SEC Charges Madoff's Director of Operations with Falsifying Accounting Records and Siphoning Investor Funds
FOR IMMEDIATE RELEASE
Washington, D.C., Feb. 25, 2010 — The Securities and Exchange Commission today charged one of convicted Ponzi schemer Bernard Madoff's key operatives with falsifying accounting records to enable the multi-billion dollar fraud and illegally enrich himself, Madoff, and Madoff's family and employees.
According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Daniel Bonventre disguised Madoff's fraud and the financial losses at Madoff's firm by misusing and improperly recording investor money to create the false appearance of legitimate income.
As Madoff's Director of Operations, Bonventre ran the back office at Bernard L. Madoff Investment Securities LLC (BMIS) and oversaw the firm's 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. 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," said George S. Canellos, Director of the SEC's New York Regional Office.
According to the SEC's complaint, Bonventre was responsible for the firm's general ledger and financial statements that 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 firm's 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 Bonventre's 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 read: "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.— I'll be back in NY on March 30th but if you need to speak to me before then, call me…. Thanks[,] Dan."
This is the SEC's seventh enforcement action in the Madoff fraud since the scheme collapsed in December 2008. The Commission previously charged Madoff and BMIS, DiPascali, and auditors David G. Friehling and Friehling & Horowitz CPAs, P.C., 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 Madoff's firm for their roles in covering up the scheme.
The SEC's complaint specifically alleges that Bonventre 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 (Exchange Act) and Rule 10b-5 thereunder; and aided and abetted violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-2 thereunder, Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3, 17a-3, and 17a-5 thereunder, and Section 204 of the Advisers Act and Rule 204-2 thereunder. Among other things, the SEC's complaint seeks financial penalties and a court order requiring Bonventre to disgorge his ill-gotten gains.
The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation, with which the Commission has coordinated its investigation. The SEC's investigation is continuing.
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For more information about this enforcement action, contact:
Andrew M. Calamari
Associate Director, SEC's New York Regional Office — 212-336-0042
Alexander M. Vasilescu
Regional Trial Counsel, SEC's New York Regional Office — 212-336-0178