A long-time employee at Bernard Madoff’s investment firm has pleaded guilty to fraud charges after he was accused of helping fabricate trading records that enabled Madoff to pull off his massive Ponzi scheme.

The Securities and Exchange Commission alleged that David Kugel, 66, who began working for Madoff in 1970, was asked to provide the firm’s investment advisory operations with backdated arbitrage trade information that could be made to appear like legitimate trading activity on the account statements of Madoff’s clients.

Kugel’s own account at Madoff’s firm was among those in which the backdated trading information were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years. Kugel settled the SEC charges Monday and pleaded guilty to fraud charges filed by prosecutors with the Justice Department.

The SEC had previously charged two other longtime Madoff employees, Annette Bongiorno and JoAnn Crupi, for their roles in producing phony account statements that were sent to Madoff’s investors. According to the SEC’s complaint against Kugel, which was filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory operations used the information provided by Kugel to formulate fictitious trades that would appear on investor account statements.

The SEC alleges that sometime in the early 1970s, after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that his firm, Bernard L. Madoff Investment Securities, managed money for outside clients. Madoff asked Kugel to provide the firm’s investment advisory operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of the trades replicated successful trades that Kugel had actually made for BMIS’s proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers.

According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades totaling that amount. The fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own account with Madoff’s investment firm, received these account statements and trade confirmations as well.

The SEC alleges that Kugel provided backdated trade information for the investment advisory accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his Madoff accounts from 2001 to 2008.

The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal charges against Kugel, who pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case. Kugel faces sentencing in May on the fraud charges.

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