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WPCNR FBI WIRE. From the Federal Bureau of Investigation. December 20, 2012:
Preet Bharara, the United States Attorney for the Southern District of New York, announced that Peter Madoff, the former chief compliance officer and senior managing director of Bernard L. Madoff Investment Securities LLC (BLMIS), was sentenced today to 10 years in prison for crimes stemming from a two-count superseding information to which he pled guilty that charged him with, among other things, conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud, and falsifying records of an investment adviser.
The overt acts in the conspiracy count also included, among other things, making false statements to investors about BLMIS’s compliance program and the nature and scope of its Investment Advisory business. Madoff pled guilty in June 2012. He was sentenced in Manhattan federal court by U.S. District Judge Laura Taylor Swain.
Manhattan U.S. Attorney Preet Bharara said, “Peter Madoff was a gatekeeper, who was supposed to guard against fraud, but instead enabled it—facilitating his brother Bernie’s breathtaking scheme by falsifying compliance records and lying to both regulators and clients of BLMIS. The decade he will spend in prison and the disgorgement of his assets are a just result. Our efforts to hold to account anyone and everyone who played a role in this unprecedented Ponzi scheme continue.”
According to the superseding information to which Madoff pled guilty and other court filings:
Madoff was employed at BLMIS from 1965 through December 2008. Beginning in 1969, he became the chief compliance fficer (CCO) and senior managing director of BLMIS. In his role as CCO, Madoff created false and misleading BLMIS compliance documents, as well as false reports that were filed with the U.S. Securities and Exchange Commission (SEC) that materially misstated the nature and scope of BLMIS’s Investment Advisory (IA) business.
Specifically, in his capacity as CCO, Madoff created numerous false compliance documents in which he stated that he had performed compliance reviews of the trading in the BLMIS IA business on a regular basis, when in reality, the reviews were never performed. The false statements were designed to mislead regulators, auditors, and IA clients.
Further, in August 2006, BLMIS registered as an investment adviser with the SEC. As a registered investment adviser, on at least an annual basis, BLMIS was required to file forms with the SEC that are used as part of the oversight process of investment advisers.
Madoff was integrally involved with both the SEC registration process and in the creation of the forms, known as “Forms ADV,” which were materially false and misleading. The numerous false statements in the Forms ADV created the false appearance that BLMIS’s IA business had a small number of highly sophisticated clients and far fewer assets under management than was actually the case. Madoff also misrepresented that he, as CCO, ensured that reviews of the IA trading were being performed.
In addition, from 1998 through 2008, Madoff engaged in a tax fraud scheme involving the transfer of wealth within the Madoff family in ways that allowed him to avoid paying millions of dollars in required taxes to the IRS. Most, if not all of the “wealth,” came directly or indirectly from IA client funds held at BLMIS. The schemes in which he engaged also allowed Bernard L. Madoff to evade his tax obligations. The methods by which Madoff engaged in tax fraud included the following:
- Madoff received approximately $15,700,000 from Bernard L. Madoff and his wife,and executed sham promissory notes to make it appear that the transfers were loans, in order to avoid paying taxes;
- Madoff gave approximately $9,900,000 to family members, and in order to avoid paying taxes, executed sham promissory notes to make it appear that the transfers of these funds were loans;
- Madoff did not pay taxes on approximately $7,750,000 that he received from BLMIS;
- Madoff received approximately $16,800,000 from Bernard L. Madoff from two sham trades, and disguised the proceeds of the trades as long-term stock transactions in order to take advantage of the lower tax rate for long-term capital gains;
- Madoff charged approximately $175,000 in personal expenses to a corporate American Express card and did not report those expenses as income.
Madoff also arranged for his wife to have a “no-show” job at BLMIS from which she received between approximately $100,000 to $160,000 per year in salary, a 401(k), and health benefits to which she was not entitled.
In December 2008, when the collapse of BLMIS was virtually certain, Madoff agreed with others to send the $300 million that remained in the IA accounts to preferred employees, family members and friends. BLMIS collapsed before the funds were ever disbursed. On December 10, 2008, one day prior to BLMIS’s collapse, Madoff also withdrew $200,000 from BLMIS for his personal use.
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