03.10.09

The Next Targets in the Madoff Case

UPDATE, 6/30: Confirming a story by The Daily Beast's Lucinda Franks from March, the Associated Press reports that at least 10 associates of Bernie Madoff-possibly including family-could soon face charges.

Two days before Bernard Madoff enters an 11-count guilty plea in Manhattan federal court, the investigation into his giant Ponzi scheme has broadened to include a number of suspected co-conspirators, according to federal officials involved in the case. Madoff’s lawyer told a judge today that there was no “deal” connected to Madoff’s confessing to money laundering, mail fraud, and other counts that will likely result in a life sentence.

Ruth Madoff, who was considered “innocent at first,” is believed to have received at least $70 million from her husband and is now therefore an object of the investigation.

That tallies with the revelation, from another source involved in the probe, that Madoff has not been cooperating in good faith with investigators. “He is not reliable. He’s jerking everyone around,” said the source. “Every day he changes his tune about where the money went and where it is. He’s trying to protect his family.”

A source close to the Madoff defense team agreed that Madoff’s main concern was to preserve as many assets as possible for his wife and children and to keep them from legal entanglements. “The US attorney’s office is still trying to resolve what is tainted or clean money, what real property in the US is appropriate for the Madofffs to keep,” the source said.

That may prove difficult. Sources say new information has surfaced that suggests several members of Madoff’s inner circle transferred assets to their wives, transactions thought to be laundered through an English bank.

Ruth Madoff, who was considered “innocent at first,” according to this source, is believed to have received at least $70 million from her husband and is now therefore an object of the investigation. That is one reason why she recently decided to retain her own lawyer, leaving Ira Sorkin, who has represented both of the Madoffs since December, when the Ponzi scheme was revealed.

Investigators are focusing their attention on three groups of possible co-conspirators. “There should be at least 20 indictments, between the three groups, if the feds are doing their jobs,” said one highly placed lawyer involved in the case. “Some will be conspiracy, the ones who were deep into it with Madoff, and others will be civil cases sent to the SEC for prosecution.”

(Lawyers and prosecutors who spoke to The Daily Beast for this article declined to go on the record, citing their legal involvement in the case.)

In the first group are employees of Madoff’s firm who concocted false trades and sent out phony statements to thousands of unsuspecting clients.

The second group is comprised of principals in feeder funds such as Cohmad Securities Corp. and Fairfield Greenwich Group, which funneled investor dollars to Madoff and received large fees for steering this business. If they were aware of Madoff’s fraud, they could face criminal charges; if they were not, they could be hit with civil charges for a lack of due diligence.

“It’s a question of state of mind,” said a lawyer for a Madoff employee. “If the feeder fund principals like Walter Noel of Fairfield Greenwich or Robert Jaffee of Cohmad didn’t ask Madoff any questions, if they simply turned the money over to a Madoff account without doing the work they were supposed to do to make sure their clients were well-protected, they would be guilty of fiduciary violations, which is a civil matter. But if they knew about the Ponzi scheme, if they had the intention to deceive, that is a felony.”

One attorney close to the defense team of Walter Noel, who is reported to have offshore bank accounts, says the belief is that Noel could be indicted in England on money laundering charges.

The third group is the target of an investigation that's still in its early stages into money laundering through British banks, in which US and British authorities are cooperating. This group consists of solicitors, accountants, and others in London who may have assisted Madoff in transferring funds from client accounts to a Madoff entity that lists Ruth Madoff, brother Peter Madoff, and sons Mark and Andrew Madoff among its board members.

“These client funds moved through English banks were pocketed by the Madoff family,” said a US source familiar with the British investigation.

One source said that eventually, some members of Madoff’s family will either be indicted by the US attorney’s office for the Southern District of New York or cop a plea. “You have to look at the fact that Peter and [his daughter] Shana were compliance officers; they were supposed to look at all the statements to see if they were right,” the source said. “Either they asked no questions, turned a blind eye, or they could not help but see the falsified trade tickets of blue-chip companies sent to clients.”

The source continued: “There was an awesome amount of money going through that operation every day. There was so much going on. Don’t you think they talked to each other? Ruth was the bookkeeper, the sons Andrew and Mark were right there in the shop. If they didn’t know what was happening, they were not doing their job, and Madoff could count on them not doing their job. And if they were doing their job, they knew what was happening.”

This source, along with other people close to the investigation, does not expect the feds to bring more indictments on Thursday, when Madoff enters his plea. These additional cases will be developed over the next months.

Meanwhile, in Massachusetts, Secretary of State William Galvin has uncovered possible fraud in Cohmad Securities, a feeder fund started by Madoff and Maurice and Marcia Cohn that shared office space with Madoff Investments in Boston. A long complaint alleges that Cohmad was little more than a Madoff front that received most of its income in payments for bringing investors into Madoff funds. It was also a conduit for similar payoffs to at least one European broker, Sonja Kohn, who was paid in excess of $500,000 in 2007 even though she was not officially registered in any capacity with Cohmad.

The Cohns have so far refused to answer questions, and Cohmad vice president Robert Jaffee—identified by several Madoff victims as the person who steered them to Madoff funds—first requested a long series of delays for his deposition, then invoked the Fifth Amendment.

Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for several publications including the New Yorker and the New York Times Book Review and Magazine. Her latest book is My Father's Secret War, about her father, who was a spy for the OSS during World War II.