The Securities and Exchange Commission has charged one of Bernard Madoff's key operatives with falsifying accounting records to enable the multi-billion-dollar Ponzi scheme and illegally enrich himself, Madoff, and Madoffs family and employees.
According to the SECs complaint, filed in U.S. District Court for the Southern District of New York, Madoff director of operations Daniel Bonventre disguised Madoffs fraud and the financial losses at Madoffs firm by misusing and improperly recording investor money to create the false appearance of legitimate income.
Bonventre ran the back office at Bernard L. Madoff Investment Securities LLC and oversaw BMISs accounting and securities-clearing functions for at least 30 years. The SEC alleges that Bonventre knew that billions of dollars in investor funds were not being used to purchase securities on behalf of investors. The SEC further alleges that Bonventre made at least $1.9 million in illicit personal profits from the scheme through fake, backdated "trades" in his own investor account at BMIS.
"A fraud of this magnitude requires a coordinated effort, said George S. Canellos, director of the SEC's New York Regional Office, in a statement. Bonventre played an essential part by creating bogus financial records to give BMIS the appearance of legitimacy, when in fact the firm lost money and could not have survived without the fraud.
The Manhattan U.S. Attorney's Office has also charged Bonventre with conspiracy, tax fraud and securities crimes. Bonventre, 63, was arrested Thursday morning and faces up to 77 years in prison.
According to the SECs complaint, Bonventre was responsible for the firms general ledger and financial statements, which were materially misstated because they did not reflect the manner in which investor funds were maintained and used. Bonventure ensured that BMIS financial reports did not reflect the firms massive liabilities to investors or the corresponding assets received from investors. To hide the fact that BMIS normally operated at a significant loss, the firm used more than $750 million in investor funds to artificially improve reported revenue and income.
The SEC alleges that Bonventre also helped Madoff, his lieutenant Frank DiPascali Jr., and others orchestrate lies to investors and regulators when investment advisory operations at BMIS came under review. With Bonventres assistance, they made serial misrepresentations to external reviewers by manufacturing reams of false reports and data.
The SEC further alleges that Bonventre personally siphoned $1.9 million from the scheme by directing that profits from fake, backdated trades be put into his own investor account at BMIS. One of these trades was backdated by 12 years. Bonventure instructed another fake, backdated trade in a handwritten note to a BMIS employee that said, Hi As per our phone conversation, I need a long term capital gain of $449000. on an investment of $129000- for a sale proceed of $578000. Ill be back in NY on March 30th but if you need to speak to me before then, call me . Thanks[,] Dan.
This is the SECs seventh enforcement action in the Madoff fraud since the scheme collapsed in December 2008. The SEC previously charged Madoff and BMIS, DiPascali, and auditors David G. Friehling and Friehling & Horowitz CPAs PC, who have all pleaded guilty to criminal charges related to their conduct. The SEC also charged certain feeder funds with committing securities fraud, and charged two computer programmers at Madoffs firm for their roles in covering up the scheme.
Among other things, the SECs complaint seeks financial penalties and a court order requiring Bonventre to disgorge his ill-gotten gains.
