Peter Madoff Pleads Guilty to Securities Fraud and Tax Fraud

(Newsroom America) -- Peter Madoff, the former Chief Compliance Officer and Senior Managing Director of Bernard L. Madoff Investment Securities LLC (“BLMIS”), pled guilty today to among other things, conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud and falsifying records of an investment advisor.

The overt acts in the conspiracy count also include, 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 Manhattan federal court before United States District Judge Laura Taylor Swain.

Madoff was employed at BLMIS from 1965 through at least December 11, 2008. Beginning in 1969, he became the Chief Compliance Officer (“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 to guide the examination programs of investment advisors.

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.

For example, the Forms ADV stated that there were only 23 IA accounts under management at BLMIS when in fact there were more than 4,000 at the time of the firm’s collapse in 2008, and that its IA services were available “only to institutional and high net worth clients.” The Forms also stated that, in 2008, BLMIS had $17.1 billion in assets under management when, on paper, it had more than $65 billion at that time. 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 Bernie 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 other 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.

Madoff , 66, of Old Westbury, NY, faces a statutory maximum sentence of 10 years in prison.

Pursuant to his plea agreement with the Government, Madoff agrees not to seek a sentence of other than 10 years in prison. Madoff is also subject to mandatory restitution and criminal forfeiture and faces criminal fines up to twice the gross gain or loss derived from the offense. He has agreed to forfeiture of more than $143.1 billion, including all of his real and personal property. This amount represents all of the investor funds paid into BLMIS from 1996—the start of Madoff’s involvement in the conspiracy—through December 2008.

As part of the defendant’s forfeiture, the Government has entered into a settlement with Madoff’s family that requires the forfeiture of all of his wife Marion’s and daughter Shana’s assets, and assets belonging to other family members.

The surrendered assets include, among other things, several homes, a Ferrari and more than $10 million in cash and securities. Marion Madoff is being left with approximately $771,733 to live on for the rest of her life.

The forfeited assets, including the net proceeds from the sale of the forfeited properties, will be used to compensate victims of the fraud, consistent with applicable Department of Justice regulations.

A sentencing date for Madoff has been set for October 4.