08.17.09 6:50 AM ET
Sources: Madoff Indictments Imminent
Xtra Insight: Lucinda Franks on Madoff's Other Girlfriends
Federal prosecutors, who have worked for nearly six months to figure out who helped Bernie Madoff pull off history’s biggest Ponzi scheme, are poised to make multiple indictments in the weeks after Labor Day, according to two people familiar with the investigation.
Moreover, an FBI source tells The Daily Beast that investigators have compiled additional evidence against members of Bernie Madoff's family, specifically his brother Peter Madoff, and his sons Andrew and Mark Madoff. “There is enough hard evidence [against the family members] that the U.S. Attorney’s office could provide to a grand jury,” says the FBI source. “Whether they will is anybody’s guess. They’re in a mess over there. They really don’t know what they’re doing.”
“We have finally been able to put most of the pieces of the puzzle together… we just need a little more and we need to decide the most expeditious way to present them.”
Others argue that the U.S. Attorney is moving slowly and meticulously in order to make as many winnable cases as possible. Some of the first indictments, one of the sources said, will be operatives in the feeder funds that participated in the Ponzi scheme. Another person of interest, according to the sources, is Annette Bongiorno, whom prosecutors have been told directed employees on the notorious 17th floor, home of the spurious investment advisory division, to falsify statements and create bogus data rather than execute real trades for clients.
One of the sources said that among 20 million documents authorities discovered in a Queens warehouse, a story first reported by The Daily Beast, was a harsh note Bongiorno wrote ordering an employee to falsify client statements and not to argue about it. It has already been reported that Bongiorno told her two assistants to check the stocks, average out the prices for the previous month, and then send clients phony statements.
Should an indictment come, federal authorities would seem sure to offer Annette Bongiorno a chance to cooperate in return for a reduced sentence. Judge Richard Sullivan’s surprising decision last week to ignore the Feds' agreement with former Madoff deputy Frank DiPascali, and instead send him to jail, will surely weigh on any cooperating witness.
DiPascali, who ran the sham advisory business from the 17th-floor offices, has already proven very valuable to the investigation, one of the sources said. Specifically, he has said that he can provide evidence against big investors who illegally got phony loss statements so they could use them for tax breaks and the feeder-fund directors who either knew or should have known they were furthering a Ponzi scheme by taking outrageously large commissions for every customer they landed.
"We have finally been able to put most of the pieces of the puzzle together," says the FBI source. "We have them, we have corroborating details, we just need a little more and we need to decide the most expeditious way to present them. Like the order of the indictments, for one." The source said the Feds wanted to get the most money they could to turn over to the trustee for the victims.
It is unclear how much information DiPascali will give about the involvement of members of the Madoff family. The evidence against Madoff's sons centers around how they ran the supposedly legal brokerage operation of Bernard Madoff Securities.
One victim I talked to described a meeting with Bernie that later convinced her that the sons had knowledge of wrongdoing. "I was riding up in an elevator with him to his office so I could write a big check. I had decided that he was so good, it was the safest and most profitable place to put my money. I had heard he was sui generis, a brilliant financier who could make a lot of money for me in investments that were safe rather than risky. But I like to ask questions about where my money is going and the first question I asked was what would happen when he retired. He told me he wasn't going to retire, but when he died, he said his sons had agreed to take over. He also said that they ran the brokerage part of the business, and knew everything about the company and the way it handled investment.”
The victim continued: “I asked him how he himself made money because he did not take management fees. He said he charged four cents a share in a trade, which was the old-fashioned way of doing it. And then he volunteered that he ran the trades through his brokerage division. Then, after he was exposed as an impostor, I thought, with his sons running the brokerage business, they had to see the trades, or rather the lack of trades. There was no way, no way at all that they could not have known that the investment advisory business was a charade.”
Apparently absent from the office months out of the year, the sons were reportedly paid millions of dollars for jobs that required little work. A computer programmer high up in the brokerage division, the first company employee to break his silence, told the The Daily Beast that the third part of Bernard Madoff Securities Investment, the small market-making operation, was legitimate. But, he said, the large brokerage division was essentially a front for Bernie's illegal activities, a place that, unlike most New York brokerage houses, moved at a snail's pace. He said that the older employees were relatively idle, surfing the Internet, talking to friends on the phone. Yet, they were extravagantly paid, as were the rest of the employees of the firm. The employee described it as a kind of hush money, making staffers disinclined to question dubious company practices. The expenses were thus so high that the division made little if no money per year.
Bernie was known to pour clients' money he had laundered in London into the "legal" brokerage division to prop it up; it was a necessary shield for the illegal advisory business. SEC reviewers and investors were led into the office, where everything was legitimate, and saw what they thought was a thriving and successful brokerage house.
Peter Madoff, Bernie's brother, was in charge of compliance. He was one of the only family members who reportedly worked at least eight hours a day at the firm and was seldom absent.
Annette Bongiorno did not return calls from her Boca Raton, Florida, home. Peter Madoff's lawyer, John Wing, did not answer emails and phone messages.
Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for 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.