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11.18.10

Is Madoff's Family Next?

The two Madoff employees arrested Thursday have been holding out for nearly two years. Allan Dodds Frank on why prosecutors are a step closer to charging Madoff family members.

The indictments against two women who allegedly spent years fabricating documents and fending off nosy investment clients for Bernard Madoff came as no surprise—except perhaps to them—when they were arrested by the FBI at home early Thursday morning.

For nearly two years, the two women—longtime Madoff aides—have spurned what amounted to invitations from federal prosecutors to co-operate in the investigation of the biggest Ponzi scheme ever. Prosecutors say Annette Bongiorno, 62, and Joann "Jodi" Crupi, 49, were instrumental in lying to investors as Madoff collected more than $20 billion and sent out statements saying the accounts totaled nearly $65 billion.

"A house of cards is almost never built by one lone architect," said U.S. Attorney Preet Bharara in a statement. He said the two women "protected and perpetrated the Madoff mirage, while putting very real money in their own pockets."

Bongiorno and Crupi were charged with conspiracy, securities fraud, falsifying records and tax evasion. According to the civil complaint filed last July by prosecutors, Bongiorno managed to take $13.5 milion more from her account at Bernard L. Madoff Investment Securities than she had ever put in, while Crupi got more than $2.5 million from Madoff in 2008 alone.

Bongiorno had continued to flaunt her resistance to co-operating as she and her husband drove around southern Florida in a Bentley and two Mercedes. In Boca Raton, the couple had a fancy house at the Woodfield Country Club, where she was collared Thursday morning before being arraigned in West Palm Beach. In early 2008, she and her husband also had made $1.3 million in down payments on a $6.5 million condo apartment at Boca Beach Club. That deal was never finalized because the condo developer did not notify the Bongiornos that the apartment was ready until Dec. 16, 2008, five days after Madoff had been arrested.

For four decades, Bongiorno worked closely with Madoff. Many longtime Madoff investors knew her as the person they spoke to when they wanted to withdraw money or be assured that their stocks were being traded. Crupi, a 25-year Madoff veteran, was picked up at 6 a.m. by FBI agents at home in Westfield, New Jersey.

Bongiorno and Crupi worked in the 17th floor Lipstick Building offices where they allegedly helped Madoff and his operations chief Frank DiPascali generate tens of thousands of fake account statements. The women reported to DiPascali, who has been co-operating with prosecutors for more than a year.

The 97-page indictment unsealed Thursday contains never-released details about how Madoff, assisted by Bongiorno and others, managed to stave off several liquidity crises as well as five government investigations.

Sources tell The Daily Beast that prosecutors are concentrating on the tax-fraud aspects of the family accounts.

Notably, in 1992, when the Securities & Exchange Commission closed down an illegal guaranteed investment scheme being run through Madoff by an accounting firm called Avellino & Bienes, it was the two women who helped come to the rescue.

Bongiorno, says the indictment, created fake trading records to give to the SEC and the court-appointed receiver to show that there were stock trades in the Avellino & Bienes accounts. In fact, there were none. The indictment states that Madoff “borrowed” securities from two clients to get bank loans of $145 million to pay off the Avellino & Bienes investors fully, and to get the SEC to drop the case before it investigated Madoff’s firm more fully. A special touch by Bongiorno was hiding records from an account called “Avellino & Alpern,” the predecessor accounting firm started by Ruth Madoff’s father, Saul Alpern.

In the months leading up to the arrests, prosecutors had been ratcheting up the pressure on Bongiorno and Crupi, by filing civil complaints against them during the summer, then following up with forfeiture actions.

As defendants, they join three other Madoff employees who helped run the computer operations overseen by DiPascali that generated the false account statements.

Maurice Sercarz, attorney for Bongiorno, says his client intends to fight all the charges and declare her innocence in court. “Now that the government has finally seen fit to formally charge Annette, we look forward to demonstrating that she is not guilty of any of the allegations in the indictment.”

A federal magistrate in Florida recessed her arraignment hearing until Monday. Crupi’s attorney did not return a call from The Daily Beast.

With Bongiorno facing 75 years in prison and Crupi 65 years, each woman may want to rethink whether she remembers any relevant details about Madoff-family business affairs.

Lawyers for the two women did not return calls from The Daily Beast.

Whether the new indictments will bring prosecutors closer to making a case against Bernie Madoff's two sons, his niece, or his brother Peter is an open question. Sources tell The Daily Beast that prosecutors are concentrating on the tax-fraud aspects of the family accounts, which even include representations, in Madoff family foundation accounts, of extensive stock holdings and trading that may not have ever happened.

The indictment also reveals events that raise new questions about the claim by Bernie’s sons Andrew and Mark that they turned their father in to prosecutors immediately after he told them that it was all a giant fraud on Dec. 10, 2008.

While Bongiorno was semi-retired in Florida, Crupi was in charge of the Madoff firm’s bank accounts. Every day, she gave Bernie a hand-written accounting about how much money was actually in the bank and how much customers were seeking to withdraw. The indictment says that as the economic crisis worsened, it became clear that Madoff investors would demand far more money than was in the bank. On Nov. 3, 2008 Crupi told Madoff the bank account held $487 million, while investors were filing redemptions seeking $1,447 billion. A month later—even after Madoff got nearly $250 million in loans and new capital from investors— the numbers were $295 million in the bank and $1,455 billion sought by investors.

The indictment says that DiPascali (who, remember, is the top canary) met Jodi Crupi on a Manhattan street corner near the company’s mid-town offices on Dec. 3, 2008 to tell her the situation. “DPascali told Crupi that Madoff had just told him that BLMIS (Bernard L. Madoff Investment Securities) was out of money and that there were no assets standing behind the BLMIS obligations reflected” in customer account statements.

So, according to the indictment, Crupi and DiPascali began a series of discussions about what they would say when the cops finally came: “Crupi told DiPascali she was ‘sticking to my story,’ and would tell law enforcement that she thought the trades executed on behalf of IA (investment account) clients were being done overseas.”

While DiPascali is co-operating and Madoff is still not believed to have spoken with prosecutors, it may be that the two women could corroborate the falsification of financial records that the Madoff family used to file tax returns. The big question is whether they could also implicate the family members who worked on the 19th floor of the Madoff offices in the conspiracy that was ongoing on the 17th floor. The Madoff sons’ defense essentially has been that their father kept them in the dark. If, as the indictment charges, DiPascali and Crupi knew by Dec. 3 that Bernie was busted, is it really possible that none of Bernie’s loved ones picked up on that “vibe” for a week?

Ira Lee Sorkin, who was until recently Bernard Madoff’s lawyer, declined to speculate about how much value the two women could be to prosecutors. Sorkin, who left Dickstein Shapiro to join the firm of Lowenstein, Sandler recently, told The Daily Beast that Madoff no longer has a lawyer since he is serving a 150-year sentence and even his personal possessions have now been auctioned off. “Somebody is going to sue Madoff?” says Sorkin, “For what, he doesn’t even have his slippers any more.”

Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime stories. He also is the former president of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.