Madoff to plead guilty, lawyer tells court

James Cohen in Marketwatch, March 10, 2009

Architect of alleged $50 billion scheme faces up to 150 years in prison  

By Alistair Barr

SAN FRANCISCO (MarketWatch) -- Bernard Madoff is expected to plead guilty to multiple criminal charges and faces up to 150 years in prison for allegedly masterminding a $50 billion Ponzi scheme, his lawyer and federal prosecutors said Tuesday.
 
Madoff was charged with 11 felony charges including securities fraud, money laundering, false statements, perjury and theft from an employee benefit plan, prosecutors said in a statement.  

"It is anticipated that he will plead guilty on Thursday," Ira Sorkin, Madoff's lawyer, said in an interview Tuesday. "I have no comment beyond that."  

The charges carry a maximum sentence of 150 years, prosecutors noted.  

Madoff, founder of Manhattan-based Bernard L. Madoff Investment Securities, or BLMIS, was arrested in December after the global credit crisis reveal an alleged Ponzi scheme that tricked thousands of investors including pension funds, charities and hedge funds and evaded detection by regulators for more than 20 years.  

"This may give some emotional comfort to some victims, but for most of the victims, I don't think there is any punishment severe enough to satisfy them," Jim Cohen, a criminal law professor at Fordham Law School, said. "They lost their life savings, and it doesn't seem they will see any recovery of consequence."

Promising returns of up to 46% a year to lure new investors, while fabricating account statements and trade confirmations to fool existing clients, Madoff accumulated a massive investment business that claimed it managed almost $65 billion in roughly 4,800 accounts at the end of November.  

"In fact, BLMIS held only a small fraction of that balance on behalf of its clients," Federal prosecutors said.  

"While the alleged crimes are not novel, the size and scope of Mr. Madoff's fraud are unprecedented," Acting United States Attorney Lev Dassin said.  

'Others' 

Madoff marketed a "split strike conversion" strategy, which involves investing in shares of leading U.S. companies while hedging the positions with related options and frequently shifting out of the market into U.S. Treasury bonds.  

But prosecutors say Madoff didn't invest the money. Instead, he used most of it to meet redemption requests from investors. He also took some of it in commissions to support the market-making and proprietary trading businesses of BLMIS. Millions of dollars of that money ended up in his pockets and the pockets of "others," prosecutors alleged.  

"The filing of these charges does not end the matter," Dassin said. "Our investigation is continuing."  

Madoff hired "numerous" employees to work in the back office of BLMIS's investment business, prosecutors alleged.  

Madoff told these workers to tell clients about the firm's trading and create false monthly client account statements and trade confirmations to trick them into thinking their money was being invested and returns were being generated, prosecutors said.  

New York to London to New York 

Earlier this decade, Madoff also sent more than $250 million from a BLMIS client account in New York City to accounts held by a London-based affiliate called MSIL. That money was then sent back to the BLMIS account in New York or to another account in the city that was mainly used to fund BLMIS's operations, prosecutors claimed.  

"Madoff directed these funds transfers, in part, to give the appearance that he was conducting securities transactions in Europe on behalf of the investors when, in fact, he was not," the prosecutors said in their statement.  

"Madoff also directed the transfer of funds from the MSIL Accounts to purchase and maintain property and services for the personal use and benefit of Madoff, his family members, and associates," they added.