The SEC has charged two employees at Bernard L. Madoff Investment Securities LLC (BMIS) with participating in the largest Ponzi scheme in American history. Anette Bongioro created phony account statements for investors and took money for her personal gain. Joann Crupi conspired to cash out Madoff’s friends and family as the fraud was collapsing and created fraudulent investor account statements.
The SEC alleges that Annette Bongiorno, who began working for BMIS in an administrative capacity in 1968, regularly created false books and records. She helped mislead investors in telephone conversations and through account statements and trade confirmations that reported securities transactions that never happened and positions that never existed. She also created false trades in her own BMIS accounts that enabled her to cash out millions.
The SEC alleges that JoAnn Crupi, who began working for BMIS in 1983 and later became responsible for supervising the primary bank account used in BMIS’s investment advisory operations, helped facilitate the fraud and mislead investors, auditors, and regulators into believing that BMIS was a legitimate business. When the fraud was near collapse, Crupi decided which accounts should be cashed out and prepared checks for select investors, including Madoff’s family and friends.
Bongiorno falsified trades in her own accounts, depositing approximately $920,000 and withdrawing approximately $14.5 million. She fabricated sham, backdated, and highly profitable “trades” to cover for these withdrawals.
Crupi supervised some lower-level BMIS employees and worked closely with Frank DiPascali, another high-level BMIS supervisor charged by the SEC. Crupi maintained exclusive control over two important aspects of the BMIS fraud: she handled the primary bank account used in the Ponzi scheme, and she created false trading portfolios and account statements related to a purported hedging strategy.
Shortly before the collapse, Crupi met with DiPascali to discuss that it was near the end. Yet, Crupi continued to process client deposits during this time period, depositing approximately $59 million of client checks into the Ponzi scheme bank account.
In the final days of the fraud, Crupi helped DiPascali review BMIS investor lists and identify which accounts should be cashed out. Madoff approved these actions and Crupi prepared checks for the selected investors totaling more than $350 million. Madoff was arrested and the checks were seized before they could be distributed.
These charges evidence how a Ponzi scheme rarely can last for so long or maintain the face of legitimacy without the participation of co-conspirators. It also appears that SEC now is working hard to redeem itself for a period of years spent sleeping at the wheel.