Former Madoff finance chief could cut deal and reveal his accomplices
Frank DiPascali expected to plead guilty when he faces US court today
Tuesday 11 August 2009
Victims of Bernard Madoff's record-breaking fraud are hopeful of a major breakthrough in the case, with the disgraced Wall Street grandee's closest lieutenant expected to plead guilty today to playing role in the $65bn (£39bn) scam.
Court papers suggest that Frank DiPascali has been helping prosecutors in an attempt to lessen his own sentence. Observers believe he could be the key to unravelling exactly how many other people were in on Madoff's fraud. Even though Madoff, pictured, is behind bars serving a 150-year prison sentence, his refusal to co-operate with the investigation means mystery still surrounds how he spun a web of deceit that took in thousands of victims across several continents.
Specifically, angry investors have been demanding to know if other members of Madoff's family were in on the fraud. Mr DiPascali's co-operation could also help the US Department of Justice build cases against a constellation of so-called "feeder funds", run by supposedly sophisticated investment managers who were actually only outsourcing clients' money to Madoff.
Mr DiPascali, 52, was a "point man" for clients calling in to the mysterious 17th-floor office in New York where Madoff Investment Securities was based. He ran a small team of employees fielding client orders, and called himself "director of options trading", but prosecutors believe no trading was ever carried out. In contrast to Madoff, he was known for his laidback style of dress, often turning up to work in jeans, but not for a laidback personality. He was introduced to Madoff a year after graduating from a Catholic high school in Queens, New York, and immediately became one of his closest colleagues. He lives more modestly than his boss – only a five-bed, five-bath house with a pool on seven acres in the New Jersey suburbs, compared to Madoff's many homes and yachts. Earlier this year, Mr DiPascali's lawyer called him "a blue-collar guy, not a Wall Street master of the universe".
So far, only Madoff himself and the small-time accountant who was meant to be auditing his books have charged over the world's biggest Ponzi scheme. Until it collapsed in December, Madoff was pretending to invest money from thousands of clients and generating steady returns of about 12 per cent a year. In fact, he was simply using cash from new investors to pay clients who cashed out. The $65bn they thought they had in their accounts simply did not exist, and many now face ruin.
John Coffee, a law professor at Columbia University, said: "If others – such as Madoff's brother Peter – were aware of either the full scale of the Ponzi scheme or substantial irregularities and they had conversations with DiPascali, they are now in big trouble. Even without knowing of the Ponzi scheme, some of the feeder funds may have had candid discussions with Mr DiPascali about their desired rates of return, which could show securities fraud on their part."
It is not yet known what charges Mr DiPascali faces, or if he has agreed or even proferred a plea bargain, but he has been questioned repeatedly by investigators. Leaked notes of his earliest interviews describe his answers as "evasive" and "incomprehensible". In a court filing on Friday, the Justice Department said Mr DiPascali would waive indictment and plead guilty at a hearing this morning, signalling to lawyers that he is co-operating.
He could be key to determining if other Madoffs broke the law. Peter Madoff, Bernard's brother, was chief compliance officer. Mark and Andrew Madoff, Bernard's sons, worked on the older, stock trading side of the business. Ruth Madoff, Bernard's wife of five decades, occasionally had offices at the firm. Bernard Madoff said when he pleaded guilty to 11 charges that he acted alone. His family deny knowledge of the fraud and any wrongdoing.
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