(Updates with ex-JPMorgan banker in 25th paragraph.)
Dec. 20 (Bloomberg) -- Members of Bernard Madoff’s inner circle who are on trial for allegedly aiding his $17 billion fraud are focusing the jury on former colleagues who helped perpetuate the scheme for years and weren’t charged.
At least three people who worked in Madoff’s investment advisory unit promoted fake trading strategies in phone calls with clients or helped write tickets for fictitious trades and weren’t prosecuted, Frank DiPascali, Madoff’s former finance chief, said yesterday in Manhattan federal court.
The people, including DiPascali’s brother-in-law and a family friend who reported to him and sat at desks nearby, didn’t know it was a fraud because DiPascali lied to them for years, he said under questioning from defense lawyers. The lawyers claim their clients are innocent and were also tricked.
“Garnering sympathy for your client by suggesting that they are being treated differently from others opens the door for a jury giving a defendant the benefit of the doubt,” said Richard Scheff, a former federal prosecutor who’s chairman of Philadelphia-based law firm Montgomery, McCracken, Walker & Rhoads LLP, and isn’t working on the case.
DiPascali, who pleaded guilty in 2009 and is appearing as a government witness in a bid for leniency, is the highest-ranking former executive to testify in the first criminal trial over the scheme. The five defendants are accused of using fake account statements and trade confirmations to trick customers and regulators for decades and get rich in the process. No trading took place in the investment business.
Eric Breslin, the lawyer for Madoff aide Joann Crupi, compared the situation of the three people who weren’t charged to his client, who joined Madoff’s firm out of college and is accused of aiding the fraud for decades by carrying out many of the same tasks they did. DiPascali testified Crupi knew about the fraud, and also that he lied to her about it.
DiPascali, who sat with Crupi and the other workers in a glass-enclosed office they called the fish bowl, said “there were a couple of different lines of garbage” he could give them if they asked for details about the business, including his usual claims that the trading took place in London or that the securities came from an “inventory” in Madoff’s legitimate broker dealer unit.
The three people who weren’t charged are DiPascali’s brother-in-law, Robert Cardile, a former day laborer at a construction company who was hired by Madoff’s brother Peter Madoff in the late 1980s as a favor to DiPascali; Erin Reardon, a former waitress who was present during many of the moments that prosecutors focused on in relation to Crupi, including the boxing of evidence to be destroyed as the fraud was collapsing; and Robert Roamer, the son of DiPascali’s mother’s maid-of-honor who was like a nephew to him and helped write trading tickets, according to DiPascali’s testimony.
Prosecutors had objected when defense lawyers began asking DiPascali whether certain people who worked with him had been charged. In a session without the jury present, Breslin asked U.S. District Judge Laura Taylor Swain, who is overseeing the trial, to let such questions go forward.
“The fact that there were people who literally -- and the jury will see it from the pictures -- working within two to three feet of each other” at a six-person desk “and these two individuals have not been charged, I think is desperately relevant to this case and needs to be brought out,” Breslin said, referring to Reardon and Cardile. Roamer left Madoff’s firm before the con man’s arrest.
DiPascali described a conversation with Roamer in which he asked, “In essence, I don’t understand how this is being done,” he said. DiPascali said Roamer’s question “was a little more than curiosity, but not accusatory.”
“There were one or two scenarios I could pick out of a hat” when a colleague asked a question that touched on the heart of the fraud, DiPascali said.
In a question about Reardon, Breslin asked DiPascali: “You misled her about the nature of the trading in order to induce her to do this work, correct?”
“Yes,” he responded. DiPascali said Dec. 18 he lied to Crupi, too.
The cross-examination is designed to have the jurors ask themselves, “Why was Ms. Crupi charged given that there were others who performed the same tasks and had the same knowledge as she did?” said Scheff, the former prosecutor.
In addition to Crupi, the other defendants are Annette Bongiorno, who ran the investment advisory unit; Daniel Bonventre, Madoff’s ex-operations chief; and computer programmers Jerome O’Hara and George Perez, who allegedly wrote code to print out millions of fake account statements and trade confirmations.
Under questioning by prosecutors, DiPascali gave details of each defendant’s involvement in the fraud, saying they all knew the trading was fake and conspired to hide it from customers and regulators.
Defense lawyers said in opening statements in October that the government’s witnesses would lie and implicate others in their fraud in a bid to appear helpful and get less time behind bars when they’re sentenced. DiPascali, who faces as many as 125 years in prison, told the jury he’s hoping for a “substantial” reduction in his sentence.
Another defense lawyer, Roland Riopelle, asked DiPascali during cross-examination on Dec. 17 if he had reached a secret deal with the government to cooperate in exchange for the U.S. agreeing not to charge Cardile. DiPascali said there was no such deal.
“Did Mr. Cardile participate in preparing trading information that was not true?” Riopelle asked DiPascali.
“He did,” DiPascali said.
Riopelle, the lawyer for Bongiorno, who worked for Madoff for 40 years, asked, “was Mr. Cardile present in your office for meetings when Mr. Madoff would come down and discuss executing the fraud with you?”
“He was,” DiPascali responded.
“There is good reason to believe, whether the witness admits it or not, that there is a side deal between him and the government in which the agreement is he will fall on the sword in exchange for letting his brother-in-law go,” Riopelle told the judge outside the presence of the jury.
The jury also heard testimony yesterday from former JPMorgan Chase & Co. banker Richard Cassa, who was Madoff’s relationship manager in the bank’s broker-dealer division from the mid-1990s to 2008, when he retired. He told the jury he didn’t have much contact with Madoff.
“They weren’t a very big client of the bank,” Cassa said. “Primarily it had a checking account, and we did have a small custody account with them. They used to use the bank’s wire transfer system. That’s about it.”
Cassa said he spoke to Bonventre, his main contact at Madoff’s firm, about four times a year, and that he spoke to Madoff personally three times during his career. He described how he arranged a $95 million loan to Madoff in 2005 after Bonventre said the firm needed to pay bills without liquidating any investments. After he declined to give Bonventre the rate he sought, Madoff personally called Cassa to seek a better one, which he didn’t get, Cassa said.
Madoff’s JPMorgan account was used to perpetuate the fraud, according to the U.S. Madoff deposited money from new customers into the account instead of investing it in securities, and made withdrawals to pay back earlier investors, the U.S. said. The investors lost $17 billion in principal.
Another JPMorgan banker, Mark Doctoroff, who took over for Cassa after he retired, testified in November that Madoff was on track to receive a $200 million loan less than a month before he was arrested.
JPMorgan tentatively agreed to pay about $2 billion to resolve probes into whether it ignored warning signs about Madoff’s crimes, a person briefed on the matter said on Dec. 12.
Madoff, 75, was arrested on Dec. 11, 2008, after admitting his company was a fraud. He is serving a 150-year prison sentence in North Carolina.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Mary Romano, Andrew Dunn