very carefully how the firm would implode," DiPascali said. But Madoff's plan apparently was to go bust on Dec. 26.
"I don't want to ruin anyone's Christmas," DiPascali said, quoting Madoff.
DiPascali said he realized those plans had gone awry when Madoff told his wife, Ruth, about the fraud on Dec. 10.
"She looked catatonic and couldn’t even look at me," DiPascali told the jury. Meanwhile, he and Madoff were gathering incriminating evidence to destroy—22 boxes' worth. Later, DiPascali said he disposed of an unregistered gun he owned and destroyed a USB drive prior to his own arrest.
DiPascali said that Madoff was defrauding clients up until the end. He planned to delay a $250 million redemption request from Optimal Investment Services until the fraud collapsed, since the redemption would "cause the house of cards to collapse." He was also meeting with potential investors—including Fairfield Greenwich Group's Jeffrey Tucker—in the days before his arrest. Fairfield Greenwich was among the largest Madoff investors, and Madoff hoped it would back what he called a new, more risky investment strategy with money Madoff could use to keep the scam alive.
"There was no new strategy," DiPascali said.
At the Dec. 3 meeting, Madoff asked whether DiPascali and his wife had any money—which DiPascali said was his way of ensuring they would be financial safe after his arrest.
Madoff and DiPascali also moved to look after their employees, using the firm's last $300 million to pay them. DiPascali said that Bongiorno helped cut those checks, although he admitted he lied to her about why, fearing she'd "jump out the window" if he told her the truth.
After Madoff's admission, the scheming continued, with DiPascali meeting with Crupi, who began scheduling wires to some top clients.
DiPascali also discussed a 2006 demand from O'Hara and Perez, computer programmers who worked for Madoff, to be paid in diamonds in exchange for continuing their work on the fraud. The two said they were "in a bit of a pickle."
DiPascali turned down the request. "Where the hell am I gonna get a bag of diamonds?" he asked. Instead, O'Hara and Perez allegedly settled for a "fairly substantial percentage" salary boost.
The raises came two weeks after Madoff met with the two men. They said they were uncomfortable writing code to hide the fraud and "didn't want their fingerprints on this crap any longer." Madoff told them they "had no clue how the world operates—these two dopey computer programmers."
DiPascali said after the 2006 meeting, Bonventre, Madoff's operations chief, accused him of telling the programmers about the fraud. Bonventre later asked DiPascali if Madoff had an "exit strategy," the latter said. "If he does he hasn't explained it to me." DiPascali said Bonventre told him he had his own plan, which involved lying to the authorities about what Madoff told him.