(Updates with luxury boats in last paragraph.)
Dec. 10 (Bloomberg) -- Bernard Madoff’s former computer programmers asked for payment in diamonds to continue aiding the con man’s $17 billion Ponzi scheme in 2006 after they became uncomfortable with their role, a jury was told.
The “crazy” request from Jerome O’Hara and George Perez was turned down and the men were given salary increases and bonuses, Frank DiPascali, Madoff’s former finance chief, testified today in Manhattan federal court in the trial of the men and three other ex-colleagues.
“Where the hell am I gonna get a bag of diamonds?” said DiPascali, who pleaded guilty in the case and is testifying in a bid for a lighter sentence. The programmers, who said they were “in a bit of a pickle,” agreed on a “fairly substantial percentage increase” to their salaries, he said.
DiPascali is the highest-ranking former Madoff executive to testify in the first criminal trial stemming from the con man’s scheme. The five former employees are accused of aiding Madoff for decades and getting rich along the way before the fraud collapsed at the peak of the financial crisis in 2008.
O’Hara and Perez, who have both pleaded not guilty, are accused of writing computer programs to trick regulators and customers by printing out millions of fake account statements and trade confirmations. No trading took place.
The programmers’ request for a payoff came about two weeks after the men arranged a meeting in Madoff’s office in which they suggested he close his investment advisory business, DiPascali said. The men told Madoff they were uncomfortable changing old information in the system and writing code to hide the fraud during recent audits from the U.S. Securities and Exchange Commission, the former executive testified.
Madoff was initially “cordial” at the meeting and then became belligerent toward O’Hara and Perez, saying they couldn’t tell him how to run his business, and that they “had no clue how the world operates -- these two dopey computer programmers,” DiPascali said.
O’Hara and Perez stood their ground and said their position hadn’t changed before leaving the meeting, DiPascali said.
Madoff told DiPascali to give the pair anything they wanted, he testified. A few weeks later, O’Hara and Perez told DiPascali “they didn’t want their fingerprints on this crap any longer,” he said. They also told him they deleted all the “special” programs they’d written to trick regulators and change previous computer entries, DiPascali said.
In opening statements to the jury, defense lawyers for O’Hara and Perez described the meeting as a “courageous confrontation” and said the men expected to be fired. They also said the programmers didn’t know about the Ponzi scheme -- only that they worried the code they wrote could be misused.
Prosecutors told the jury the men extorted Madoff, who paid them more than $100,000 each to keep quiet.
DiPascali said he took O’Hara and Perez on expensive fishing trips and bought them lavish meals at restaurants after the dispute with Madoff was resolved. Madoff would also check up on the men by finding excuses to visit their office, he said.
The programmers, who joined Madoff in the 1990s, continued to work at the firm until after his arrest on Dec. 11, 2008.
After the incident with O’Hara and Perez, Daniel Bonventre, Madoff’s former operations chief who is also on trial, accused DiPascali of causing the problem by telling the computer programmers about the Ponzi scheme -- an allegation that “devastated” DiPascali, he said. Later, Bonventre asked DiPascali over drinks at a Midtown Manhattan bar if Madoff had an “exit strategy” for the fraud, DiPascali testified.
“If he does he hasn’t explained it to me,” DiPascali said he told Bonventre. Bonventre then said he had his own exit strategy, which included telling authorities he thought the trading was taking place in Europe, that Madoff had kept him in the dark and that the con man had told him to “mind his own business,” DiPascali said.
DiPascali testified that he told Bonventre he didn’t have such a plan because he was “knee deep” in the fraud as a result of his regular communication with customers, which involved lying to them about nonexistent trading strategies and fake securities.
The other defendants in the case are Annette Bongiorno, who ran the investment advisory business at the center of the fraud; and Joann Crupi, who managed large accounts. All five defendants have pleaded not guilty.
Crupi, who reported to DiPascali, was given permission by Madoff to use company funds to buy a beach house in New Jersey without reporting the money as income or paying taxes on it, DiPascali said. DiPascali said she made the request after Madoff gave him $800,000 to help build his $2 million “dream home.”
The con man also bought DiPascali five boats over the years, which he used for competitive fishing and to entertain his family, he testified. The last boat, a 61-footer he bought with $2.2 million of company cash, was seized by U.S. authorities in the months after Madoff’s arrest, he said.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Mary Romano, Stephen Farr