Criminal Information Against Dispascali, Madoff CFO

8/14/2019 Criminal Information Against Dispascali, Madoff CFO

1/47

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

x

UNITED STATES OF AMERICAINFORMATION

- v -09 C r.

FRANK DIPASCALI/ J R . /

Defendan t .

- - - - - - - - - - - - - - - x

COUNT ONE

(Consp i r a cy t o Commit S e c u r i t i e s Fraud, I nves tmen t A d v i s e r Fraud,F a l s i f y Books and Records o f a Broke r-Dea l e r, F a l s i f y Books and

Records o f an I nves tmen t A d v i s e r , M a i l Fraud, Wire Fraud, an dI n t e r n a t i o n a l Money Laundering)

The U n i t e d S t a t e s A tt or ne y c ha rg es :

Relevan t Pe r sons and E n t i t i e s

1 . At a l l t i m e s r e l e v a n t t o t h i s I n f o r m a t i o n / Bernard

L. Madoff Inves tment S e c u r i t i e s LLC/ and i t s p r e d e c e s s o r / Bernard

L. Madoff Inves tment S e c u r i t i e s ( c o l l ec t i v e ly and s e p a r a t e l y /~ B L M I S " )/ had i t s p r i n c i p a l p l a c e o f b u s i n e s s i n New York/ New

York/ most r e c e n t l y a t 885 T h i r d Avenue/ New York/ New York.

BLMIS was a b r o k e r - d e a l e r t h a t engaged i n t h r e e p r i n c i p a l t y p e s

o f b u s i n e s s : marke t making; p r o p r i e t a r y t r a d i n g ; and i n v e s t m e n t

a d v i s o r y s e r v i c e s (UIA"). BLMIS was r e g i s t e r e d w i t h t h e Uni ted

S t a t e s S e c u r i t i e s and Exchange Commission (USEC") a s a b r o k e r -d e a l e r and a l s o / on o r a b o u t August 25/ 2006/ r e g i s t e r e d w i t h t h e

SEC a s an i n v e s t m e n t a d v i s e r .

2 . At a l l t i m e s r e l e v a n t t o t h i s I n f o r m a t i o n / Madoff

s e c u r i t i e s I n t e r n a t i o n a l L t d . (UMSIL") was a c o r p o r a t i o n


2/47

i n c o r p o r a t e d i n th e U n i t e d Kingdom. MSIL was an a f f i l i a t e o f

BLMIS t h a t engaged p r i n c i p a l l y i n p r o p r ie ta ry t r a d i n g .

3 . B e rn ard L. Madoff ( ~ M a d o f f " )was t h e f o u n d e r o f

BLMIS, and s e r v e d a s i t s s o l e member and p r i n c i p a l . In t h a t

c a p a c i t y, Madoff c o n t r o l l e d t h e b us in es s a c t i v i t i e s o f BLMIS.

Madoff owned t h e m a j o r i t y o f t h e v o t i n g s h a re s o f MSIL, and

s e r v e d a s t h e Chairman o f MSIL's Board o f D i r e c t o r s . Madoff a l s o

s e r v e d on t h e Board o f D i r e c t o r s o f t h e N a t i o n a l A s s o c i a t i o n o f

S e c u r i t i e s D e a l e r s Automated Q u o t a t i o n s ( ~ N A S D A Q " ) ,and f o r a

p e r i o d s e r v e d a s t h e n o n - e x e c u t i v e Chairman o f NASDAQ. On March

12, 2009, i n c o n n e c t i o n w i t h t h e e xe cu tio n o f a mass ive Ponz i

scheme t h r o u g h BLMIS, Madoff p l e a d e d g u i l t y t o s e c u r i t i e s f r a u d ,

i n v e s t m e n t a d v i s e r f r a u d , m a i l f r a u d , w i r e f r a u d , two c o u n t s o f

i n t e r n a t i o n a l money l a u n d e r i n g , money l a u n d e r i n g , f a l s e

s t a t e m e n t s , p e r j u r y , f a l s e f i l i n g s w i t h t h e SEC, and t h e f t from

an employee b e n e f i t p l a n .

4 . FRANK DIPASCALI, J R . , t h e d e f e n d a n t , was employed

a t BLMIS be tween on o r a b o u t S ep te mb er 1 1, 1975 and on o r a b o u t

December 11 , 2008, t h e d ay t h a t Madoff was a r r e s t e d . Dur ing h i s

emploYment a t BLMIS, DIPASCALI had a v a r i e t y o f d u t i e s and

r e s p o n s i b i l i t i e s . By t h e e a r l y 1990s , DIPASCALI was one o f t h e

BLMIS employees r e s p o n s i b l e f o r managing t h e v a s t m a j o r i t y o f

BLMIS's IA a c c o u n t s i n t o which t housands o f BLMIS c l i e n t s

i n v e s t e d , and e v e n t u a l l y l o s t , b i l l i o n s o f d o l l a r s . Madoff ,

2


3/47

DIPASCALI, and o t h e r c o - c o n s p i r a t o r s were r e sp o n si b le f o r , among

o t h e r t h in g s: r ec ei v in g funds s e n t t o BLMIS by c l i e n t s o f t h e

i n v e s t m e n t a dv is or y b u s i ne s s ( the "IA C l i e n t s " ) f o r i n v e s t m e n t ;

c a u s in g t h e t r a n s f e r o f IA C l i e n t s ' fu nds be tw een and among

v a r i o u s BLMIS bank a c c o u n t s ; h a n d l i n g r e q u e s t s f o r r edempt ions

s e n t t o BLMIS by IA C l i e n t s ; answer ing IA C l i e n t s ' q u e s t i o n s

a b o u t t h e i r p u r p o r t e d i n v e s t m e n t s ; and d e v e l o p i n g t h e BLMIS

c o m p u t e r and o t h e r s y s t e m s t h a t were u s e d t o g i v e t h e f a l s e

a p p e a r a n c e t o c l i e n t s , r e g u l a t o r s and o t h e r s , t h a t c l i e n t funds

were b e i n g i n v e s t e d a s promised when, i n f a c t , t h e y were n o t .

The Scheme To D e f r a u d

5 . From a t l e a s t a s e a r l y a s t h e 1980s t h r o u g h on o r

a b o u t December 11, 2008, Madoff , FRANK DIPASCALI, J R . , th e

d e f e n d a n t , and o t h e r c o - c o n s p i r a t o r s p e r p e t r a t e d a scheme t o

d ef r a ud th e IA C l i e n t s by a c c e p t i n g b i l l i o n s o f d o l l a r s o f IA

C l i e n t s ' funds u n d e r f a l s e p r e t e n s e s , f a i l i n g t o i n v e s t t h e IA

C l i e n t s ' funds a s p r o m i s e d , c r e a t i n g and d i s s e m i n a t i n g f a l s e and

f r a u d u l e n t documents t o IA C l i e n t s p u r p o r t i n g t o show t h a t t h e i r

funds had b een i n v e s t e d , and l y i n g t o t h e SEC and an a c c o u n t i n g

f i r m t o c o n c e a l t h e f ra ud u l e nt scheme.

6 . To e x e c u t e t h e schem e, M adoff s o l i c i t e d , and

c a u s e d o t h e r s t o s o l i c i t , p r o s p e c t i v e c l i e n t s t o open t r a d i n g

a c c o u n t s w i t h BLMIS, b a s e d upon, among o t h e r t h i n g s , a promise t o

u s e i n v e s t o r f u n d s t o p u r c h a s e s h a r e s o f common s t o c k , o p t i o n s ,

3


4/47

o t h e r s e c u r i t i e s / and f i n a n c i a l i n s t r u m e n t s / and r e p r e s e n t a t i o n s

t h a t he would a ch ie ve h ig h r a t e s o f r e t u r n f o r c l i e n t s / w i t h

l i m i t e d r i s k . I n t r u t h and i n f a c t / a s FRANK DIPASCALI/ J R . / t h e

d e f e n d a n t / w e l l knew/ t h e s e r e p r e s e n t a t i o n s were f a l s e . C o n t r a r y

t o r e p r e s e n t a t i o n s t h a t DIPASCALI and o t h e r c o - c o n s p i r a t o r s

c a u s e d t o be made o v e r t h e c o u r s e o f t h e scheme on m i l l i o n s o f

p a g e s o f a c c o u n t s t a t e m e n t s and o t h e r documents s e n t t o IA

C l i e n t s t h r o u g h t h e U n i t e d S t a t e s P o s t a l S e r v i c e / Madoff ,

DIPASCALI/ and o t h e r c o - c o n s p i r a t o r s knew t h a t t h e IA C l i e n t s '

funds were n o t b e i n g i n v e s t e d i n s e c u r i t i e s a s p r o m i s e d .

M or eo ve r/ M ad off , DIPASCALI, and o t h e r c o - c o n s p i r a t o r s

m i s a p p r o p r i a t e d IA C l i e n t s / funds and c o n v e r t e d t h o s e funds t o

t h e i r ow n u s e and t h e u se o f o t h e r s .

7. I n c o n n e c t i o n w i t h t h i s scheme/ FRANK DIPASCALI,

J R . / t h e d e f e n d a n t , knew t h a t BLMIS h ad a c c e p t e d b i l l i o n s o f

d o l l a r s o f IA C l i e n t s ' funds , c u m u l a t i v e l y / from i n d i v i d u a l

i n v e s t o r s , c h a r i t a b l e o r g a n i z a t i o n s , t r u s t s / p e n s i o n funds / and

hedge f u n d s , among o t h e r s , and had e s t a b l i s h e d on t h e i r b e h a l f

t h o u s a n d s o f a c c o u n t s a t BLMIS. DIPASCALI f u r t h e r knew t h a t

t h o s e funds were o b t a i n e d / i n s u b s ta n ti a l p a r t / t h r o u g h

i n t e r s t a t e w i r e t r a n s f e r s from f i n a n c i a l i n s t i t u t i o n s l o c a t e d

o u t s i d e New York S t a t e and t h r o u g h m a i l i n g s d e l i v e r e d by t h e

U n i t e d S t a t e s P o s t a l S e r v i c e .

4


5/47

Th e " S p l i t S t r i k e " S t r a t e g y

8 . Under t h e d i r e c t i o n o f Madoff , FRANK DIPASCALI,

J R . , t h e d e f e n d a n t , h e l p e d t o deve lop a p u r p o r t e d i n v e s t m e n t

s t r a t e g y, r e f e r r e d t o a s a ~ s p l i ts t r i k e c o n v e r s i o n " ( ~ S p l i t

S t r i k e " ) s t r a t e g y, t h a t Madoff used t o marke t t h e IA b u s i n e s s t o

IA C l i e n t s and p r o s p e c t i v e IA C l i e n t s b e g i n n i n g i n o r abou t t h e

e a r l y 1990s . C u r r e n t and p r o s p e c t i v e IA C l i e n t s were promised

t h a t : (a ) t h e i r funds would be i n v e s t e d i n a b a s k e t o f

a p p r o x i m a t e l y 35-50 common s to c k s w it h i n t h e S t a n d a r d & P o o r ' s

100 Index ( t h e ~ S & P1 0 0 " ) , a c o l l e c t i o n o f t h e 100 l a r g e s t

p u b l i c ly t r ad e d companies i n t e rms o f t h e i r marke t

c a p i t a l i z a t i o n ; (b ) t h a t b a s k e t o f s t o c k s would c l o s e l y mimic t h e

p r i c e movements o f t h e S&P 100; (c ) t h e i n v e s t m e n t s would be

hedged by u s i n g IA C l i e n t s ' funds t o buy and s e l l o p t i o n

c o n t r a c t s r e l a t e d t o t h o s e s to ck s , t h er e by l i m i t i n g p o t e n t i a l

l o s s e s c a u s e d by u n p r e d i c t a b l e changes i n s t o c k p r i c e s ; (d )

Madoff would o p p o r t u n i s t i c a l l y t ime t h e e n t r y and e x i t from t h e

s t r a t e g y ; and (e) when t h e IA C l i e n t s ' funds were n o t i n v e s t e d i n

t h e b a s k e t o f s t o c k s and o p tio n s d es c r ib e d above, t h o s e funds

would be i n v e s t e d i n money m arket funds and U n i t e d S t a t e s

Government - i s sued s e c u r i t i e s such a s U n ite d S t a t e s Tr e a s u r y

b i l l s .

9 . I n t o t a l , t housands o f IA C l i e n t s , w i t h b i l l i o n s

o f d o l l a r s o f c u m u l a t i v e i n v e s t m e n t s , were t o l d by Madoff , FRANK

5


6/47

DIPASCALI, J R . , t h e d e f e n d a n t , and o t h e r c o - c o n s p i r a t o r s , t h a t

t h e i r funds were i n v e s t e d w i t h BLMIS u s i n g t h e S p l i t S t r i k e

s t r a t e g y . (These c l i e n t s a r e h e r e i n r e fe rr e d t o a s ,

c o l l e c t i v e l y , t h e " S p l i t S t r ik e C l ie n t s " . )

10 . Madoff , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and

o t h e r c o - c o n s p i r a t o r s knew t h a t t h e S p l i t S t r i k e s t r a t e g y was a

f i c t i o n i n t h a t t h e S p l i t S t r i k e C l i e n t s ' funds were n o t i n v e s t e d

i n t h e s e c u r i t i e s r e c o r d e d on t h o s e c l i e n t s ' a c c o u n t s t a t e m e n t s .

The r e p o r t e d p e r f o r m a n c e o f t h e S p l i t S t r i k e s t r a t e g y was

f a b r i c a t e d by Madoff , DIPASCALI and o t h e r c o - c o n s p i r a t o r s t h r o u g h

a p r o c e s s i n which t r a n s a c t i o n s were "execu ted" o n l y on p a p e r,

b a s e d on h i s t o r i c a l l y r e p o r t e d p r i c e s o f s e c u r i t i e s , f o r t h e

p u rp o s e o f p r o d u c i n g and s e n d i n g t o S p l i t S t r ik e C l i e n t s

documen t s t h a t f a l s e l y made i t a p p e a r t h a t BLMIS had a c h i e v e d t h e

p r o m i s e d " r e t u r n s " o f a p p r o x i m a t e l y 10 t o 17 p e r c e n t p e r y e a r .

11 . On a r e g u l a r b a s i s , Madoff p r o v i d e d g u i d a n c e t o

FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and , t h r o u g h DIPASCALI, t o

o t h e r c o - c o n s p i r a t o r s , a b o u t t h e g a i n s o r l o s s e s t h a t Madoff

wanted t o be r e f l e c t e d i n t h e accoun t s ta te m en ts o f t h e S p l i t

S t r i k e C l i e n t s . Based on t h a t g u i d a n c e , DIPASCALI and o t h e r co -

c o n s p i r a t o r s p r e p a r e d model b a s k e t s o f S&P 100 s t o c k s b a s e d on

h i s t o r i c a l marke t p r i c e s and t r a c k e d ho w t h o s e h y p o t h e t i c a l

b a s k e t s would have per fo rmed i n t h e a c t u a l m a r k e t p l a c e t o

d et er m in e w he th er and when t o " e n t e r t h e m a r k e t . " Whenever

6


7/47

Madoff i n fo rmed DIPASCALI t h a t he had d e c i d e d t o Uente r t h e

m a r k e t , II DIPASCALI and o t he r c o -c o n sp i r a t o r s caused BLMIS

compute r o p e r a t o r s t o e n t e r t h e d a t a r e l a t e d t o t h e chosen b a s k e t

o f s e c u r i t i e s i n t o t h e computer t h a t m a i n t a i n e d t h e books and

r e c o r d s o f t h e IA b u s i n e s s . Madoff, DIPASCALI, and o t h e r co -

c o n s p i r a t o r s u s e d c om p ut er p ro gr am s t o a l l o c a t e m u l t i p l e s o f th e

chosen b a s k e t t o S p l i t S t r i k e C l i e n t s on a p ro r a t a b a s i s , based

on e a c h such c l i e n t ' s p u r p o r t e d a c c o u n t b a l a n c e . When Madoff

made a f i n a l d e c i s i o n t o Uente r t h e m a r k e t , II DIPASCALI and o t h e r

c o - c o n s p i r a t o r s would cause t h e computer t o produce t e n s o f

t housands o f f a l s e documents t h a t p u r p o r t e d t o conf i rm t h e

p u r c h a s e s o f s e c u r i t i e s t h a t i n f a c t had n o t been p u r c h a s e d .

12 . The p u r p o r t e d t r a d e s by which BLMIS supposed ly

Uentered t h e marke t ll were somet imes p r i c e d u s i n g d a t a from marke t

a c t i v i t y t h a t o c c u r r e d one o r more days p r i o r t o t h e d a t e on

which t h e d e c i s i o n t o Uente r t h e marke t ll wa s f i n a l i z e d . Because

none o f t h e Utrades ll a c t u a l l y o c c u r r e d , Madoff , FRANK DIPASCALI,

J R . , t h e d e f e n d a n t , and o t he r c o -c o ns p ir a t o r s r e l i e d on

h i s t o r i c a l p r i c e and t r a d i n g volume d a t a o b t a i n e d from p u b l i s h e d

s o u r c e s o f marke t i n f o r m a t i o n . With t h e b e n e f i t o f h in d s i g h t ,

Madoff and DIPASCALI chose t h e p r i c e s a t which s e c u r i t i e s

p u r p o r t e d l y were p u r c h a s e d i n l i g h t o f M a d o ff ' s o b j e c t i v e s . In

d o i n g s o , Madoff , DIPASCALI and o t h e r c o - c o n s p i r a t o r s a t t e m p t e d

t o e n s u r e t h a t : (a ) t h e t r a d e c o n f i r m a t i o n s l i p s s e n t t o S p l i t

7


8/47

S t r i k e C l i e n t s r e f l e c t e d p r i c e s t h a t f e l l w i t h i n t h e r ange o f

p r i c e s a t which e ac h su ch s e c u r i t y i n f a c t had t r a d e d on t h e

p e r t i n e n t day ; and (b ) t h e r e had been s u f f i c i e n t a c t u a l t r a d i n g

volume i n t h e r e l e v a n t s e c u r i t i e s so t h a t no c l i e n t o r r e g u l a t o r

wh o came i n t o p o s s e s s i o n o f t h e S p l i t S tr ik e C l i e n t s '

c o n f i r m a t i o n s l i p s o r a c c o u n t s t a t e m e n t s would have r e a s o n t o

q u e s t i o n t h e r e p o r t e d t r a d e s .

13 . A s i m i l a r p r o c e s s t o t h a t d e s c r i b e d i n p a r a g r a p h s

11 and 12, above, was u s e d i n u e x i t i n g t h e marke t " by u s e l l i n g

o u t" o f t h e p u r p o r t e d s t o c k and o p t i o n p o s i t i o n s and Ubuying"

U n i t e d S t a t e s Tr e a s u r y b i l l s and s h a r e s i n a money m a r k e t fund

w it h th e uproceeds" o f th o s e p u r p o r t e d s a l e s . With t h e b e n e f i t

o f h i n d s i g h t , Madoff and FRANK DIPASCALI, J R . , t h e d e f e n d a n t ,

e v a l u a t e d w h e t h e r and when t o u s e l l o u t " o f t h e s e c u r i t i e s

p o s i t i o n s t h a t p r e v i o u s l y had be e n r e p o r t e d t o S p l i t S t r i k e

C l i e n t s . A f t e r such d e c i s i o n s were made, DIPASCALI and o t h e r co -

c o n s p i r a t o r s c a u s e d BLMIS compu te r o p e r a t o r s t o i n p u t d a t a t h a t

g e n e r a t e d t e n s o f t h o u s a n d s o f f a l s e c o n f i r m a t i o n s o f t h e

p u r p o r t e d t r a n s a c t i o n s , which were s u b s e q u e n t l y p r i n t e d and s e n t

t o S p l i t S t r i k e C l i e n t s t h r o u g h t h e U n i t e d S t a t e s m a i l s .

14 . On a month ly b a s i s , Madoff , FRANK DIPASCALI, J R . ,

t h e d e f e n d a n t , and o t h e r c o - c o n s p i r a t o r s ove r saw t h e p ro du ct io n

and m a i l i n g o f t h o u s a n d s o f pages o f a c c o u n t s t a t e m e n t s t o S p l i t

S t r i k e C l i e n t s . T ho se d oc um en ts f a l s e l y r e f l e c t e d s e c u r i t i e s

8


9/47

t r a n s a c t i o n s t h a t had n o t been e x e c u t e d and s e c u r i t i e s p o s i t i o n s

t h a t i n f a c t d i d n o t e x i s t .

15 . I n p r a c t i c e , t h e growth i n a c c o u n t v a l u e s r e p o r t e d

on t h e S p l i t S t r i k e C l i e n t s ' accoun t s t a t e m e n t s g e n e r a l l y

approx imated t h e a n n u a l i z e d r a t e s o f r e t u r n t h a t had been

t a r g e t e d by Madoff . As d i r e c t e d by Madoff , FRANK DIPASCALI, J R . ,

t h e d e f e n d a n t , and o t h e r c o - c o n s p i r a t o r s r o u t i n e l y added

a d d i t i o n a l f i c t i t i o u s o p t i o n s " tr a de s" t o c e r t a i n S p l i t S t r i k e

C l i e n t a c c o u n t s f o r t h e purpose o f making i t a p p e a r t h a t t h o s e

a c c o u n t s , among o th er t h in gs , had a c h i e v e d t h e i r r e s p e c t i v e

t a r g e t e d a n n u a l r a t e s o f r e t u r n .

Def raud ing Th e " N o n - S p l i t S t r i k e C l i e n t s "

16. At a l l t i m e s r e l e v a n t t o t h i s I n f o r m a t i o n , BLMIS

had a number o f IA C l i e n t s o th e r t h a n S p l i t S t r i k e C l i e n t s ( the

" N o n - S p l i t S t r ik e C l ie n ts " ) . The N o n - S p l i t S t r i k e C l i e n t s were

promised t h a t t h e i r i n v e s t m e n t funds would be u s e d t o buy and

s e l l s e c u r i t i e s i n s t r a t e g i e s t h a t would r e a l i z e annua l r e t u r n s

i n v a r y i n g amounts up t o a t l e a s t a p p r o x i m a t e l y 53 p er c e n t p er

y e a r .

17 . Beginn ing i n o r abou t t h e 1990s , FRANK DIPASCALI,

J R . , t h e d e f e n d a n t , a s s i s t e d Madoff and o t he r c o -c o n sp i r a t o rs i n

t h e i r e f f o r t s t o make c e r t a i n N o n - S p l i t S t r i k e C l i e n t s b e l i e ve

t h a t t h e i r i nv es tm e nt s w i th BLMIS had g en er at e d t h e r e t u r n s they

9


10/47

had b e e n p r o m i s e d by Madoff when, i n f a c t , t h e i r funds had n o t

been i n v e s t e d i n s e c u r i t i e s a t a l l .

18 . At v a r i o u s t i m e s , b u t p a r t i c u l a r l y i n December o f

each y e a r , a t M a d o ff ' s d i r e c t i o n , FRANK DIPASCALI, J R . , t h e

d e f e n d a n t , and o t h e r c o - c o n s p i r a t o r s r ev iewed BLMIS r e p o r t s

compar ing y e a r - t o - d a t e Ure tu rns" w ith N o n-S p l i t S t r i k e C l i e n t s '

e x p e c t e d r e t u r n s on an a c c o u n t - b y - a c c o u n t b a s i s . When t h e r e were

s h o r t f a l l s be tween t h e e x p e c t e d r e t u r n s and t h o s e t h a t had been

r e p o r t e d t o t h e c l i e n t s , DIPASCALI p ro v id e d i nf or m a ti on t o o t h e r

c o - c o n s p i r a t o r s a b o u t h y p o t h e t i c a l l y p r o f i t a b l e o p t i o n s and o t h e r

t r a d e s and a d j u s t m e n t s . The i n f o r m a t i o n p r o v i d e d by DIPASCALI

was r o u t i n e l y i n c o r p o r a t e d a s f i c t i t i o u s t r a d e s and a d j u s t m e n t s

i n c e r t a i n o f t h e N o n - S p l i t S t r i k e C l i e n t s ' a c c o u n t s a t o r n e a r

t h e y ea r- e nd t o e n s u r e t h a t t h e a n n u a l r e t u r n s r e p o r t e d t o t h e

N o n - S p l i t S t r i k e C l i e n t s a p p e a r e d t o mee t o r exceed t h e i r

e x p e c t e d r e t u r n s .

19. Some o f t h e N o n - S p l i t S t r i k e C l i e n t s were p r o v i d e d

a c c o u n t s t a t e m e n t s t h a t showed p u r p o r t e d i n v e s t m e n t s i n U n i t e d

S t a t e s Tr e a s u r y b i l l s f o r n e a r l y t h e e n t i r e c a l e n d a r y e a r . At

M a d o ff ' s d i r e c t i o n , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and

o t h e r c o - c o n s p i r a t o r s caused f i c t i t i o u s o p t i o n s t r a n s a c t i o n s t h a t

showed p u r p o r t e d l a r g e g a i n s t o a p p e a r on t h o s e c l i e n t s '

s t a t e m e n t s i n December, t h e r e b y c r e a t i n g t h e i l l u s i o n t h a t t h e

a c c o u n t s had met o r exceeded t h e i r e x p e c t e d a n n u a l r e t u r n s .

10


11/47

D e c e i v i n g The SEC And A European Accoun t ing Fir.m

20 . From i n o r a b o u t 2004, t h r o u g h on o r a b o u t

December 11 , 2008, a t M a d o ff ' s d i r e c t i o n , FRANK DIPASCALI, J R . ,

t h e d e f e n d a n t , an d o t h e r c o - c o n s p i r a t o r s d e c e i v e d b o t h t h e SEC

and a European a c c o u n t i n g f i rm ( th e "European Accoun t ing Firm")

t h a t r ev iewed BLMIS's o p e r a t i o n s on b e h a l f o f c e r t a i n European IA

C l i e n t s , a b o u t t h e t r u e n a t u r e and scope o f t h e IA b u s i n e s s .

B e g i n n i n g i n a t l e a s t t h e e a r l y 1990s , DIPASCALI knew t h a t none

o f th e books and r ec or ds g e ne ra te d i n t h e o r d i n a r y c o u r s e o f t h e

IA b u s i n e s s was a c c u r a t e , b e c a u s e none o f t h e p ur p or t e d p u r c h a s e s

and s a l e s o f s e c u r i t i e s r e f l e c t e d on t h o s e documents a c t u a l l y

o c c u r r e d . When t h e SEC and t h e European Accoun t ing Firm r ev iewed

t h e o pe ra ti o n s o f BLMIS, i n c l u d i n g i t s IA b u s i n e s s , Madoff ,

DIPASCALI, and o t h e r c o - c o n s p i r a t o r s a t t e m p t e d t o p r e v e n t them

from u n c o v e r i n g t h e f r au du le n t scheme. Among o th e r t h in g s ,

DIPASCALI and o t h e r c o - c o n s p i r a t o r s produced numerous documents

c r e a te d f o r t h e s o l e p u r p o s e o f m i s l e a d i n g t h e SEC and o t h e r s

a b o u t t h e n a t u r e and s c a l e o f t h e IA b u s i n e s s .

D e c e i v i n g The SEC In 2004

21 . I n o r a b o u t 2004, Madoff s o u g h t t o p e r s u a d e t h e

SEC t h a t BLMIS was n o t an i n v e s t m e n t a d v i s e r , b u t r a t h e r o p e r a t e d

a s a b r o k e r - d e a l e r t h a t m e r e l y e x e c u t e d t r a d e s a t t h e d i r e c t i o n

o f c e r t a i n hedge fund c l i e n t s . M a d o ff ' s o b j e c t i v e was t o a v o i d

t h e a d d i t i o n a l o v e r s i g h t t h a t would r e s u l t i f BLMIS were

11


12/47

1

2

c o n s i d e r e d t o be an i n v e s t m e n t a d v i s e r , and t o c o n c e a l t h e scope

o f BLMIS's IA b u s i n e s s . By r e d u c i n g t h e scope o f t h e BLMIS

b u s i n e s s t h a t was exposed t o SEC s c r u t i n y, Madoff f u r t h e r s o u g h t

t o r educe t h e r i s k t h a t t h e f r a ud ule nt scheme would be r e v e a l e d .

To t h a t end , Madoff a l s o wanted t o c r e a t e t h e appea rance f o r t h e

SEC t h a t , c o n t r a r y t o what IA C l i e n t s had been t o l d - t h a t i s ,

t h a t BLMIS h ad c u s t o d y o f t h e s e c u r i t i e s p u r c h a s e d on t h e i r

b e h a l f - BLMIS d i d n o t have c u s t o d y o f any such c l i e n t s '

s e c u r i t i e s . By d o i n g so , Madoff i n t e n d e d t o r educe t h e r i s k t h a t

t h e SEC would uncover, t h rough r e c o r d s i t migh t o b t a i n from t h i r d

p a r t i e s such a s t h e D e p o s i t o r y T r u s t Company ( ~ D T C " ), 1 t h e f a c t

t h a t BLMIS h e l d on ly a h a n d fu l o f s e c u r i t i e s on b e h a l f o f t h e IA

C l i e n t s . 2

22 . To accompl i sh t h e s e o b j e c t i v e s , Madoff d i r e c t e d

t h a t a whol ly ne w s e t o f books and r e c o r d s be c r e a t e d t h a t

p e r t a i n e d o n l y t o a s m a l l s u b s e t o f IA C l i e n t s , i n c l u d i n g

a p p r o x i m a t e l y 16 S p l i t S t r i k e C l i e n t s ( c o l l e c t i v e l y , t h e "2004

S p e c i a l C l i e n t s " ) , even th ou gh t h e IA b u s i n e s s had t h o u s a n d s o f

DTC, among o th e r t h in g s , c r e a t e s e f f i c i e n c i e s i n t h ec l e a r i n g and s e t t l e m e n t o f s e c u r i t i e s t r a n s a c t i o n s by r e t a i n i n gc u s t o d y o f s e c u r i t i e s on b e h a l f o f f i n a n c i a l i n s t i t u t i o n s , andr e c o r d i n g on i t s books and r e c o r d s changes i n t h e ownersh ip o f

t h o s e s e c u r i t i e s .

Th e l i m i t e d number o f s e c u r i t i e s t h a t BLMIS h e l d onb e h a l f o f IA C l i e n t s were t h o s e s e c u r i t i e s t h a t IA C l i e n t sd e p o s i t e d w i t h BLMIS, n o t s e c u r i t i e s p u r c h a s e d by BLMIS on b e h a l fo f t h e IA C l i e n t s . BLMIS a l s o h e l d s e c u r i t i e s a t DTC f o r i t smarke t making and p r o p r i e t a r y t r a d i n g b u s i n e s s e s .

12


13/47

c l i e n ts a t t h e t i m e . At M a d o ff ' s d i r e c t i o n , FRANK DIPASCALI,

J R . , t h e d ef en da nt , and o t h e r c o - c o n s p i r a t o r s were r e s p o n s i b l e

f o r c r e a t i n g f i c t i t i o u s BLMIS books and r e c o r d s t h a t r e la te d t o

t h e 2004 S p e c i a l C l i e n t s f o r t h e p u r p o s e o f m i s l e a d i n g t h e SEC

and concea l i ng t h e f r a u d u l e n t scheme.

23. Among o t h e r t h i n g s , a t M a d o ff ' s d i r e c t i o n , FRANK

DIPASCALI, J R . , t h e d e f e n d a n t , and o t h e r c o -c o n s p ir a t o r s c r e a t ed

s t a t e m e n t s i n a f o r m a t c o m p l e t e l y d i f f e r e n t from t h o s e t h a t f o r

y e a r s had r e g u l a r l y b e e n s e n t t o a l l IA C l i e n t s , i n c l u d i n g th e

2004 S p e c i a l C l i e n t s . The a c c o u n t s t a t e m e n t s t h a t c u s t o m a r i l y

had b e e n s e n t t o a l l IA C l i e n t s , i n c l u d i n g t h e 2004 S p e c i a l

C l i e n t s , r e f l e c t e d p u r p o r t e d s e c u r i t i e s t r a d e s and showed

s e c u r i t i e s ( i n c l u d i n g s t o c k s , o p t i o n s , and U n i t e d S t a t e s Tr e a s u r y

b i l l s ) o r c a s h b e i n g h e l d by BLMIS i n t h o s e c l i e n t s ' a c c o u n t s .

By c o n t r a s t , t h e s ta te m e n t s p re pa re d f o r t h e s o l e p u r p o s e o f

d ef r a ud in g t h e SEC were c r e a t e d i n a s o - c a l l e d u r e c e i v e - v e r s u s -

p a y m e n t " / u d e l i v e r y - v e r s u s - p a y m e n t " (URVP/DVP") fo rma t t h a t showed

no s e c u r i t i e s o r c a s h b a l a n c e s i n t h e a c c o u n t s o f th e 2004

S p e c i a l C l i e n t s . 3 FRANK DIPASCALI, J R . , and o t h e r co -

3 I n a RVP/DVP a r rangement , payment f o r s e c u r i t i e sp u r c h a s e d i s made t o t h e s e l l i n g c u s t o m e r ' s a g e n t a n d / o r d e l i v e r yo f s e c u r i t i e s s o l d i s made t o t h e buy ing c u s t o m e r ' s a g e n t i nexchange f o r payment a t t i m e o f s e t t l e m e n t , u s u a l l y i n t h e formo f c a s h . Because t r a n s a c t i o n s i n RVP/DVP a c c o u n t s a r e s e t t l e dd i r e c t l y w i t h t h e a g e n t on a t ra n s a c t i o n -b y - t r a n sa c t io n b a s i s ,a c c o u n t s t a t e m e n t s s e n t by a b r o k e r - d e a l e r l i k e BLMIS t ocus tomers w i t h RVP/DVP a c c o u n t s g e n e r a l l y do n o t r e f l e c t any c a s hb a l a n c e o r s e c u r i t y p o s i t i o n a t t h e end o f a p e r i o d .

13


14/47

c o n s p i r a t o r s i n v o l v e d i n t h e p r e p a r a t i o n o f t h e 2004 S p e c i a l

C l i e n t s t accoun t s t a t e m e n t s i n RVP/DVP fo rma t knew t h a t t h o s e

s p e c i a l l y c r e a t e d s t a t e m e n t s were d e s i g n e d t o m i s l e a d t h e SEC

a b o u t BLMISts IA b u s i n e s s bY t among o th e r t h in gs t f a l s e l y

a p p e a r i n g t o e x p l a i n why BLMIS d i d n o t h o l d any s e c u r i t i e s a t DTC

o n b e h a l f o f t h e 2004 S p e c i a l C l i e n t s . I n f u r t h e r a n c e o f t h a t

d e c e p t i o n t a t Madoff t s d i r e c t i o n t DIPASCALI and o t h e r co -

c o n s p i r a t o r s caused t h e names o f t h e a c c o u n t h o l d e r s r e f l e c t e d on

t h e 2004 S p e c i a l C l i e n t s t a c c o u n t s t o be changed so t h a t i t would

f a l s e l y a p p e a r t h a t t h e a s s e t s were b e i n g h e l d b y E uro pe an

f i n a n c i a l i n s t i t u t i o n s f o r t h e b e n e f i t o f t h e 2004 S p e c i a l

C l i e n t s t n o t by BLMIS a t DTC.

D e c e i v i n g The SEC In 2005

24 . I n t h e c o u r s e o f an SEC review o f t h e b r o k e r -

d e a l e r o p e r a t i o n s o f BLMIS t h a t o c c u r r e d i n o r a b o u t 2 0 0 5 t and i n

f u r t h e r a n c e o f t h e schemet a t M a d o ff t s d i r e c t i o n t FRANK

DIPASCALI t JR . t t h e d e f e n d a n t t and o t h e r c o - co n sp i r a t o r s c a u s e d

a d d i t i o n a l BLMIS books and r e c o r d s t o be c r e a t e d t h a t r e l a t e d t o

a d i f f e r e n t s u b s e t o f IA C l ie n ts ( co ll ec ti v e l Y t t h e "2005 S p e c i a l

C l i e n t s ll ). S p e c i f i c a l l Y t DIPASCALI and o t he r c o -c o n sp i r a to r s

c r e a t e d new t r a d e b l o t t e r s t h a t r e f l e c t e d t r a d i n g a c t i v i t y

p u r p o r t e d l y conduc ted on b e h a l f o f t h e 2005 S p e c i a l C l i e n t s . 4

4 Trade b l o t t e r s a r e r e c o r d s t h a t t i n a l e g i t i m a t et r a d i n g o p e r a t i o n t r e f l e c t d e t a i l s a b o u t t h e s e c u r i t i e st r a n s a c t i o n s a c t u a l l y e x e c u t e d by a b r o k e r - d e a l e r .

14


15/47


16/47

o p e r a t i o n s , knowing t h a t t h e European Accoun t ing F i r m ' s

c o n c l u s i o n s would be communica ted t o t h e i r mutua l c l i e n t s .

Because t h e European A c c o u n t i n g Firm, t h e European C u s t o d i a n and

t h e European C l i e n t s were a l l b a s e d i n Europe , Madoff , DIPASCALI,

an d o t h e r c o - c o n s p i r a t o r s u s e d a Udomestic s c e n a r i o " ( i n s t e a d o f

t h e uEuropean s c e n a r i o " t h a t had been employed w i t h t h e SEC) i n

an e f f o r t t o make i t l e s s l i k e l y t h a t t h e European A c c o u n t i n g

Firm would be a b l e t o o b t a i n i n f o r m a t i o n t h a t migh t uncover t h e

f r a u d u l e n t scheme. S p e c i f i c a l l y , DIPASCALI, a t t h e d i r e c t i o n o f

Madoff , and w i t h t h e a s s i s t a n c e o f o th e r c o -c o ns p ir a t o r s : (a )

p o s e d a s B LM IS 's H ead o f I n s t i t u t i o n a l O p e r a t i o n s when, i n f a c t ,

he was n o t ; (b) over saw t h e p ro du ct io n by c o - c o n s p i r a t o r s o f

c o u n t e r f e i t DTC r e p o r t s t h a t p u r p o r t e d t o show t h a t BLMIS had

c u s t o d y o f t h e s e c u r i t i e s r e f l e c t e d on t h e a c c o u n t s t a t e m e n t s

t h a t h ad been s e n t t o t h e European C l i e n t s a nd / o r th e European

c u s t o d i a n ; (c ) over saw t h e p ro du ct io n by c o - c o n s p i r a t o r s o f

f r a u d u l e n t t r a d e b l o t t e r s t h a t , c o n t r a r y t o t h o s e p r e p a r e d i n

c o n n e c t i o n w i t h t h e SEC ' s 2005 e x a m i n a t i o n , p u r p o r t e d t o show

domes t i c c o u n t e rp a r t ie s f o r t h e s e c u r i t i e s t r a n s a c t i o n s r e p o r t e d

t h e r e i n ; and (d ) over saw t h e p r o d u c t i o n by o t h e r c o - c o n s p i r a t o r s

o f f a l s e and f r a u d u l e n t documents r e q u e s t e d by t h e European

A c c o u n t i n g Firm d u r i n g i t s o n - s i t e i n s p e c t i o n o f BLMIS's

o p e r a t i o n s .

16


17/47

D e c e i v i n g Th e SEC In 2006

27. I n o r a b o u t 2006, a t t h e d i r e c t i o n o f Madoff ,

FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and o t he r c o -c o ns p ir a t o r s

m i s l e d and d e c e i v e d t h e SEC i n c o n n e c t i o n w i t h i t s e x a m i n a t i o n o f

BLMIS's r e l a t i o n s h i p w i t h t h e hedge fund i n d u s t r y. Among o t h e r

t h i n g s , a t t h e d i r e c t i o n o f Madoff , DIPASCALI oversaw t h e

p r o d u c t i o n by o t he r c o -c o ns p ir a t o r s o f f a l s e t r a d e b l o t t e r s i n

a n t i c i p a t i o n o f i n q u i r i e s from t h e SEC when he knew t h a t t h e s e

t r a d e b l o t t e r s r e f l e c t e d e n t i r e l y f i c t i t i o u s t r a n s a c t i o n s because

BLMIS wa s n ot e xe cu tin g any r e a l s e c u r i t i e s t r a n s a c t i o n s f o r i t s

IA C l i e n t s .

28. FRANK DIPASCALI, J R . , t h e d e f e n d a n t , a t t h e

d i r e c t i o n o f Madoff, a l s o l i e d u n d e r o a t h i n t e s t i m o n y b e f o r e t h e

SEC on o r abou t J a n u a r y 26, 2006. Among o th e r t h in gs , DIPASCALI

l i e d abou t t h e S p l i t S t r ik e s tr a t e g y , t h e p ur po rt e d t r a d e s t h a t

r e s u l t e d from t h e e x e c u t i o n o f t h a t s t r a t e g y, and t h e s i z e o f t h e

IA b u s i n e s s .

D e c e i v i n g The European Accoun t ing Fir.m In 2008

29 . I n o r a b o u t 2008, t h e European Accoun t ing Firm

r e t u r n e d t o BLMIS t o r ev iew i t s o p e r a t i o n s a s r e l a t e d t o t h e

European Cus tod ian and t h e European IA C l i e n t s . In c on ne ct io n

w i t h t h a t r ev iew, a t t h e d i r e c t i o n o f Madoff , FRANK DIPASCALI,

J R . , t h e d e f e n d a n t , and o t he r c o -c o ns p ir a t o r s caused a d d i t i o n a l

f a l s e and f r a u d u l e n t documents t o be c r e a t e d and p r o v i d e d t o t h e

17


18/47

European Account ing Firm i n an e f f o r t t o pe r suade t h e European

Account ing Firm t h a t t h e s e c u r i t i e s p o s i t i o n s r e f l e c t e d on t h e

European C u s t o d i a n ' s account s t a t e m e n t s a c t u a l l y e x i s t e d when, i n

f a c t , t hey d i d n o t . S p e c i f i c a l l y , a t t h e d i r e c t i o n o f Madoff ,

DIPASCALI oversaw t h e produc t ion by o t h e r c o - c o n s p i r a t o r s o f

c o u n t e r f e i t DTC r e p o r t s t h a t p u r p o r t e d t o show BLMIS's cus tody o f

s e c u r i t i e s f o r a l i m i t e d number o f IA C l i e n t s i n cl u d i n g t h e

European C l i e n t s . At t h e d i r e c t i o n o f Madoff , DIPASCALI, th e

de fendan t , and o t h e r c o - c o n s p i r a t o r s a l s o prepa red f a l s e and

f r a u d u l e n t t r a d e b l o t t e r s . Those documents i nc luded f i c t i t i o u s

domes t i c t r a d i n g c o u n t e r p a r t i e s drawn from r e c o rd s o f a c t u a l

t r a d i n g a c t i v i t y conduc t ed by t h e BLMIS's p r o p r i e t a r y t r a d i n g

b u s i n e s s . They a l s o r e f l e c t e d t r a d e amounts and t imes t h a t were

i nven ted u s i n g r an do m n um be r g e n e r a t o r s , i n an e f f o r t t o p r e v e n t

anyone r ev i ewing t h e b l o t t e r s from d e t e c t i n g p a t t e r n s o f a c t i v i t y

t h a t m ig ht prom pt a d d i t i o n a l i n v e s t i g a t i o n .

Launder ing IA C l i e n t Funds Through MSIL To Suppor t BLMIS

30. Beginning a t l e a s t a s e a r l y as 2003, BLMIS's

marke t making and p r o p r i e t a r y t r a d i n g b us in es se s d id n o t g e n e r a t e

s u f f i c i e n t r evenue t o meet t h e i r expenses . I n p a r t t o suppor t

BLMIS's marke t making and p r o p r i e t a r y t r a d i n g b u s i n e s s e s , between

a t l e a s t as e a r l y as i n o r abou t 2005 and i n o r abou t 2008, a t

t h e d i r e c t i o n o f Madoff , FRANK DIPASCALI, JR . , t h e de fendan t , and

o th e r c o -c o ns p i ra to r s caused a t l e a s t $250 m i l l i o n o f BLMIS

18


19/47


20/47

o t h e r c o - c o n s p i r a t o r s p r e p a r e d l i s t s o f employees , e m p l o y e e s '

f a m i l y members , and c e r t a i n o t h e r IA C l i e n t s , and t h e b a l a n c e s i n

t h e i r IA a c c o u n t s . At t h e d i r e c t i o n o f Madoff , DIPASCALI and

o t h e r c o - c o n s p i r a t o r s c a u s e d c h e c k s t o be p r e p a r e d t h a t would

have u s e d t h e r e m a i n i n g BLMIS f u n d s t o c a s h o u t t h o s e

i n d i v i d u a l s ' IA a c c o u n t s , t h e r e b y p u t t i n g t h e i n t e r e s t s o f th o s e

s e l e c t few a h e a d o f a l l t h e o t h e r IA C l i e n t s . On o r a b o u t

December 10 , 200B, B e r n a r d L. Madoff s i g n e d c e r t a i n o f t h o s e

c h e c k s , which were s u b s e q u e n t l y found i n M a d o ff ' s o f f i c e d e s k

f o l l o w i n g h i s a r r e s t on December I I , 200B.

The Consp i r acy

34 . From a t l e a s t i n o r a b o u t t h e 1980s t h r o u g h on o r

a b o u t December I I , 2008 , i n t h e S o u t h e r n D i s t r i c t o f New York and

e l s e w h e r e , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and o t h e r s known

and unknown, u n l a w f u l l y , w i l l f u l l y , a nd k no win gly d i d combine ,

c o ns p i re , c o n fe d e ra te , and a g r e e w it h o t h e r s , known and unknown,

t o commit o f f e n s e s a g a i n s t t h e U n i t e d S t a t e s , name ly : (a) t o

commit f r a u d i n c on ne ct i o n w i th t h e p u r c h a s e and s a l e o f

s e c u r i t i e s , i n v i o l a t i o n o f T i t l e IS , U n i t e d S t a t e s Code,

S e c t i o n s 7Bj (b) and 7 8 f f , and T i t l e 17 , Code o f F e d e r a l

R e gu la ti o ns , S e c ti o n 2 4 0 . 1 0 b - 5 ; (b) t o commit i n v e s t m e n t a d v i s e r

f r a u d , i n v io la ti o n o f T i t l e IS , U ni te d S t a t e s Code, S e c t i o n s

BOb-6 and 8 0 b -1 7 ; (c) t o f a l s i f y books and r e c o r d s o f a b r o k e r

d e a l e r i n v i o l a t i o n o f T i t l e IS , U n i t e d S t a t e s Code, S e c t i o n s

20


21/47

78q(a ) and 7 8 f f , and T i t l e 17 , Code o f F ed er a l R eg ula ti o ns ,

S e c t i o n s 2 4 0 . 1 7 a - 3 ; (d) t o f a l s i f y books and r e c o r d s o f an

i n v e s t m e n t a d v i s e r , i n v i o l a t i o n o f T i t l e 15 , U n i t e d S t a t e s Code,

S e c t i o n s 80b-4 and 80b-17 , and T i t l e 17 , Code o f F e d e r a l

R e g u l a t i o n s , S e c t i o n 2 7 5 . 2 0 4 - 2 ; (e ) t o commit m a i l f r a u d , i n

v i o l a t i o n o f T i t l e 18 , U n i t e d S t a t e s Code, S e c t i o n 1341; ( f ) t o

commit w i r e f r a u d , i n v i o l a t i o n o f T i t l e 18 , U n i t e d S t a t e s Code,

S e c t i o n 1343; and (g ) t o commit i n t e r n a t i o n a l money l a u n d e r i n g ,

i n v i o l a t i o n o f T i t l e 18, U n i t e d S t a t e s Code, S e c t i o n

1956 (a ) (2 ) (A ) .

Th e Objec t s o f th e Consp i r acy

S e c u r i t i e s Fraud

35 . I t was a p a r t and an o b j e c t o f t h e c o n s p i r a c y t h a t

FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and o t h e r s known and

unknown, u n l a w f u l l y, w i l l f u l l y , and knowing ly, d i r e c t l y and

i n d i r e c t l y , by u s e o f t h e means and i n s t r u m e n t a l i t i e s o f

i n t e r s t a t e commerce, t h e m a i l s , and t h e f a c i l i t i e s o f n a t i o n a l

s e c u r i t i e s e x c h a n g e s , would and d i d u se and employ m a n i p u l a t i v e

and d e c e p t i v e d e v i c e s and c o n t r i v a n c e s i n c on ne ct io n w it h t h e

p u r c h a s e and s a l e o f s e c u r i t i e s , i n c o n t r a v e n t i o n o f T i t l e 17,

Code o f F e d e r a l R e g u l a t i o n s , S e c t i o n 2 4 0 . 1 0 b - 5 , by: (a)

employ ing d e v i c e s , schem es , and a r t i f i c e s t o d e f r a u d ; (b ) making

an d c a u s i n g BLMIS t o make u n t r u e s t a t e m e n t s o f m a t e r i a l f a c t and

o m i t t i n g t o s t a t e m a t e r i a l f a c t s n e c e s s a r y i n o r d e r t o make t h e

21


22/47

s t a t e m e n t s made, i n l i g h t o f t h e c ir cu m st an ce s u nd er which t h e y

were made, n o t m i s l e a d i n g ; and (c ) engag ing i n a c t s , p r a c t i c e s ,

an d c o u r s e s o f b us in es s which o p e r a t e d and would o p e r a t e a s a

f r a u d and d e c e i t upon p e r s o n s who i n v e s t e d i n and t h r o u g h BLMIS,

i n v io la t i o n o f T i t l e 15, U n i t e d S t a t e s Code, S e c t i o n s 78j (b ) and

7 8 f f .

I nv es tm e nt A d vi se r F r a u d

36 . I t was f u r t h e r a p a r t and an o b j e c t o f t h e

c o n s p i r a c y t h a t FRANK DIPASCALI, J R . , t h e d e f e n d a n t , a c t i n g on

b e h a l f o f an i n v e s t m e n t a d v i s e r w i t h r e s p e c t t o one and more

i n v e s t o r s and p o t e n t i a l i n v e s t o r s i n p r o d u c t s o f f e r e d by BLMIS,

an d o t h e r s known and unknown, u n l a w f u l l y, w i l l f u l l y , and

kn ow ing ly , by t h e u se o f t h e m a i l s and means and

i n s t r u m e n t a l i t i e s o f i n t e r s t a t e commerce, d i r e c t l y and

i n d i r e c t l y , would and d i d : (a) employ d e v i c e s , schem es , and

a r t i f i c e s t o d e f r a u d c l i e n t s a nd p r o s p e c t i v e c l i e n t s ; (b ) engage

i n t r a n s a c t i o n s , p r a c t i c e s , and c o u r s e s o f b u s i n e s s which

o p e r a t e d a s a f r a u d and d e c e i t upon c l i e n t s and p r o s p e c t i v e

c l i e n t s ; and (c) engage i n a c t s , p r a c t i c e s , and c o u r s e s o f

b u s i n e s s t h a t were f r a u d u l e n t , d e c e p t i v e , and m a n i p u l a t i v e , i n

v i o l a t i o n o f T i t l e 15 , U n i t e d S t a t e s Code, S e c t i o n s 80b-6 and

8 0 b - 1 7 .

22


23/47

F a l s i f y i n g B o o k s and R e c o r d s o f a B r o k e r - D e a l e r

37 . I t wa s f u r t h e r a p a r t and an o b j e c t o f t h e

c o n s p i r a c y t h a t FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and o t h e r s

known an d unknown, u n l a w f u l l y, w i l l f u l l y , a nd k no wi ng ly , d i d

c a u s e BLMIS, a r e g i s t e r e d b r o k e r - d e a l e r , t o f a i l t o make and keep

such r e c o r d s a s t h e SEC, b y r u l e , p r e s c r i b e d a s n e c e s s a r y and

a p p r o p r i a t e i n t h e p ub li c i n t e r e s t f o r t h e p r o t e c t i o n o f

i n v e s t o r s and o t h e r w i s e i n f u r t h e r a n c e o f t h e p u r p o s e s o f t h e

S e c u r i t i e s Exchange A c t o f 1934, i n v i o l a t i o n o f T i t l e 15 , U n i t e d

S t a t e s Code, S e c t i o n s 78q(a ) and 7 8 f f .

F a l s i f y i n g B oo ks a n d R e c o r d s o f an I n v e s t m e n t A d v i s e r

3 8 . I t was f u r t h e r a p a r t and an o b j e c t o f t h e


known and unknown, u n l a w f u l l y, w i l l f u l l y , and know ing ly , by t h e

u s e o f t h e m a i l s and means and i n s t r u m e n t a l i t i e s o f i n t e r s t a t e

commerce, d i r e c t l y and i n d i r e c t l y , i n c o n n e c t i o n w i t h BLMIS's

b u s i n e s s a s an i n v e s t m e n t a d v i s e r , d i d c a u s e BLMIS t o f a i l t o

make and k eep f o r p r e s c r i b e d p e r i o d s such r e c o r d s , f u r n i s h such

c o p i e s t h e r e o f and make and d i s s e m i n a t e s u c h r e p o r t s a s t h e SEC,

by r u l e , p r e s c r i b e d a s n e c e s s a r y and a p p r o p r i a t e i n t h e p ub li c

i n t e r e s t and f o r t h e p r o t e c t i o n o f i n v e s t o r s , i n v i o la t i o n o f

T i t l e 1 5 , U n i t e d S t a t e s Code, S e c t i o n s 80b-4 and 80b -17 .

23


24/47

M a i l Fraud



known and unknown, u n l a w f u l l y, w i l l f u l l y , a nd k no wi ng ly , hav ing

d e v i s e d and i n t e n d i n g t o d e v i s e a scheme and a r t i f i c e t o d e f r a u d ,

and f o r o b t a i n i n g money and p r o p e r t y by means o f f a l s e and

f r a u d u l e n t p r e te n se s , r e p r e s en t a t i o n s , and p r o m i s e s , u n l a w f u l l y,

w i l l f u l l y , and knowing ly, f o r t h e p u r p o s e o f e x ec ut in g s u c h

scheme and a r t i f i c e and a t t e m p t i n g so t o do , would and d id p l a c e

and c a u s e t o be p l a c e d i n p o s t o f f i c e s and a u t h o r i z e d

d e p o s i t o r i e s f o r m a i l m a tt e rs , m a tt e rs and t h i n g s t o be s e n t and

d e l i v e r e d by t h e P o s t a l S e r v i c e , and would and d id d ep os i t and

c a u s e t o be d e p o s i t e d m a t t e r s and t h i n g s t o be s e n t and d e l i v e r e d

by p r i v a t e a nd c om m er ci al i n t e r s t a t e c a r r i e r s , and would and d i d

t a k e and r e c e i v e t h e r e f r o m such m a t t e r s and t h i n g s , and would and

d i d knowing ly cause t o be d e l i v e r e d , by m a i l and such c a r r i e r s

a c c o r d i n g t o t h e d i r e c t i o n s t h e r e o n , and a t t h e p la c e s a t which

t h e y were d ir e ct e d t o be d e l i v e r e d by t h e p e r s o n s t o whom t h e y

were a d d r e s s e d , such m a t t e r s and t h i n g s , i n v io l a t i o n o f T i t l e

18, U n i t e d S t a t e s Code, S e c t i o n 1341 .

Wire F r a u d



known and unknown, u n l a w f u l l y, w i l l f u l l y , and knowingly, hav ing

24


25/47

d e v i s e d and i n t e n d i n g t o d e v i s e a scheme and a r t i f i c e t o d e f r a u d ,

and f o r o b t a i n i n g money and p r o p e r t y by means o f f a l s e and

f r a u d u l e n t p re te n se s , r ep re s e n ta t i on s , and p ro m is es , u nla w fu ll y,

w i l l f u l l y , a nd k no win gly , f o r t h e p u r p o s e o f e x ec ut i n g such

scheme and a r t i f i c e and a t t e m p t i n g so t o do, would and d i d

t r a n s m i t and c a u s e t o be t r a n s m i t t e d by means o f w i r e , r a d i o and

t e l e v i s i o n communica t ion i n i n t e r s t a t e and f o r e i g n commerce,

w r i t i n g s , s i g n s , s i g n a l s , p i c t u r e s , and sounds f o r t h e purpose o f

e x e c u t i n g such scheme and a r t i f i c e , i n v i o l a t i o n o f T i t l e 18 ,

U n i t e d S t a t e s Code, S e c t i o n 1343 .

I n t e r n a t i o n a l Money Launder ing

41. I t was f u r t h e r a p a r t and a n o b j e c t o f t h e

c o n s p i r a c y t h a t FRANK DI PAS CALI , J R . , t h e d e f e n d a n t , and o t h e r s

known and unknown, i n an o f f en se in vo lv in g and a f f e c t i n g

i n t e r s t a t e and f o r e i g n commerce, u n l a w f u l l y , w i l l f u l l y and

knowing ly, t ra n sp o r t ed , t ra n sm i t t e d and t r a n s f e r r e d , a t t e m p t e d t o

t r a n s p o r t , t r a n s m i t and t r a n s f e r , and caused o t h e r s t o t r a n s p o r t ,

t r a n s m i t and t r a n s f e r , and a t t e m p t t o t r an s p o r t, t r a n s m i t , a n d

t r a n s f e r , funds from a p l a c e i n t h e Uni ted S t a t e s t o a p l a c e

o u t s i d e t h e U n i t e d S t a t e s , and funds from a p la ce o u ts id e t h e

U n i t e d S t a t e s t o a p l a c e w it h in th e Uni ted S t a t e s , w i th t h e

i n t e n t t o promote t h e c a r r y i n g on o f s p e c i f i e d u n l a w f u l a c t i v i t y ,

i n v io la t i o n o f T i t l e 18 , U n i t e d S t a t e s Code, S e c t i o n

1 9 5 6 (a ) (2 ) (A ) .

25


26/47

Means And Methods Of The C o n s p i r a c y

42. Among t h e means and methods by which Berna rd L.

Madoff , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and o t h e r s , known

and unknown, would and d id c a r r y o u t t h e c o n s p i r a c y were t h e

f o l l o w i n g :

a . DIPASCALI a s s i s t e d Madoff i n i n v e n t i n g th e

S p l i t S t r i k e s tr at e g y t h a t was marke ted t o c u r r e n t and

p r o s p e c t i v e S p l i t S t r ik e C l i e n t s .

b . At Madoff ' s d i r e c t i o n , DIPASCALI and o t h e r

c o - c o n s p i r a t o r s conduc ted r e s e a r c h on h i s t o r i c a l p r i c e s and

t r a d i n g volumes t o d e v e l o p b a s k e t s of s t o c k s t h a t cou ld be used

t o g e n e r a t e t h e a p p e a r a n c e o f i n v e s t m e n t r e t u r n s f o r S p l i t S t r i k e

C l i e n t s .

c . At Madoff ' s d i r e c t i o n , DIPASCALI and o t h e r

c o -c o n sp i r a t o r s c re a te d and s u p e r v i s e d t h e i n f r a s t r u c t u r e

n e c e s s a r y t o c a u s e m i l l i o n s o f p a g e s o f f a l s e and f r a u d u l e n t

a c c o u n t s t a t e m e n t s and c o n f i r m a t i o n s o f p u r p o r t e d s e c u r i t i e s

t r a n s a c t i o n s t o be s e n t t o S p l i t S t r i k e C l i e n t s v i a t h e Uni ted

S t a t e s m a i l s t o g i v e t h e appea rance t h a t BLMIS had i n v e s t e d t h o s e

c l i e n t s ' funds when, i n f a c t , i t had done no such t h i n g .

d . At M a d o ff ' s d i r e c t i o n , DIPASCALI and o t h e r

c o - c o n s p i r a t o r s caused f a l s e and f r a u d u l e n t books and r e c o r d s t o

be c r e a t e d f o r t h e e x p r e s s purpose o f m is le ad in g th e SEC and

26


27/47

o t h e r s a b o u t t h e n at u re , s c a l e , and o pe ra ti o ns o f BLMIS's IA

b u s i n e s s .

e . Madoff and DIPASCALI commi t t ed p er j u ry i n an

e f f o r t t o p r e v e n t t h e SEC from l e ar ni n g t h e t r u t h a b o u t BLMIS's

IA b u s i n e s s .

f . Madoff , DIPASCALI and o t h e r c o - c o n s p i r a t o r s

a t t e m p t e d t o , and d i d , m i s a p p r o p r i a t e IA C l i e n t s ' funds and

c o n v e r t them t o t h e i r own u se and t h a t o f o t h e r s w i t h o u t th e

a u t h o r i z a t i o n o f t h e IA C l i e n t s .

g . At Madoff ' s d i r e c t i o n , DIPASCALI and o t h e r

c o - c o n s p i r a t o r s u s e d f a c i l i t i e s o f i n t e r s t a t e and f o r e i g n

commerce, i n cl u d i n g t h e m a i l s and i n t e r s t a t e and f o r e i g n wire

t r a n s f e r s , i n f u r t h e r a n c e o f t h e o b j e c t s o f th e c o n s p i r a c y.

Over t A c t s

43. I n f ur th er an ce o f t h e c o ns pi ra cy and t o e f f e c t t h e

i l l e g a l o b j e c t s t h e r e o f , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , and

o t h e r s known and unknown, commit ted th e f o l l o w i n g o v e r t a c t s ,

among o t h e r s , i n t h e S o u t h e r n D i s t r i c t o f New York and e l sewhere :

a . I n o r a b o u t t h e 1980s , DIPASCALI p r o v i d e d

i n f o r m a t i o n t o Madoff f o r an o p t i o n s t r a d e b a s e d on h i s t o r i c a l

p r i c e d a t a .

b . I n o r a b o u t th e e a r l y 1990s , Madoff , w i t h

DIPASCALI's a s s i s t a n c e , c r e a t e d th e S p l i t S t r ik e s tr a t e g y .

27


28/47


29/47

h . In o r abou t Janua ry 1997, a t t h e d i r e c t i o n o f

Madoff , DIPASCALI caused f a l s e and f r a u d u l e n t BLMIS accoun t

s t a t e m e n t s r e f l e c t i n g p u r p o r t e d t r a d e s i n t h e S p l i t S t r i k e

s t r a t e g y t o be s e n t t h rough t h e Uni ted S t a t e s m a i l s from New

York, New York t o C oc on ut G ro ve , F l o r i d a .

i . I n o r abou t Feb rua ry 1998, a t t h e d i r e c t i o n

o f Madoff, DIPASCALI caused f a l s e and f r a u d u l e n t BLMIS accoun t

s t a t e m e n t s r e f l e c t i n g p u r p o r t e d t r a d e s i n t h e S p l i t S t r i k e

s t r a t e g y t o be s e n t t h rough t h e Uni ted S t a t e s mai l s from New

York, New York t o C oc on ut G ro ve , F l o r i d a .

j . On o r abou t December 28, 1999, a t t h e r e q u es t

o f a c o - c o n s p i r a t o r , DIPASCALI prov ided i n fo rma t ion abou t a

f i c t i o n a l o p t i o n s " t r a d e , " us ing h i s t o r i c a l d a t a , which purpo r t ed

t o g e n e r a t e app rox ima te ly $50,633 i n " p ro fi t " f o r a Non-Sp l i t

S t r i k e C l i e n t .

k . I n o r abou t Janua ry 2000, t h e f i c t i o n a l

o p t i o n s t r a d e r e f e r r e d t o i n subpa rag raph 4 3 ( i ) , above, was

r eco rded on t h e books and re co rd s o f BLMIS and was r e f l e c t e d on

t h e p e r t i n e n t Non-Sp l i t S t r i k e C l i e n t ' s accoun t s t a t e m e n t .

1 . On o r abou t December 31, 2001, DIPASCALI

caused f i c t i o n a l o p t i o n s t r a d e s t h a t p u r p o r t e d t o g e n e r a t e

app rox ima te ly $201,450 i n p r o f i t s t o be r e f l e c t e d on a S p l i t

S t r i k e C l i e n t ' s D ec em be r 2001 accoun t s t a t e m e n t .

29


30/47

m. On o r abou t September 10/ 2002/ DIPASCALI

c au se d a p pr ox im a te ly $1/701/769 o f IA C l i e n t funds t o which he

was n o t e n t i t l e d t o be wire t r a n s f e r r e d from t h e BLMIS C l i e n t

Account f o r t h e purchase o f a boa t f o r DIPASCALI/s p e r s o n a l use .

n . On o r abou t December 31/ 2003/ DIPASCALI


approx ima te ly $3/202/760 i n p r o f i t s t o be r e f l e c t e d on a S p l i t

S t r i k e C l i e n t / s December 2003 accoun t s t a t e m e n t .

o. On o r abou t February 4/ 2004/ Madoff had a

t e l ephone c o n v e r s a t i o n wi th a r e p r e s e n t a t i v e o f t h e SEC.

p . On o r abou t December 31/ 2004/ DIPASCALI


approx ima te ly $10/122 i n p r o f i t s t o be r e f l e c t e d on t h e December

2004 s t a t e m e n t f o r an IA account h e l d i n t h e name o f a co -

c o n s p i r a t o r .

q . On o r abou t A p r i l 28/ 2005/ M adoff met wi th

one o r more r e p r e s e n t a t i v e s o f t h e SEC.

r . On o r abou t October 21/ 2005/ DIPASCALI

c au se d a pp ro x im a te ly $16/597/587 t o be wire t r a n s f e r r e d from t h e

BLMIS C l i e n t Account t o t h e MSIL Accounts .

s . On o r ab ou t O ctob er 27/ 2005/ DIPASCALI

c au se d a pp ro x im a te ly $8/446/920 t o be wire t r a n s f e r r e d from t h e

MSIL Accounts t o t h e BLMIS Opera t i ng Account .

30


31/47

t . I n o r abou t November 2005, Madoff m et with

r e p r e s e n t a t i v e s of t h e European Account ing f i rm i n New York, New

York.

u . I n o r abou t November 2005, DIPASCALI met wi th

r e p r e s e n t a t i v e s of t h e European Account ing f i rm i n New York, New

York.

v . On o r abou t Janua ry I I , 2006, a d i s c

c o n t a i n i n g f a l s e and f r a u d u l e n t BLMIS books and r e c o r d s was s e n t

t o t h e SEC.

w. On o r abou t May 9, 2006, Madoff met wi th one

o r more r e p r e s e n t a t i v e s of t h e SEC.

x . On o r abou t J u l y 26, 2006, DIPASCALI caused

app rox ima te ly $7,751 ,058 t o be wire t r a n s f e r r e d from t h e BLMIS

C l i e n t Account t o t h e MSIL Accounts .

y . On o r abou t J u l y 26, 2006, DIPASCALI caused

approx ima te ly $7,905 ,340 t o be wire t r a n s f e r r e d from t h e MSIL

Accounts t o t h e BLMIS Opera t i ng Account .

z . On o r abou t December 26, 2006, DIPASCALI


app rox ima te ly $344,190 i n p r o f i t s t o be r e f l e c t e d on a S p l i t

S t r i k e C l i e n t ' s December 2003 account s t a t e m e n t .

aa . On o r abou t March 22, 2007, DIPASCALI caused

approx ima te ly $24,294 ,714 t o be wire t r a n s f e r r e d from t h e BLMIS


31


32/47

bb . On o r abou t March 29, 2007, DIPASCALI caused

approx ima te ly $14,828 ,550 t o be wire t r a n s f e r r e d from t h e MSIL

Accounts t o th e BLMIS Opera t i ng Account .

c c . In o r abou t A p r i l 2008, DIPASCALI met wi th

r e p r e s e n t a t i v e s o f t h e European Account ing Firm i n New York, New

York.

dd. On o r abou t June 6, 2008, DIPASCALI caused

app rox ima te ly $15,870 ,880 t o be wire t r a n s f e r r e d from t h e BLMIS


e e . On o r abou t J u l y 23, 2008, DIPASCALI caused

app rox ima te ly $7,265 ,690 t o be wire t r a n s f e r r e d from t h e MSIL

Accounts t o th e BLMIS Opera t i ng Account .

f f . On o r abou t December 10, 2008, app rox ima te ly

100 checks t o t a l i n g app rox ima te ly $173 ,788 ,956 .82 were prepa red

f o r c e r t a i n IA C l i e n t s i n c l u d i n g BLMIS e m plo ye es , e m pl oy ee s'

f ami ly members, and o t h e r s .

gg. On o r abou t December I I , 2008, app rox ima te ly

37 checks t o t a l i n g app rox ima te ly $176 ,359 ,965 .08 were prepa red

f o r c e r t a i n IA C l i e n t s i n c l u d i n g BLMIS employees , employees '

f ami ly members, and o t h e r s .

hh . On o r abou t December I I , 2008, DIPASCALI

a t t empted t o d e l e t e c e r t a i n computer f i l e s t h a t evidenced t h e

f r a u d u l e n t scheme.

( T i t l e 18, Uni t ed S t a t e s Code, S e c t i o n 371. )

32


33/47

COUNT TWO

( S e c u r i t i e s Fraud)

The U n i t e d S t a t e s A t t o r n e y f u r t h e r c h a r g e s :

44 . The a l l e g a t i o n s c o n t a i n e d i n p a r a g r a p h s 1 t h r o u g h

33 , and 42 t h r o u g h 43 , above , a r e h e r e b y r e p e a t e d , r e a l l e g e d and

i n c o r p o r a t e d by r e f e r e n c e a s i f f u l l y s e t f o r t h h e r e i n .

4S . From a t l e a s t t h e 1990s t h r o u g h on o r a b o u t

December 11, 2008 , i n t h e S o u t h e r n D i s t r i c t o f New York and

e l s e w h e r e , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , u n l a w f u l l y,

w i l l f u l l y , and knowingly, d i r e c t l y and i n d i r e c t l y , by t h e use o f

means and i n s t r u m e n t a l i t i e s o f i n t e r s t a t e commerce, t h e m a i l s ,

and t h e f a c i l i t i e s o f n a t i o n a l s e c u r i t i e s exchanges , i n

c o n n e c t io n w ith t h e p u r c h a s e and s a l e o f s e c u r i t i e s , d i d u s e and

employ m a n i p u l a t i v e and d e ce p tiv e d ev ic es and c on tr i v an ce s, i n

v i o l a t i o n o f T i t l e 17 , Code o f F ed e r a l R eg u la t io n s , S ec ti o n

2 4 0 . 1 0 b - S , by: (a) employ ing d e v i c e s , schemes , and a r t i f i c e s t o

d e f r a u d ; (b) making u n t r ue s ta te m e nt s o f m a t e r i a l f a c t s and

o m i t t i n g t o s t a t e m a t e r i a l f a c t s n e c e s s a r y i n o r d e r t o make t h e

s t a t e m e n t s made, i n l i g h t o f t h e c i r c u m s t a n c e s u n d e r which t h e y

were made, n ot m is le ad in g; and (c) engag ing i n t r an s a c t i o n s,

a c t s , p r a c t i c e s , and c o u r s e s o f b us i n es s which o p e r a t e d and would

o p e r a t e a s a f r a u d and d e c e i t upon p e r s o n s .

( T i t l e l S , U n i t e d S t a t e s Code, S e c t i o n s 78j (b ) and 7 8 f f ;T i t l e 17 , Code o f F e de ra l R e g ul at io n s, S e c t i o n 240 .10b-S ;

T i t l e 18, U n i t e d S t a t e s Code, S e c t i o n 2 . )

33


34/47

COUNT THREE

( I n v e s t m e n t A d v i s e r Fraud)

The U n i t e d S t a t e s A t t o r n e y f u r t h e r c h a rg e s :


33/ and 42 t h r o u g h 43/ above / a r e h e r e b y r e p e a t e d / r e a l l e g e d and

i n c o r p o r a t e d b y r e f e r e n c e a s i f f u ll y s e t f o r t h h e r e i n .

47 . From a t l e a s t t h e 1990s t h r o u g h on o r a b o u t

December 11/ 2008/ i n t h e Southe rn D i s t r i c t o f New York and

e l s e w h e r e / FRANK DIPASCALI/ J R . / t h e d e f e n d a n t / a c t i n g on b e h a l f

o f an i n v e s t m e n t a d v i s e r w i t h r e s p e c t t o c l i e n t s and p o t e n t i a l

c l i e n t s o f BLMIS/ u n l a w f u l l y / w i l l f u l l y / and know ing ly / by t h e

u se o f t h e m a i l s and means and i n s t r u m e n t a l i t i e s o f i n t e r s t a t e

commerce/ d i r e c t l y and i n d i r e c t l y / d i d : (a) employ d e v i c e s /

schemes/ and a r t i f i c e s t o d e f r a u d c l i e n t s and p r o s p e c t i v e

c l i e n t s ; (b) engage i n t ra n sa c ti o n s / p r a c t i c e s / and c o u r s e s o f

b u s i n e s s which o p e r a t e d a sa

f r a u d and d e c e i t upon c l i e n t s and

p r o s p e c t i v e c l i e n t s ; and (c) engage i n a c t s / p r a c t i c e s / and

c o u r s e s o f b u s i n e s s t h a t were f r a u d u l e n t / d e c e p t i v e / and

m a n i p u l a t i v e .

( T i t l e 15 / U n i t e d S t a t e s Code/ S e c t i o n s 80b-6 and 80b-17 ;T i t l e 18/ U n i t e d S t a t e s Code/ S ec ti o n 2 . )

34


35/47

COUNT FOUR

( F a l s i f y i n g B r o k e r- D e a l e r Books and Records )



33 , and 42 t h r o u g h 43 , above , a r e hereby r e p e a t e d , r e a l l e g e d and


49 . Between i n o r a b o u t 2004, and on o r a b o u t December

1 1 , 2008, FRANK DIPASCALI, J R . , t h e d e f e n d a n t , u n l a w f u l l y,

w i l l f u l l y , and knowing ly, d i d c a u s e BLMIS, a r e g i s t e r e d b r o k e r -

d e a l e r ,t o

f a i lt o make

and keep suchr e c o r d s

a st h e SEC,

byr u l e , p r e s c r i b e d a s n e c e s s a r y and a p p r o p r i a t e i n t h e p u b l i c

i n t e r e s t f o r t h e p r o t e c t i o n o f i n v e s t o r s and o t h e r w i s e i n

f u r t h e r a n c e o f t h e p u r p o s e s o f t h e S e c u r i t i e s Exchange A ct o f

1934 , t o w i t , on o r a b o u t J a n u a r y 11, 2006, DIPASCALI caused

f a l s e a nd f r a u d u l e n t BLMIS t r a d e b l o t t e r s t o be made and k e p t and

produced t o t h eSEC.

( T i t l e 15, U n i t e d S t a t e s Code, S e c t i o n s 78q(a) and 7 8 f f ;T i t l e 17 , Code o f F e d e r a l R e gu la tio ns , S e c t i on 2 4 0 . 1 7 a - 3 ;

T i t l e 18, U n i t e d S t a t e s Code, S ec ti o n 2 . )

COUNT FIVE

( F a l s i f y i n g I n v e s t m e n t A d v i s e r Books and Records )


50. The a l l e g a t i o n s c o n t a i n e d i n p a r a g r a p h s 1 t h rough

33 , and 42 t h r o u g h 43, above , a r e h e r e b y r e p e a t e d , r e a l l e g e d and


35


36/47

51. Between i n o r a b o u t Sep tember 2006 and on o r a b o u t

December 1 1 , 2008, i n t h e S o u t h e r n D i s t r i c t o f New York and


w i l l f u l l y , and k no w in g ly , by t h e u se o f t h e m a i l s and means and

i n s t r u m e n t a l i t i e s o f i n t e r s t a t e commerce, d i r e c t l y and

i n d i r e c t l y , i n c o n n e c t i o n w i t h BLMIS's b u s i n e s s a s an i n v e s t m e n t

a d v i s e r , d i d c a u s e BLMIS t o f a i l t o make and keep f o r p r e s c r i b e d

p e r i o d s such r e c o r d s , f u r n i s h such c o p i e s t h e r e o f and make and

d i s s e m i n a t e s u c h r e p o r t s a s t h e SEC, by r u l e , p r e s c r i b e d a s

n e c e s s a r y a n d a p p r o p r i a t e i n t h e p u b l i c i n t e r e s t and f o r t h e

p r o t e c t i o n o f i n ve s t o rs , t o w i t , i n o r a b o u t A p r i l 2008,

DIPASCALI c a u s e d f a l s e t r a d e b l o t t e r s t o be made and k e p t by

BLMIS, an i n v e s t m e n t a d v i s e r r e g i s t e r e d w i t h t h e SEC.

( T i t l e 1 5 , U n i t e d S t a t e s Code, S e c t i o n s 80b-4 and 8 0 b - 1 7 iT i t l e 1 7 , Code o f F e d e r a l R e g u l a t i o n s , S e c t i o n 2 7 5 . 2 0 4 - 2 i

T i t l e 18, U n i t e d S t a t e s Code, S ec ti o n 2 .)

COUNT SIX(Mai l Fraud)



33, and 42 t h r o u g h 43 , above , a r e h e r e b y r e p e a t e d , r e a l l e g e d and



a b o u t December 11 , 2008, i n t h e S o u t h e r n D i s t r i c t o f New York and


w i l l f u l l y , a nd k no wi ng ly , hav ing d e v i s e d and i n t e n d i n g t o d e v i s e

36


37/47

a scheme and a r t i f i c e t o d e f r a u d , and f o r o b t a i n i n g money and

p r o p e r t y by means o f f a l s e and f r a u d u l e n t p r e t e n s e s ,

r e p r e s e n t a t i o n s , and p r o m i s e s , f o r t h e p u r p o s e o f e xe cu t in g such

scheme and a r t i f i c e and a t t e m p t i n g so t o do, d i d p l a c e i n p o s t

o f f i c e s and a u t h o r i z e d d e p o s i t o r i e s f o r m a i l m a t t e r , m a t t e r s and

t h i n g s t o b e s e n t and d e l i v e r e d by t h e P o s t a l S e r v i c e , and d i d

d e p o s i t and c a u s e t o be d e po s it ed m a t te rs and t h i n g s t o be s e n t

an d d e l i v e r e d by p r i v a t e and commerc i a l i n t e r s t a t e c a r r i e r s , and

d i d t a k e and r e c e i v e t h e r e f r o m such m a t t e r s and t h i n g s , and d i d

knowing ly c a u s e t o be d e l i v e r e d , by m a i l and such c a r r i e r s

a c c o r d i n g t o t h e d i r e c t i o n s t h e r e o n , and a t t h e p la c e s a t which

t h e y were d i r e c t e d t o be d e l i v e r e d by t h e p e r s o n s t o whom t h e y

were a d d r e s s e d , such m a t t e r s and t h i n g s , t o w i t , on o r a b o u t

December 1 , 2008, DIPASCALI s e n t and c a u s e d t o be s e n t and

d e l i v e r e d v i a t h e P o s t a l S e r v i c e a f a l s e and f r a u d u l e n t a c c o u n t

s t a t e m e n t from BLMIS t o a c l i e n t i n New York, New York.

( T i t l e 1 8 , U n i t e d S t a t e s Code, S e c t i o n s 1341 and 2 .)

COUNT SEVEN

(Wire Fraud)


54 . The a l l e g a t i o n s c o n t a i n e d i n p a r a g r a p h s 1 t h rough

33, and 42 t h r o u g h 43, above , a r e h e r e b y r e p e a t e d , r e a l l e g e d and



a b o u t December 11, 2008, i n t h e Southe rn D i s t r i c t o f New York and

37


38/47


w i l l f u l l y , a nd k no wi ng ly, hav ing d e v i s e d and i n t e n d i n g t o d e v i s e

a scheme and a r t i f i c e t o d e f r a u d , and f o r o b t a i n i n g money by

means o f f a l s e and f r a u d u l e n t p r e t e n s e s , r e p r e s e n t a t i o n s and

promise s , d id t r a n sm i t and cause t o be t r a n s m i t t e d by means o f

w i r e , r a d i o , and t e l e v i s i o n communicat ion i n i n t e r s t a t e and

f o r e i g n commerce, w r i t i n g s , s i g n s , s ig n a ls , p ic tu r e s , and sounds

f o r t h e p u r p o s e o f e xe cu ti n g s u c h scheme and a r t i f i c e , t o w i t , on

o r a b o u t March 29, 2007, DIPASCALI caused app rox ima te ly

$1 4 ,828 ,5 5 0 t o be s e n t by wi re from London, England t o New York,

New York.

( T i t l e 1 8 , Uni t ed S t a t e s Code, S e c t i o n s 1343 and 2 . )

COUNT EIGHT

( I n t e r n a t i o n a l Money Launder ing To PromoteS p e c i f i e d Unlawful A c t i v i t y )

The Uni t ed S t a t e s A t t o r n e y f u r t h e r cha rges :

5 6 . The a l l e g a t i o n s c o n t a i n e d i n pa rag raphs 1 t h rough

33 , and 42 t h r o u g h 43, above , a r e he reby r e p e a t e d , r e a l l e g e d and

i n c o r p o r a t e d by r e f e r e n c e as i f f u l l y s e t f o r t h h e r e i n .

57. From a t l e a s t as e a r l y as i n o r abou t 2002,

t h rough on o r abou t December 11 , 2008, i n t h e Sou the rn D i s t r i c t

o f New York, t h e Uni t ed Kingdom, and e l s ewhe re , FRANK DIPASCALI,

J R . , t h e de fendan t , i n an o f f e n s e i n v o l v i n g and a f f e c t i n g

i n t e r s t a t e and f o r e i g n commerce, u n l a w f u l l y, w i l l f u l l y and

knowingly, t r a n s p o r t e d , t r a n s m i t t e d and t r a n s f e r r e d , a t t e m p t e d t o

38


39/47

t r a n s p o r t , t r a n s m i t and t r a n s f e r , and c a u s e d o th e r s t o t r a n sp o r t ,

t r a n s m i t and t r a n s f e r , and a t t e m p t t o t r a n s p o r t , t r a n s m i t , and

t r a n s f e r , f u n d s f rom a p l a c e i n t h e U n i t e d S t a t e s t o a p l a c e

o u t s i d e t h e U n i t e d S t a t e s , and funds from a p l a c e o u t s i d e t h e

Uni ted S ta t e s t o a p la ce w it h in t h e U n i t e d S t a t e s , w i t h t h e

i n t e n t t o promote t h e c ar r y in g on o f s p e c i f i e d u n l a w f u l a c t i v i t y ,

t o w it , f r a u d i n t h e s a l e o f s e c u r i t i e s , m a i l f r a u d , and wire

f r a u d , t o w i t , DIPASCALI caused funds t o b e w i r e t r a n s f e r r e d from

BLMIS bank a c c o u n t s , i n c l u d i n g t h e BLMIS I n v e s t o r Accoun t i n New

York, New York , t o t h e MSIL Accoun t s i n t h e U n i t e d Kingdom, and

t o be t r a n s f e r r e d from t h e MSIL Accoun t s i n t h e U n i t e d Kingdom,

t o BLMIS bank a c c o u n t s , i n c l u di n g th e BLMIS O p e r a t i n g Account , i n

New York, New York , i n o r d e r t o promote f r a u d i n t h e s a l e o f

s e c u r i t i e s , m a i l f r a u d , and w i r e f r a u d .

( T i t l e 18 , U n i t e d S t a t e s Code, S e c t i o n s 1 9 5 6 ( a ) (2 ) (A) and 2 . )

COUNT NINE

(Per ju ry)



33, and 42 t h r o u g h 43, above , a r e h e r e b y r e p e a t e d , r e a l l e g e d and


59 . As d e s c r i b e d i n p a r a g r a p h 1 above , BLMIS was a t

c e r t a i n t i m e s , among o t h e r t h i n g s , a b r o k e r - d e a l e r and i n v e s t m e n t

a d v i s e r r e g i s t e r e d w i t h t h e SEC. As such , BLMIS was s u b j e c t t o

39


40/47


41/47

c e r t i f i c a t e by him s u b s c r i b e d , would be t r u e , u n l a w f u l l y,

w i l l f u l l y , knowing ly, and c o n t r a r y t o such o a t h , s t a t e d and

s u b s c r i b e d m a t e r i a l m a t t e r s which he d i d n o t b e l i e v e t o be t r u e ,

namely, i n h i s t e s t i m o n y on o r a b o u t J a n u a r y 26, 2006, DIPASCALI

knowing ly t e s t i f i e d f a l s e l y a s t o t h e m a t e r i a l m a t t e r s i n t h e

p o r t i o n s o f h i s c i t e d t e s t i m o n y u n d e r l i n e d below:

S p e c i f i c a t i o n One

(Page 63, Lines 3-16)

Q: Have t h e r e been i n s t a n c e s i n t h e l a s t t e n y e a r s whereMr. M a d o ff ' s o v e r a l l r e t u r n s have been n e g a t i v e ?

A: I d o n ' t b e l i e v e s o . F or t h e y e a r , no . F o r anyp a r t i c u l a r p e r i o d o f t i m e , d e f i n i t e l y , b u t n o t o v e r t h ec o u r s e o f a y e a r . No , I d o n ' t remember one .

Q: How does th e f i rm -

A: I d o n ' t want t o i n t e r r u p t you, b u t keep i n mind t h a tt h e r e has been marke t c o r r e c t i o n s t h a t have o c c u r r e d .We a r e n o t i n t h e marke t a l l t h e t i m e . We a r e i n th em a r k e t f o r s h o r t p e r i o d s o f t i m e .

S p e c i f i c a t i o nTwo

(Page 87, Lines 1-9 )

Q: I wan ted t o make s u r e t h a t t h e b a s k e t i s p u t on d u r i n ga t r a d i n g day an d t h e o p t i o n s a r e p u t on subsequen t t ot h e b a s k e t ?

A: The b a s k e t i s p u t on d u r i n g t h e European t r a d i n g day.The o p t i o n s a r e p u t on p r i o r t o t h e New York open anda f t e r t h e European t r a d i n g day i s ended , when I amc o m p l e t e .

S p e c i f i c a t i o n T h r e e(Page 124, L i n e s 3-18)

Q: The p e o p l e t h a t you e x e c u t e y o u r e q u i t i e s w i t h , a r et h e y t h e same b r o k e r - d e a l e r s t h a t you e x e c u t e t h eo p t i o n s wi th?

A: No , t h e y a r e n o t .

41


42/47

Q: None o f them a r e th e same?

A: P e o o l e I e x e c u t e t h e e a u i t i e s w i t h , you a r e t a l k i n ga b o u t European c o n t r a s i d e d e a l e r s ?

Q: Yes .

A: No, no .

Q: About ho w many d e r i v a t i v e d e a le r s do you d e a l w i t h ?

A: D e r i v a t i v e d e a l e r s , 20, maybe two d o z e n . I t / s n o t f i v eand i t / s n o t 30 . I t / s p r o b a b l y 18 , 19 , 20 .

S p e c i f i c a t i o n Four

(Page 73/ L i n e s 1-9 )

Q: [D]o you e v e n keep s o m e . r e c o r d t h a t t h e y e x e c u t e dt h i s [ o p t i o n s ] t r a n s a c t i o n a t a c e r t a i n p r i c e w i t ht h e s e p a r a m e t e r s ?

A: I have t h e e n t r y d a t a b a s e t h a t comes b a c k f rom t h ed e a l e r s t h a t i s a c c e s s i b l e i n any f o r m a t I want t o l o o ka t i t , t r a d e d a t e , d e a l e r , I wan t t o l o o k a t ' i t byp r i c e , symbol , by any s o r t o f mechan i sm .

S p e c i f i c a t i o n F i v e

(Page 71 / L i n e s 12-14)

Q: How d o e s [Be rna rd L. Madoff] commun ica t e w i t h [ t h ed e a l e r s w i t h whom he e x e c u t e s o p t i o n s t r a n s a c t i o n s ] ?

A: Te l e p h o n e . They a f f i r m back t o me by c o m p u t e r.

S p e c i f i c a t i o n S ix(Page 104 / Line 23 - Page 105/ Line 9)

Q: I wan t t o s w i t c h g e a r s and t a l k a b o u t t h e c u s t o m e r s i nt h e i n s t i t u t i o n a l b u s i n e s s . What k in d o f c u s t o m e r sdoes t h i s b u s i n e s s have? Who a r e t hey?

A:Who

a r e t h e y, I g u e s s t h e r e [ a re ] a b o u t 20, t h e l a r a e s to f which would be F a i r f i e l d , which I g u e s s i s ano f f s h o r e hedge fund . I am t h i n k i n g o f some o f t h enam es , what t h e y do . They a r e e i t h e r a hedge fund o rsome s o r t o f a European i n s t i t u t i o n . They a r e n o tn a t u r a l p e o p l e l i k e a c l i e n t would b e , Jo e Schmo.

42


43/47

S p e c i f i c a t i o n Seven(Page 1 2 9 , Lines 1 0 - 1 8 )

Q: You m e n t i o n e d c o n f i r m a t i o n s and accoun t s t a t e m e n t s t h a tg e t s e n t t o cus tomer s e a r l i e r . Who i s i n cha rge ofg e n e r a t i n g them and s end ing them t o c u s t o m e r s ?

A: The compute r a c t u a l l y g e t s a l l t h e i n f o r m a t i o n , s p i t si t o u t and a p r i n t e r - one o f t h e o p e r a to rs i s t o l d t op r i n t me t h a t f i l e and t h e y p r i n t i t o u t . T here [are]n o t t h a t many s t a t e m e n t s .

S p e c i f i c a t i o n Eiqh t(Page 11 2 , Lines 1 7 - 1 9 )

Q: Any rough i d e a abou t how much [Bernard L. Madoff] i smanaging?

A: 1 0 , $11 b i l l i o n .

( T i t l e 1 8 , Uni t ed S t a t e s Code, S e c t i o n 1 6 2 1 . )

COUNT TEN

( Income Tax Evas ion)

The Uni t ed S t a t e s A t t o r n e y f u r t h e r c h a r g e s :

6 3 . F or c e r t a i n t a x y e a r s be tween 2002 and 2007 , FRANK

DIPASCALI, J R . , t h e d e f e n d a n t , f a i l e d t o r e p o r t c e r t a i n income,

i n c l u d i n g : (a ) m i l l i o n s o f d o l l a r s o f wi thd rawa l s from a BLMIS IA

a c c o u n t h e l d i n t h e name o f a l i m i t e d l i a b i l i t y c o r p o r a t i o n

formed by DIPASCALI ( t he "LLC"); (b ) i n t e r e s t income ea rned from

a money m a r k e t accoun t h e l d i n t h e name o f t h e LLC; and (c)

. s a l a r y p a i d by BLMIS from IA C l i e n t funds t o a b o a t c a p t a i n

employed by DIPASCALI.

64 . From on o r abou t Janua ry 1 , 2002 , t h rough on o r

a b o u t August 1 0 , 2009 , i n t h e Sou the rn D i s t r i c t o f New York and

e l s ewhe re , FRANK DIPASCALI, J R . , t h e de fendan t , u n l a w f u l l y,

43


44/47

w i l l f u l l y , a nd k no win gly , d i d a t t e m p t t o evade and d e f e a t a

s u b s t a n t i a l p a r t o f t h e income t a x due and owing b y DIPASCALI t o

t h e U n i t e d S t a t e s o f America f o r c a l e n d a r y e a r s 2002, 2005, 2006

and 2007 by v a r i o u s means , i n c l u d i n g d e p o s i t i n g p e r s o n a l income

i n t o bank a c c o u n t s h e l d i n t h e name o f nom in ee s and f i l i n g and

c a u s i n g t o be f i l e d , a f a l s e and f r a u d u l e n t U.S. I n d i v i d u a l

Income Tax R e t u r n , Form 1040, f o r t h e 2005 t a x y e a r , which r e t u r n

f a l s e l y o m i t t e d c e r t a i n income, r e s u l t i n g i n t a x e s due and owing

f o r each o f t h e f o l l o w i n g t a x y e a r s i n t h e f o l l o w i n g amounts :

Repor ted A d d i t i o n a lCalenda r Ta x a b l e C o r r e c t e d Tax Due and

Year Income Tax Pa id Ta x a b l e Income Owing

2002 $0 $327 ,121 $ 3 , 2 5 4 , 1 6 3 $889 ,745

2005 $999 ,999 $314 ,278 $ 2 , 2 6 5 , 7 3 4 $452 ,791

2006 $0 $676 ,150 $ 2 , 5 5 9 , 7 0 3 $192 ,996

2007 $0 $867 ,367 $ 4 , 0 5 0 , 8 1 0 $522 ,622

( T i t l e 26, U n i t e d S t a t e s Code, S e c t i o n 7201 . )

FORFEITURE ALLEGATION

( O ff e n s e s C o n s t i t u t i n g S p e c i f i e d Unlawfu l A c t i v i t y )

65 . As t h e r e s u l t o f commi t t ing t h e o ff e n se s

c o n s t i t u t i n g s p e c i f i e d u n l a w f u l a c t i v i t y a s d e f i n e d i n 18 U.S.C.

1956(c ) (7 ) , a s a l l e g e d i n Coun t s One, Two, S i x , and Seven o f

t h i s I n f o r m a t i o n , FRANK DIPASCALI, J R . , t h e d e f e n d a n t , s h a l l

f o r f e i t t o t h e U n i t e d S t a t e s , p u r s u a n t t o 18 U.S.C.

9 81 ( a) (1 ) (C) and 28 U.S .C . 2461, a l l p r o p e r t y, r e a l and

p e r s o n a l , t h a t c o n s t i t u t e s o r i s d e r i v e d from p r o c e e d s t r a c e a b l e

44


45/47

t o t h e commiss ion of t h e s a i d o f f e n s e s , i n c l u d i n g , bu t no t

l i m i t e d t o , a sum of money e q u a l t o a t l e a s t $170 b i l l i o n , i n

t h a t such sum i n aggrega t e r e p r e se n t s t h e amount o f p roceeds

o b t a i n e d as a r e s u l t of t h e s a i d o f f e n s e s o r i s t r a c ea b le t o such

p r o p e r t y .

S u b s t i t u t e Asse t P r o v i s i o n

66. I f any o f t h e above -desc r ibed f o r f e i t a b l e

p r o p e r t y , as a r e s u l t o f any a c t o r omis s ion of t h e de fendan t :

a . canno t be l o c a t e d upon t h e e x e r c i s e of dued i l i g e n c e ;

b . has been t r a n s f e r r e d o r s o l d t o , o r d e p o s i t e dw i t h , a t h i r d pe r son ;

c . has been p l a c e d beyond t h e j u r i s d i c t i o n o ft h e Cour t ;

d . ha s bee n s u b s t a n t i a l l y d imin i shed i n v a l u e ;o r

e . ha s been commingled wi th o t h e r p r o p e r t y whichcanno t be s ub d iv id ed w i th o ut d i f f i c u l t y ;

i t i s t

Documents

Criminal Information Against Dispascali, Madoff CFO