The Securities and Exchange Commission and the Justice Department have filed charges against Bernard Madoff’s brother Peter, and he has pleaded guilty to the criminal charges of securities fraud and tax fraud.

The SEC charged him Friday with committing fraud, making false statements to regulators, and falsifying books and records in order to create the false appearance of a functioning compliance program over Madoff’s fraudulent investment advisory operations.

The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal charges against him. He pleaded guilty Friday to securities fraud and tax fraud conspiracy in a Manhattan federal court.

The SEC alleges that Peter Madoff, who served as chief compliance officer and senior managing director at Bernard L. Madoff Investment Securities LLC from 1969 to December 2008, created stacks of compliance documents setting out supposedly robust policies and procedures over BMIS’s investment advisory operations.

However, Peter Madoff created these compliance manuals, written supervisory procedures, reports of annual compliance reviews, and compliance certifications to merely paper the file, according to the SEC. No policies and procedures were ever implemented, and none of the reviews were actually performed even though Peter Madoff represented that he personally completed the reviews.

“Peter Madoff helped Bernie Madoff create the image of a functioning compliance program purportedly overseen by sophisticated financial professionals,” said Robert Khuzami, director of the SEC’s Division of Enforcement, in a statement. “Tragically, the image was merely an illusion supported by Peter’s sham paperwork and false filings for which he was rewarded with tens of millions of dollars in stolen investor funds.”

According to the SEC’s complaint, which was filed in the U.S. District Court for the Southern District of New York, Bernie Madoff realized in late 2008 that his decades-long scheme was on the verge of collapse. He told Peter Madoff that he could not pay billions of dollars of investor redemption requests and wanted to distribute remaining investor money to family, friends, and favored employees before the scheme collapsed. Peter Madoff then helped choose which family, friends and employees to pay, and rushed to withdraw $200,000 from BMIS’s bank account for himself before the fraud’s final downfall.

The SEC alleges that in addition to creating false compliance materials, Peter Madoff created false broker-dealer and investment advisor registration applications filed by BMIS. He also failed to implement and review required policies and procedures, and falsified the firm’s books and records. Peter Madoff was richly rewarded for his misconduct, pocketing tens of millions of dollars through salary and bonuses, fake trades, sham loans, and direct, undocumented transfers of investor funds to himself from the bank account that BMIS used to perpetrate the Ponzi scheme.

The SEC’s complaint against Peter Madoff alleges that by engaging in this conduct, he violated the securities laws.

On Friday, Peter Madoff pled guilty to a two-count superseding information charging him with, among other things, conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud and falsifying records of an investment advisor .  The overt acts in the conspiracy count also include, among other things, making false statements to investors about BLMIS’s compliance program and the nature and scope of its Investment Advisory business.  Madoff pleaded guilty in Manhattan federal court before U.S. District Judge Laura Taylor Swain. 

Madoff, 66, of Old Westbury, N.Y., faces a statutory maximum sentence of 10 years in prison.  Pursuant to his plea agreement with the government, Madoff has agreed not to seek a sentence of other than 10 years in prison.  He is also subject to mandatory restitution and criminal forfeiture and faces criminal fines up to twice the gross gain or loss derived from the offense.  He has agreed to forfeiture of more than $143.1 billion, including all of his real and personal property.  This amount represents all of the investor funds paid into BLMIS from 1996—the start of Madoff’s involvement in the conspiracy—through December 2008. 

As part of the defendant's forfeiture, the government has entered into a settlement with Madoff’s family that requires the forfeiture of all of his wife Marion’s and daughter Shana’s assets, and assets belonging to other family members.  The surrendered assets include, among other things, several homes, a Ferrari and more than $10 million in cash and securities.  Marion Madoff is being left with approximately $771,733 to live on for the rest of her life. The forfeited assets, including the net proceeds from the sale of the forfeited properties, will be used to compensate victims of the fraud, consistent with applicable Department of Justice regulations.

Judge Swain has set a sentencing date of October 4.

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