Fordham Law


Cooperator Frank DiPascali Tapped for Key Role in Trial of Madoff Employees

Paul Radvany in The Wall Street Journal, October 07, 2013

Media Source

By ASHBY JONES

As a top lieutenant to Bernard L. Madoff, Frank DiPascali Jr. spent much of the past three decades safeguarding secrets.

But the 56-year-old Queens, N.Y., native is about to spill some of them. Mr. DiPascali, now under house arrest in an undisclosed location, is set to take the stand as a key government witness in its criminal case against five former employees of the convicted Ponzi-scheme operator at Bernard L. Madoff Investment Securities LLC.

Messrs. Madoff, DiPascali and seven other people have pleaded guilty in the scandal that led to an estimated $17 billion in cash losses for investors. Prosecutors have more to prove, including that two portfolio managers, two computer programmers and the firm's director of operations knew about the scheme—and worked to keep it going.

The trial starts Tuesday and could last four or five months. It could be the U.S. government's last, best chance to undermine Mr. Madoff's insistence that he carried out the fraud essentially alone. Jurors also are likely to learn more about how he kept the scheme secret. Prospective jurors will likely be questioned this week.

"How wide was that inside circle of people who knew what was going on?" asks Samuel Buell, who helped lead the government's Enron Corp. task force and is a law professor at Duke University. He doesn't have a role in the Madoff case.

Mr. DiPascali's gravel-voiced testimony will be crucial. The former chief financial officer for Mr. Madoff's firm hopes his cooperation with federal prosecutors will lead to leniency. Mr. DiPiscali faces as long as 125 years in prison after pleading guilty in 2009 to 10 criminal charges. Sentencing for Mr. DiPascali is on hold pending the outcome of his cooperation. Mr. Madoff, 75, is serving a 150-year term in a federal prison in North Carolina.

Mr. DiPascali was 18 years old when he joined Mr. Madoff's firm in 1975. He stayed for 33 years.

At the time of his guilty plea, Mr. DiPascali said he long thought Mr. Madoff ran a prestigious, successful company. In the late 1980s or early 1990s, though, Mr. DiPiscali realized no trading was happening in the accounts held by Mr. Madoff's investment-advisory clients, according to the former employee.

Rather than blow the whistle, Mr. DiPascali admitted to helping keep the fraud alive. He began lying to clients and faking documents to maintain the illusion of profitable trades.

His loyalty paid off. U.S. securities regulators claimed Mr. DiPiscali got more than $2 million a year in salary and bonuses, and an office on the 17th floor of the skyscraper known as the Lipstick building in Midtown Manhattan, where much of the fraud was carried out.

"It was all fake," he said at a court hearing. "It was all fictitious."

Prosecutors have alleged that Mr. DiPascali worked with all five defendants going on trial. Computer programmers Jerome O'Hara and George Perez are accused of allegedly creating phony customer accounts, while portfolio managers Annette Bongiorno and JoAnn Crupi allegedly concocted trading records. Prosecutors say Daniel Bonventre, a former operations director for Mr. Madoff, worked with Mr. DiPascali to allegedly gin up phony books and records.

Lawyers for the defendants say their clients had no knowledge of the fraud being carried out by Messrs. Madoff, DiPascali and others. The former employees' lives were upended when Mr. Madoff was arrested in December 2008, say their lawyers. Mr. Madoff pleaded guilty in March 2009.

Andrew Frisch, a lawyer for Mr. Bonventre, says the scenario sketched by prosecutors is one "even Shakespeare could not have imagined."

Roland Riopelle, the lawyer for Ms. Bongiorno, who worked at Mr. Madoff's firm for about 40 years, says she is "every bit a victim of Mr. Madoff as anyone else."

Mr. Perez's lawyer, Larry Krantz, says: "The government has made a tragic mistake."

Gordon Mehler, the lawyer for Mr. O'Hara, says his client "has steadfastly maintained his innocence in the nearly five years since Madoff's arrest despite the prospect of a monthslong trial."

Eric Breslin, a lawyer for Ms. Crupi, says he expects "a long and arduous and extremely contested trial."

The government has handed over a list of more than 100 people it might put on the witness stand. Prosecutors are likely to lean most heavily on Mr. DiPascali, former controller Enrica Cotellessa-Pitz, former payroll manager Eric Lipkin and former outside accountant David Friehling. All four have pleaded guilty to criminal charges.

Cross-examination of Mr. DiPascali will likely challenge his credibility, partly by zeroing in on phony statements he admitted giving the SEC in a 2006 audit. His lawyer, Marc Mukasey, responds: "Frank is ‎going to testify truthfully and accurately."

Another challenge for prosecutors: keeping the jury awake. Testimony is likely to include thousands of documents and highly detailed discussions of bank statements, computer systems and accounting practices. Lawyers not connected to the case say prosecutors can introduce enough evidence without overwhelming jurors.

The government "doesn't have to have a smoking gun or an admission," says Paul Radvany, a former federal prosecutor who now is a law professor at Fordham University. "It just has to have enough circumstantial evidence showing that each defendant knew about and participated in the scheme."

The U.S. attorney's office in Manhattan still is investigating the firm's downfall. On Sept. 26, Paul Konigsberg, a longtime accountant to Mr. Madoff, was indicted for allegedly keeping false books.

Mr. Konigsberg's lawyer, Reed Brodsky, called his client "an innocent victim of Bernie Madoff."