SEC Charges Longtime Madoff Employee with Falsifying Documents to Deceive Regulators

The SEC charged a longtime Bernie Madoff employee with falsifying books and records in order to hide Madoff’s fraudulent investment advisory operations from regulators.

The SEC alleges that the employee, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations. The employee also falsified financial statements filed with the SEC and other regulators, as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.

“To keep his massive fraud alive, Madoff had to hide as many facts about his advisory operations as possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Cotellessa-Pitz along with other senior BMIS personnel played a critical role in this effort by creating false documents to deceive federal and state regulators.”

The SEC previously charged BMI's Director of Operations with falsifying books and records to hide and obfuscate Madoff’s advisory operations. According to the SEC’s complaint against the employee, she played a central role in falsifying these records as directed by Madoff and the Director of Operations. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.

SEC Charges Longtime Madoff Employee with Falsifying Documents to Deceive Regulators

But He Said He Did It Alone - SEC Charges Longtime Madoff Employee With Fraud

No one believed Madoff when he claimed that he conducted his massive fraud by himself without any help. now the SEC has charged Eric Lipkin, with helping Bernard L. Madoff and his firm deceive and defraud investors and regulators about the massive Ponzi scheme.

“Eric Lipkin helped create the detailed and entirely phony trading and business records that contributed to the success of Madoff’s fraud,” said George S. Canellos, Director of the SEC's New York Regional Office. “The SEC is committed to holding accountable those who helped to perpetrate and conceal Madoff’s scheme.”

---

Additional Materials

• SEC Complaint

---

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that for more than a decade, Lipkin helped Madoff defraud investors and mislead auditors and regulators about Madoff’s fraudulent, multi-billion dollar advisory operations. According to the complaint, Lipkin processed payroll records for “no-show” employees, falsified records of investors’ account holdings, and played a role in executing the entirely fictitious investment strategy that Madoff and BMIS claimed to be pursuing on behalf of its clients. In fact, Madoff used investors’ funds to enrich himself, his family, and his associates, and to pay off other investors. Lipkin also helped Madoff deceive regulators by preparing fake Depository Trust Clearing Corporation (DTCC) reports showing the sham investments for clients. Lipkin received annual bonuses from the firm, including for his work to mislead auditors and examiners, and he received $720,000 from Madoff to purchase a house, an amount he never paid back.

Without admitting or denying the allegations of the SEC’s complaint, Lipkin has consented to a proposed partial judgment, which, if entered by the court, will impose a permanent injunction against Lipkin and require him to disgorge ill-gotten gains and pay a fine in an amount to be determined by the court at a later time.

The SEC’s complaint against Lipkin alleges that he violated Section 17(a) of the Securities Act of 1933; violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder.

The SEC Press Release and Related Documents

 

Madoff Investor Returns $7.2 Billion to the Bankruptcy Estate

The widow of deceased philanthropist Jeffry Picower has announced an agreement with the Madoff Trustee to return 7.2 billion dollars to the bankruptcy estate, which, according to the press release, represents "every penny received from almost 35 years of investing with Bernard Madoff."

In a press release through her attorneys, Ms. Picower expressed confidence that her husband, who was an extremely successful investor, was not involved in the fraud. She said that his investment prowress allows her to make the payment, which exceeds the estate's legal liability (presumably on a claw back claim), and "return to the philanthropic work that was so important to Jeffry and me."

With estimated cash losses of approximately 20 billion dollars, this 7 billion, together with the 2.3 billion the Trustee has recovered should translate into repayment of half of the investors out of pocket losses. Of course, that does nothing to address the billions in profits reflected on those investors fraudulent brokerage statements.

Court Affirms Arb Award Against Madoff Feeder Fund

We have always been of the opinion that Madoff feeder funds have potential exposure to investor claims for not disclosing or monitoring the feeder funds investments with Madoff. That exposure is heightened in some instances, where the feeder fund simply turned over the funds to Madoff, took a piece of the management fees, and did little else.

A New York court has confirmed a AAA arbitration award against Ascot Partners in favor of an Ascot investor for failing to disclose Madoff's exclusive role in managing the investor's assets.

Professor Jill Gross, at the ADR Blog, has an analysis of the decision. The arbitration panel, which rendered a 23 page decision in the arbitration, was chaired by none other than David Robbins, a well known investor attorney.

Madoff Trustee Ready to Sue Investors

rving Picard, the court-appointed trustee overseeing the liquidation of Bernard Madoff's investment firm, is preparing to file new lawsuits to recover funds from investors who were also duped by the Ponzi scheme, the Wall Street Journal said.
 More...

Phony Web Site Targets Madoff Investors

The SEC has issued a press release warning investors of a phony web site that is attempting to obtain information from Madoff victims. The site asks for information in order to obtain a refund from funds allegedly collected by the fraudulent company.

The company's website and name is very close to SIPC's name and web site, and hopefully investors will not be fooled by the scam. Investors who are looking to recover their funds should already have been in touch with SIPC, and an experienced securities attorney.
 More>>>

Report Cites Finra Lapses in Fraud Probes

FINRAhas repeatedly denied that it had any responsibility for the Madoff Mess, claiming earlier this year that  "[n]one of the fraudulent activities that have been alleged deal with the activities of the broker-dealer or come under the jurisdiction of FINRA" according to Reuters. But today a special FINRA committee has release a report that addresses teh failure of FINRA to uncover the Stanford CD program issues, and yes, the Madoff Mess. The report states "FINRA examiners did come across several facts worthy of inquiry with the Madoff scheme that, with the benefit of hindsight, should have been pursued."
More>>>

EXCERPT: 'The Madoff Chronicles'

If you simply can't get enough Madoff, ABC News correspondent wrote a book which examines the personal and business life of the Madoff Family. More>>>