Madoff Accountant Pleads Not Guilty to Defrauding Clients

Thursday, 26 Sep 2013 04:50 PM

 

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Bernard Madoff’s former accountant pleaded not guilty to charges he helped the convicted con man carry out a Ponzi scheme, less than two weeks before the start of a trial of five ex-employees who are accused of aiding the fraud.

Paul Konigsberg, 77, entered his plea today before U.S. Magistrate Debra Freeman, who allowed him to be freed on $2 million bail. He was arrested this morning by the Federal Bureau of Investigation in New York, said Peter Donald, an FBI spokesman.

Madoff steered “important” clients to Konigsberg, who helped cover up fraudulent transactions by fabricating books and trading records, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara allege in a five-count indictment unsealed today in federal court in Manhattan.

Konigsberg is accused of participating in the conspiracy from 1992 until Madoff’s arrest in December 2008. The scheme cost investors about $17 billion in lost principal, the U.S. said.

“Madoff needed the assistance of certain willing outsiders that could be trusted to handle otherwise suspicious activity,” the U.S. said. “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 Konigsberg as their accountant.

‘A Victim’

Konigsberg “is a victim of Bernie Madoff,” his lawyer, Reed Brodsky, said in an interview. “He looks forward to clearing his good name.”

Madoff, who masterminded the Ponzi scheme for decades, was arrested and charged after he confessed to federal authorities about the scheme on Dec. 11, 2008.

Konigsberg handled various accounting assignments in connection with more than 300 of the accounts at Bernard L. Madoff Investment Securities LLC, according to the U.S.

At times Konigsberg dictated the transaction activity in his customers’ accounts to Madoff employees, including Frank DiPascali Jr., Madoff’s former chief financial officer, and a second unidentified co-conspirator who reported to DiPascali, the U.S. said.

Madoff guaranteed clients a specific rate of return and fabricated trades that Konigsberg was “well aware” of, prosecutors said. Madoff steered clients to Konigsberg, who is accused of helping create back-dated trading records that helped conceal the scheme, the U.S. alleges.

Handwritten Notes

The indictment is based “solely” on information provided by DiPascali, who pleaded guilty and is cooperating with the U.S., Brodsky said. Brodsky attacked the government’s charges, saying DiPascali wasn’t credible because he has “a long pattern of deception that went on for decades.” Brodsky said the U.S. also relied upon handwritten notes of former Madoff employee Annette Bongiorno, which investigators have found.

In arguing his client should be released on bond, Brodsky said “for months and months” Konigsberg and prosecutors had been in talks about the case and he hadn’t fled the country.

Konigsberg was also accused of arranging a “no show” job at Madoff Securities for a second unidentified co-conspirator.

The indictment against Konigsberg includes charges of conspiracy, falsifying records of a broker-dealer, fabricating records of an investment adviser and falsifying statements to the U.S. about employee benefit plans.

Feeder Fund

Konigsberg was one of dozens of defendants, including JPMorgan Chase & Co. and Bank of New York Mellon Corp., which were custodians of Bernard Madoff’s bank accounts, named as defendants in a lawsuit against the con man filed in New York State Supreme Court in 2009.

Jay Wexler claimed in the suit that he invested “hundreds of thousands of dollars” in Rye Select Broad Market Prime Fund LP, which was managed by Tremont Partners Inc., a Madoff feeder fund.

Konigsberg was described in the suit as serving as Madoff’s personal accountant, and it alleged he signed off on Madoff’s family investments in 2006 and 2007 and received more than $350,000 from Madoff for his services.

The former Madoff employees, Daniel Bonventre, Jerome O’Hara, George Perez, Joann Crupi and Bongiorno are set to go on trial Oct. 7 in Manhattan on charges they aided the largest Ponzi scheme in history.

Luxury Items

The defendants appeared yesterday in federal court in Manhattan for a pre-trial hearing in which U.S. District Judge Laura Taylor Swain ruled the jury won’t be told about the suicide of Madoff’s son Mark, or about luxury items bought by several defendants. Prosecutors may tell jurors about a beach house Crupi bought with a $2.7 million bonus, the judge said.

The five defendants, who deny wrongdoing, are accused of helping maintain fake trading records at Madoff’s firm and aiding him in other ways. Prosecutors said their case may last 12 weeks, followed by defense cases.

Yesterday Swain barred the government from telling jurors about a sculpture of a screw Madoff kept in his office, after defense lawyers said the evidence would be crude. The sculpture was recovered after his 2008 arrest.

Swain prohibited jurors from seeing the sculpture or photographs of it. The defense noted the artwork’s “colloquial inference.”

“See if you can get that screw out of the pictures” of Madoff’s office, Swain told prosecutors.

Madoff, 75, is serving a 150-year sentence in a federal prison in North Carolina. His fraud collapsed in 2008 when he could no longer lure new money to fund withdrawals.


© Copyright 2014 Bloomberg News. All rights reserved.

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