Wednesday, November 23, 2011

Madoff and Watergate

No, Bernie Madoff didn't play a role in the Watergate scandal (at least as far as we know) but it turns out that his Ponzi scheme may have been going way back then. If so, it will go down in history as not only the largest Ponzi scheme we know of but also the longest running scheme too (by far!). This new revelation is according to the guilty plea of 66 year old David L. Kugel who was apparently associated with Madoff even back when Richard Nixon was in the Whitehouse. Here are a few quotes:

This from Bloomberg:
David Kugel, a former trader at Bernard Madoff’s investment firm, pleaded guilty in federal court in New York to creating fake, backdated trades in a fraud scheme that began more than 30 years ago.
During his plea hearing today, Kugel, a former supervisory trader in the proprietary trading operation of Bernard L. Madoff Investment Securities LLC (aka BLMIS).. implicated two other former Madoff employees, Joann Crupi and Annette Bongiorno.
Kugel, 66, said he provided the two with historical price information that allowed them to create fictitious, backdated arbitrage trades during the decades that Madoff’s Ponzi scheme was under way. ...
“I provided history trading information to other BLMIS employees used to create backdated trades,” Kugel told U.S. District Judge Laura Taylor Swain in Manhattan. “Specifically, by the early 1970s until the collapse of BLMIS in December, 2008, I helped create backdated trades,” Kugel said.
Kugel, who is cooperating with prosecutors, pleaded guilty to six criminal counts, including falsifying trading and business records, and securities and bank fraud...
Bongiorno, who recruited investors and helped run Madoff’s investment advisory office, and Crupi, a keypunch operator, have denied the charges against them and are awaiting trial.
Kugel faces as long as 85 years in prison and fines of $11.75 million, said Swain, who agreed to release Kugel on a $3 million bond secured by $900,000 in cash and properties. ... 
Separately, the Securities and Exchange Commission sued Kugel today over backdated trades in his own account at BLMIS. He allegedly withdrew almost $10 million in phony profits over the years. Kugel has agreed to settle the case and forfeit any gains from the scheme, the SEC said in a statement.
Today in court, Moore said Kugel also agreed to sell homes in Boca Raton, Florida and Sands Point, New York, as well as luxury vehicles and other assets purchased with funds from his Madoff accounts.
The Guardian had this to say about Kugel:
Kugel's cooperation and his claim that the fraud goes back to the 1970s will add further pressure on Peter Madoff, Bernard's younger brother and the subject of a separate inquiry. Peter Madoff had worked with his brother since at least 1970, when he left law school. 
Picard is seeking to recover at least $226.4m from several Madoff family members including Peter, Bernard Madoff's son Andrew and the estate of Madoff's late son Mark. 
Kugel would be the fifth former Madoff executive, including Madoff, to plead guilty to participating in the fraud. Five other former Madoff employees, include Daniel Bonventre, the firm's former chief of operations, have denied charges that they were co-conspirators and are awaiting trial.
I'm glad Mr. Kugel is cooperating and I don't feel bad that he has to sell some of his many homes and luxury cars. Unfortunately for him, he is very likely to receive a death sentence given his age and the likelihood that he will spend a decade or two in prison.

The Guardian comment about Peter Madoff reminded me few people are implicated in this case. It will be interesting to me to see if Bernie was clever enough to either keep his family out of his scheme or hide any trail to them. Time will tell...

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