(Updates with prosecutor’s argument in eighth paragraph.)
Feb. 12 (Bloomberg) -- A former Bernard Madoff aide on trial for fraud stemming from the con man’s $17 billion Ponzi scheme helped his own son, who also worked at the company, tackle a drug addiction after he repeatedly fell asleep under his desk, the first defense witness in the case told jurors.
The testimony yesterday in Manhattan federal court was the defense’s first shot at giving the jury an alternative explanation for the behavior of Madoff’s employees at the now- defunct securities firm.
Daniel Bonventre, the operations chief of Madoff’s broker- dealer unit accused with four ex-colleagues of aiding the fraud for decades, “was a very strong figure” who helped his step- son Jeffrey Ferraro seek help, the son’s wife, Sandra Ferraro, testified yesterday.
Her husband’s napping and cocaine use were mentioned in November during testimony by government witnesses in the first criminal trial stemming from the fraud. Though Jeffrey Ferraro isn’t accused in the case, the combination of his high salary and bad habits were highlighted by prosecutors as an example of the employment-related perks received by Madoff insiders.
“You were aware he was receiving a six-figure salary while he was sleeping at the office on a regular basis, correct?” Assistant U.S. Attorney Randall Jackson asked Ferraro yesterday during cross-examination.
“Yes,” she replied.
Jackson objected when Bonventre’s lawyer, Andrew Frisch, asked Sandra Ferraro how her husband’s mother, Maryann, who was Bonventre’s first wife, died in 1985. In a closed-door meeting with Swain, Jackson argued the defense was trying to improperly use the the cancer death to justify Jeffrey Ferraro’s drug use.
“Mr. Frisch is attempting to elicit from the witness an entire sob story of ills related to Mr. Ferraro which are disconnected from any real issue in this case,” Jackson said, according to a public transcript of the session.
The sleeping is relevant because it backs the U.S.’s claim that Madoff also paid Bonventre’s other son, Daniel Bonventre Jr., for a no-show job that allowed him to get company health insurance, Jackson said.
Frisch said he wanted the testimony to counteract the government’s claims by giving valid reasons for the behavior.
“The inference that they have expressed is that Mr. Bonventre was so close to Mr. Madoff and they were such conspirators that this was allowed to happen,” Frisch told Swain. The judge allowed the questioning to go forward.
Ferraro testified that her husband, an operations manager who worked at Madoff’s company full-time for about 19 years, began suffering from sleep apnea in 2003 and was diagnosed in 2005, preventing him from being fully rested and further explaining his habit of sleeping at work.
Under questioning from Jackson, she agreed that one of the hallmarks of the medical condition is nighttime snoring that keeps the sufferer’s spouse awake night after night.
“You directly experienced the snoring that your husband dealt with as a result of this sleep apnea, right?” Jackson asked Ferraro.
“Yes,” she said.
“In order to snore, you would agree with me, you have to be asleep, right?” Jackson said.
“I believe so, yes,” she said.
Ferraro agreed her husband had been sleeping and snoring heavily at home at night since at least 2003.
“And yet he was still having problems with sleeping at work, right?” Jackson said.
When Ferraro paused for an extended period and didn’t respond, Jackson withdrew the question and told the judge his cross-examination was over.
The second defense witness to testify was Bonventre’s former real-estate agent, Theresa Alpaugh, who told the jury she helped the former executive rent a beach home on the New Jersey shore in 2005 and 2006. Alpaugh later helped Bonventre buy a house in the same area for $2.55 million, requiring him to take out a loan for $1.5 million, she said.
Alpaugh said Bonventre called her for help selling the house days after he bought it in a deal that closed on Dec. 1, 2008. That was 10 days before Madoff’s arrest.
“Dan had called me and said, ’Theresa, we need to sell the property. My company is closing,’” Alpaugh said.
Under cross-examination by Jackson, Alpaugh said she didn’t know where Bonventre got the rest of the money for the house that wasn’t covered by the loan.
The trial is scheduled to resume tomorrow after today’s court holiday in New York.
Bonventre yesterday stood in court to tell U.S. District Judge Laura Taylor Swain he had decided not to testify in his defense. The other defendants must also decide whether to take the stand. Criminal defendants aren’t required to testify, and their lawyers haven’t said whether they will.
Annette Bongiorno, who ran the investment advisory unit at the center of the fraud and is also on trial, moved yesterday for dismissal of tax-related charges against her. The U.S. failed to show that cash payments she received from Madoff’s company -- about $2,000 a week -- were taxable income, she argued in court papers. The payments were capital withdrawals from her personal investment account and can’t be taxed, she claimed.
William Nasi, who was a messenger for Madoff’s company starting in 1968, testified Nov. 7 that the firm would regularly issue checks in his name for thousands of dollars, which he would cash and give directly to Bongiorno or Madoff. A copy of one such check to Nasi, from Oct. 4, 2004, for $3,000, was displayed for the jury.
“No witness has described these payments as taxable income to Mrs. Bongiorno, and it is absolutely clear that her Madoff securities accounts had more than enough capital in them to support the withdrawals,” her lawyer, Roland Riopelle, said in a filing with the court after yesterday’s session.
Swain said she would decide later on the request.
The other defendants are Joann Crupi, who managed large accounts for Bongiorno; and computer programmers George Perez and Jerome O’Hara, accused of writing code to automate the deception as the scheme expanded rapidly in the 1990s.
Prosecutors accuse the group of using millions of fake trading confirmations and false account statements to trick customers into believing their money was being used to buy securities. No trading took place in the investment advisory business, where the fraud allegedly started in the early 1970s.
Defense lawyers gave a preview of their case in opening statements to the jury in October, saying the five co-workers were kept in the dark about the fraud and fooled by Madoff’s personality and reputation. At the time, Crupi’s lawyer, Eric Breslin, compared Madoff to “the Great Oz” hiding behind a curtain with his employees seeing him as “almost a god.”
The defendants claim they were duped by Madoff, who hired them when they were young and inexperienced.
Bonventre started working for Madoff in the 1960s, when he was 22. Bongiorno was hired after high school in 1968. The others were brought in after college or before they worked in the securities industry, their lawyers have said.
Madoff pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. At least seven others pleaded guilty, including his brother Peter Madoff, who is serving a 10-year term.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
--Editors: Michael Hytha, David Glovin