Government Reveals Charges Against Madoff Accountant
On the day that Madoff was arrested, the timer was activated for the prosecution to bring forward additional securities fraud accusations relating to the biggest Ponzi scheme in American history. Madoff was arrested on Dec. 11, 2008 after admitting his culpability in the scheme to his now estranged sons the night before.
It has been widely speculated, since Madoff's arrest and subsequent conviction common sense would dictate that a scheme of such magnitude couldn't possibly have been perpetrated by one player. But although Madoff has continually proclaimed that it was he alone that was answerable for the entire scheme, others have already faced prosecution and have cut plea deals as well as submitting restitution.
Early in the investigation, an attorney who represented several of the injured parties stated that "someone had to create the appearance that there were returns," He additionally submitted that "there had to have been a group purchasing and selling stocks, forging books, and filing the false reports. James Ratley, the president of the Association of Certified Fraud Examiners concurred by saying, "In order for him to have done this by himself, he would have had to have been at work night and day, no vacation and no time off. He would have had to nurture the Ponzi scheme daily. What happened when he was gone? Who handled it when somebody called in while he was on vacation and said, ‘I need access to money'?
The government has been looking at several of Madoff's family members and associates since his arrest in 2008 and has taken several actions against more than a few of the alleged participants.
Last week the government revealed criminal charges against Paul J. Konigsberg, an accountant who worked for Madoff during the years the scheme was known to be active. He is the second external accountant that has been charged in the enormous Ponzi scheme.
David G. Friehling, who was Madoff's "listed" accountant, was the first. Friehling previously pleaded guilty to a nine-count Superseding Information which charged him with four counts of filing false audit reports with the Securities and Exchange Commission (SEC), and three counts of obstructing or impeding the administration of the internal revenue laws. He was also charged with securities fraud as well as investment adviser fraud, Further to the acceptance of the guilty plea, he has also cooperated with the prosecution going forward in the continuing investigation of the swindle. Friehling, who worked out of a strip mall located in Rockland County and was paid in excess of $12,000 monthly for his services between the years of 2004 and 2007, still awaits sentencing in connection to his guilty plea and role in the fraud.
This latest indictment accuses Mr. Konigsberg of assisting Madoff in modifying the fabricated account statements that were essential to the continuance of the scheme. The prosecution has alleged that Konigsberg executed services for more than three-hundred of the accounts invested with the L.L.C., comprising many of which were the accounts of several of the firm's wealthiest clients and those that had been active with the Madoff enterprise for the lengthiest period of time.
Konigsberg compensation was $15,000 to $20,000 per month for providing accounting services to one of Madoff's chief clients but he was also well-paid for fees incurred by other Madoff clients, according to the indictment
He provided these services specifically for quite a few of Mr. Madoff's biggest clients, including Carl Shapiro, a Boston businessman and his son-in-law, Bob Jaffe. Shapiro and Jaffe, agreed to forfeit $625 million in 2010 to the appointed trustee, Irving Picard and the Justice Department. According to the government, their jobs were to recruit investors in Palm Beach, Florida. Shapiro and. Jaffe as well as many of their family members had much of their cash assets deposited with JPMorgan Chase.
Mr. Konigsberg is also accused of doing work for Madoff's company to criminally back-date stock trades as well as creating fabricated account activity in certain accounts to diminish his clients' tax exposure.
Additionally, it is alleged that Konigsberg organized an absentee job position at the company for one of his relatives who was paid in excess of $320,000 during a seventeen year period without ever having to show up at all. This fictitious position also came with a health benefits plan.
Evidence has also being collected by those investigating the case in a joint effort made up of a U.S. and United Kingdom task force. That evidence charges that Konigsberg and Norman F. Levy, a philanthropist and real-estate entrepreneur were believed to be involved in large international monetary transfers. Levy is believed to have assisted Konigsberg, acting as a conduit, funneling checks to London. Investigators in the U.S. assert that there were checks in denominations of billions of dollars moving to and fro between Madoff and Levy using this method.
The investment bank of JPMorgan Chase is also being closely examined for their possible role in the case by the government. Madoff and his team transported billions of dollars of his investor's cash in and out of accounts of the bank; up until the point that his illegal activities were exposed. According to individuals familiar with the investigation, agents are questioning whether the bank performed adequate due diligence and properly notified regulators in relation to the enormous transfers of funds. JPMorgan has declined to comment on the matter.
According to the Government, "in order to keep his scheme hidden for so long, Madoff needed the assistance of certain willing outsiders that could be trusted to handle otherwise suspicious activity. Madoff directed many of his clients, including some of his most important customers, in whose accounts Madoff executed the most glaring fraudulent transactions; to use Paul J. Konigsberg, the defendant, as their accountant."
Vacationing in the Hamptons, Konigsberg's dinner with friends at Bobby Van's Steakhouse was interrupted when he received a phone call from his attorney informing him of an indictment filed against him by the government. A fervent golfer, he and his friends had previously completed 18 holes at Sebonack Golf Club and had another round of golf scheduled for the following morning at the Atlantic Golf Club. But instead of arriving for the next day's early morning tee time, his only drive was that which took him back to New York City to surrender to federal authorities. He was placed under arrest by FBI Agents at 7:00 the following morning. The action took place at his lawyers' Park Avenue offices. Later that afternoon, following his arrest, he appeared before Magistrate Judge Debra Freeman in Manhattan Federal District Court. He pleaded not guilty to conspiracy and falsifying records and statements and was then released on a $2 million bond.
Prior to the phone call received at the steakhouse, federal prosecutors asked Konigsberg's attorneys to grant them a delay to the legal deadline. But the lawyers' refusal caused them to act, according to a person close to the investigation.
An attorney for Mr. Konigsberg criticized the government's case saying that "his client was an innocent victim of Mr. Madoff, and the fake account statements fooled Mr. Konigsberg along with everybody else." He was quick to point out that his client had lost approximately $10 million of his own money as well.
"In their witch hunt arising out of the largest Ponzi scheme in history, the government conveniently ignores that Bernie Madoff deceived everyone around him, from the most sophisticated investors to the S.E.C. itself," said a partner at the law firm. "He [Konigsberg] looks forward to clearing his good name at trial."
According to the government, Konigsberg and Madoff had close business dealings dating back to at least 1992. Before his involvement with the Ponzi scheme mastermind he was a founding partner of the accounting firm of Konigsberg Wolf & Company, located in New York City. Besides family members Konigsberg was the only person close to Madoff to own any actual interest in his firm, with a small stake in the London division.
Since Madoff's guilty plea, eight others have pleaded guilty to charges connected to the fraud. Konigsberg is the fifteenth person charged with criminal allegations.
Five former employees of the firm face charges alleging they were participants of the scam on Oct. 7. Although they were not regarded to be in positions of major importance, the government maintains that their involvement was critical in keeping the multi-year fraud afloat. Daniel Bonventre, Joann Crupi, George Perez, Jerome O'Hara and Annette Bongiorno all worked at Bernard L. Madoff Investment Securities LLC for over fifteen years.
It is expected that the trial's duration will last for a number of months. As is the strategy of Konigsberg's attorneys, the former employees are anticipated to make the argument that they too were deceived and manipulated by Mr. Madoff whereas they were just following instructions and doing their jobs.
Additional criminal charges still being considered by the prosecution are aimed at Shana Madoff Swanson. Ms. Swanson is Bernie Madoff's niece and the daughter of Peter Madoff, who has been termed as Bernie's "second in command". She was also a former senior lawyer at the company. Her father is in the midst of serving a 10-year sentence related to the case. He confessed to charges that he lied to regulators and falsified documents.
Four Thousand investment accounts were wiped out in the scheme with a paper value of over $64 billion. However, the actual cash losses are estimated to amount to approximately $17.5 billion. A good percentage of the victims associated with the overall losses related to the Ponzi scheme were the clientele of Mr. Konigsberg.