Update On Judgment Day: Madoff Pleads Guilty, Going to Jail

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madoff[Update below. Full plea allocution below. ] 9:15 a.m. EST:  As expected, disgraced financier Bernard Madoff pleaded guilty to all charges in an 11-count indictment today, officially marking him as the man behind one of the largest investment schemes in history. Madoff arrived at the lower Manhattan courthouse just after 7 a.m. to a throng of media and spectators. Shortly before 10, he entered the courtroom and the hearing began. Will he remain a free man? Now a federal dudge will decide his fate. Prosecutors will argue he is a flight risk and there is no reason he shouldn’t be led out of the courtroom straight into federal custody.The plea ends half-century career that saw him rise to Nasdaq chairman and one of Wall Street’s elite, and could result in a maximum prison term of 150 years.

Madoff, 70, also faces the prospect of coming face to face for the first time since his December arrest with some of the thousands of investors whose accounts prosecutors say he oversaw since at least the 1980s.

The plea also marks the first time Madoff has spoken publicly about the scheme. The judge must hear him describe his crimes in his own words to accept it.

About two dozen of Madoff’s victims have asked to speak at the hearing. For those who do get that chance, their comments will be restricted to the two fundamental issues; should Federal District Judge Denny Chin cancel Madoff’s bail? And if that bail is cancelled, should Madoff be put behind bars or allowed to continue living in the relative comfort of his $7 million penthouse.

Victims began arriving at court as early as 8 a.m., two hours before the hearing.

Adriane Biondo, 41, of Los Angeles, said five members of her family were affected by the fraud, including elderly relatives who were ruined. She went to court to see Madoff plead guilty and wants the judge to send him to prison immediately.

“For him to be under penthouse arrest at this point … is just not fair,” she said.

Madoff’s current bail status “really infuriates everyone,” said Matt Weinstein, a motivational speaker who lost the bulk of his savings in the scheme.

“People can’t even afford rent anymore,” Weinstein said. “He can’t go on in this palace of denial.”

The scope of the criminal investigation has widened as well. People familiar with the case tell CBS News, investigators are ripping apart 20 years of alleged fraud inside Madoff’s firm. His sons Andrew and Mark, and his brother Peter are now all under the microscope.

“I suspect family members, possibly his wife, very possibly his sons, possibly his brother,” said Brad Friedman, an attorney who represents about 100 Madoff investors.

Ruth Madoff wants to hold onto their lavish home, and some money.

“Right off the bat, Ruth Madoff claims to have $62 million and their $7 million apartment. We believe there are tens of millions of dollars stashed overseas,” said Friedman.

Investors like Joan Shulman, who along with her husband, lost a third of their savings, are angry.

“I am, I’m amazingly angry, but more than that, I feel a void,” said Shulman.

Hilda Hauser, a 92-year-old victim, said the justice she fantasizes about is a little more personal.

“I think I’d love to kill him. Yeah, why do you look so surprised?” Hauser said. “Of course I’m that angry. I’m outraged.”

“This is a case where they’re not going to leave any stones unturned,” said Sean O’Shea, former Federal Prosecutor. “They’re going to get to the bottom of it and everyone who has culpability will be charged.”

There are smoking guns. A duped investor says he was told by the company’s Chief Financial Officer that Madoff didn’t want incriminating evidence traced back to him.

“He told us Bernie Madoff had said they probably shouldn’t put anything in e-mails,” said Dr. Murray Morrison.

Update, 11:37 a.m. EST:

Bernard Madoff pleaded guilty today to the epic fraud that robbed investors worldwide of billions of dollars, avoiding eye contact with swindled investors before he was led out of court with his hands cuffed behind his back. U.S. District Judge Denny Chin denied bail for Madoff and ordered him to jail, noting that he had the means to flee and an incentive to do so because of his age.

Madoff spoke steadily in court as he addressed the judge before his guilty plea was accepted.

“I am actually grateful for this opportunity to publicly comment about my crimes, for which I am deeply sorry and ashamed,” he said.

“As the years went by, I realized my risk, and this day would inevitably come. I cannot adequately express how sorry I am for my crimes.”

Madoff did not look at any of the three investors who spoke at the hearing, even when one of them turned in his direction and tried to address him.

After arguments began as to whether Madoff should remain free on bail, his lawyer Ira Sorkin described the bail conditions and how Madoff had, “at his wife’s own expense,” paid for private security at his $7 million penthouse.

Loud laughter erupted among some of the more than 100 spectators crammed into the large courtroom on the 24th floor of the federal courthouse in lower Manhattan. The judge warned the spectators to remain silent.

The fraud turned a revered money man into an overnight global disgrace whose name became synonymous with the current economic meltdown.

Madoff described his crimes after he entered a guilty plea to all 11 counts he was charged with, including fraud, perjury, theft from an employee benefit plan, and two counts of international money laundering.

Prosecutors say the disgraced financier, who has spent three months under house arrest in his $7 million in Manhattan penthouse, could face a maximum sentence of 150 years in prison at sentencing.

Madoff explained his scheme by telling the judge that he believed the fraud would be short-term and that he could extricate himself.

The following is Madoff’s full, plea allocution, the document he read during today’s hearing:

Your Honor, for many years up until my arrest on December 11, 2008, I operated a Ponzi scheme through the investment advisory side of my business, Bernard L. Madoff Securities LLC, which was located here in Manhattan, New York at 885 Third Avenue. I am actually grateful for this first opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed. As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal. When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come. I am painfully aware that I have deeply hurt many, many people, including the members of my family, my closest friends, business associates and the thousands of clients who gave me their money. I cannot adequately express how sorry I am for what I have done. I am here today to accept responsibility for my crimes by pleading guilty and, with this plea allocution, explain the means by which I carried out and concealed my fraud.

The essence of my scheme was that I represented to clients and prospective clients who wished to open investment advisor and individual trading accounts with me that I would invest their money in shares of common stock, options and other securities of well-known corporations, and upon request, would return to them their profits and principle. Those representations were false because for many years and up until I was arrested on December 11, 2008, I never invested those funds in securities, as I had promised. Instead, those funds were deposited in a bank account at Chase Manhattan Bank. When clients wished to receive the profits they believed they had earned with me or to redeem their principal, I used the money in the Chase Manhattan bank account that belonged to them or other clients to pay the requested funds. The victims of my scheme included individuals, charitable organizations, trusts, pension funds and hedge funds. Among other means, I obtained their funds through interstate wire transfers they sent from financial institutions located outside New York State to the bank account of my investment advisory business, located here in Manhattan, New York and through mailings delivered by the United States Postal Service and private interstate carriers to my firm here in Manhattan.

I want to emphasize today that while my investment advisory business – the vehicle of my wrongdoing – was part of my firm Bernard L. Madoff Securities, the other business my firm engaged in, proprietary trading and market making, were legitimate, profitable and successful in all respects. Those businesses were managed by my brother and two sons.

To the best of my recollection, my fraud began in the early 1990s. At that time, the country was in a recession and this posed a problem for investments in the securities markets. Nevertheless, I had received investment commitments from certain institutional clients and understood that those clients, like all professional investors, expected to see their investments out-perform the market. While I never promised a specific rate of return to any client, I felt compelled to satisfy my clients’ expectations, at any cost. I therefore claimed that I employed an investment strategy I had developed, called a “split strike conversion strategy,” to falsely give the appearance to clients that I had achieved the results I believed they expected.

Through the split-strike conversion strategy, I promised to clients and prospective clients that client funds would be invested in a basket of common stocks within the Standard & Poor’s 100 Index, a collection of the 100 largest publicly traded companies in terms of their market capitalization. I promised that I would select a basket of stocks that would closely mimic the price movements of the Standard & Poor’s 100 Index. I promised that I would opportunistically time these purchases and would be out of the market intermittently, investing client funds during these periods in United States Government-issued securities such as United States Treasury bills. In addition, I promised that as part of the split strike conversion strategy, I would hedge the investments I made in the basket of common stocks by using client funds to buy and sell option contracts related to those stocks, thereby limiting potential client losses caused by unpredictable changes in stock prices. In fact, I never made the investments I promised clients, who believed they were invested with me in the split strike conversion strategy.

To conceal my fraud, I misrepresented to clients, employees and others, that I purchased securities for clients in overseas markets. Indeed, when the United States Securities and Exchange Commission asked me to testify as part of an investigation they were conducting about my investment advisory business, I knowingly gave false testimony under oath to the staff of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath to the staff of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath that I had executed options contracts on behalf of my investment advisory clients and that my firm had custody of the assets managed on behalf of my investment advisory clients.

To further cover-up the fact that I had not executed trades on behalf of my investment advisory clients, I knowingly caused false trading confirmations and client account statements that reflected the bogus transactions and positions to be created and sent to clients purportedly involved in the split strike conversion strategy, as well as other individual clients I defrauded who believed they had invested in securities through me. The clients receiving trade confirmations and account statements had no way of knowing by reviewing these documents that I had never engaged in the transactions represented on the statements and confirmations. I knew those false confirmations and account statements would be and were sent to clients through the U.S. mails from my office here in Manhattan.

Another way that I concealed my fraud was through the filing of false and misleading certified audit reports and financial statements with the SEC. I knew that these audit reports and financial statements were false and that they would also be sent to clients. These reports, which were prepared here in the Southern District of New York, among things, falsely reflected my firm’s liabilities as a result of my intentional failure to purchase securities on behalf of my advisory clients.

Similarly, when I recently caused my firm in 2006 to register as an investment advisor with the SEC, I subsequently filed with the SEC a document called a Form ADV Uniform Application for Investment Adviser Registration. On this form, I intentionally and falsely certified under penalty of perjury that Bernard L. Madoff Investment and Securities had custody of my advisory clients’ securities. The at was not true and I knew it when I completed and filed the form with the SEC, which I did from my office on the 17th floor of 855 Third Avenue, here in Manhattan.

In more recent years, I used yet another method to conceal my fraud. I wired money between the United States and the United Kingdom to make it appear as though there were actual securities transactions executed on behalf of my investment advisory clients. Specifically, I had money transferred form the U.S. bank account of my investment advisory business to the London bank account of Madoff Securities International Ltd., a United Kingdom corporation that was an affiliate of my business in New York. Madoff Securities International Ltd. was principally engaged in proprietary trading and was a legitimate, honestly run and operated business.

Nevertheless, to support my false claim that I purchased and sold securities for my investment advisory clients in European markets, I caused money from the bank account of my frauduelent advisory business, located here in Manhattan, to be wire transferred to the London bank account of Madoff Securities International Limited.

There were also times in recent years when I had money, which had originated in the New York Chase Manhattan bank account of my investment advisory business, transferred from the London bank account of Madoff Securities International Ltd. to the Bank of New York operating bank account of my firm’s legitimate proprietary and market making business. That Bank of New York account was located in New York. I did this as a way of ensuring that the expenses associated with the operation of the fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses.

In connection with the purported trades, I caused the fraudulent investment advisory side of my business to charge the investment clients $0.04 per share as a commission. At times in the last few years, these commissions were transferred from Chase Manhattan bank account of the fraudulent advisory side of my firm to the account at the Bank of New York, which was the operating account for the legitimate side of Bernard L. Madoff Investment Securities – the proprietary trading and market making side of my firm. I did this to ensure that the expenses associated with the operation of my fraudulent investment advisory business would not be paid from the operations of the legitimate proprietary trading and market making businesses. It is my belief that the salaries and bonuses of the personnel involved in the operation of the legitimate side of Bernard L. Madoff Investment Securities were funded by the operations of the firm’s successful proprietary trading and market making businesses.

Your Honor, I hope I have conveyed with some particularity in my own words, the crimes I committed and the means by which I committed them. Thank you.

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4 COMMENTS

  1. He’s not going to commit these crimes anymore. That’s a big relief to us as a nation. I think this is a blessing from Hashem, since all Yisrael is one body. And by the way, each of us has to check into his / her own honesty level too.

  2. even if this scoundrel theif totally not bseder guy does indeed confess to his wrongdoings, what will he do about it? jsut like we ” admit ” our sins on rosh hashana, do all of us do s/t about it? lets see this puppet of hashem do his moves that were designed for him to do……..

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