Ponzi Schemer Would Check Investigators' Briefcases, Ex-Employee Testifies

NEW YORK (CBSNewYork/AP) — A longtime deputy to Bernard Madoff told a jury Monday that auditors were the bane of the Ponzi schemer’s existence.

Testifying in the fraud trial of five of Madoff’s former employees, Frank DiPascali told jurors that when auditors from the U.S. Securities and Exchange Commission moved in to conduct a lengthy investigation, Madoff put them in a room where he could keep an eye on them from his office. He didn’t want them walking around, even to get a cup of coffee without him knowing it, the star witness said. When they did leave, Madoff would search their briefcases, DiPascali added. Madoff also allegedly discussed bugging the room.

As WCBS 880’s Irene Cornell reported, DiPascali, who worked for Madoff for 33 years, testified that his boss would “razzle dazzle” auditors by using computer programs specially designed to make it appear that fake investments were real.

After investigators requested emails, Madoff flew into a rage: “That’s how all these guys get nailed for insider trading,” he said, according to DiPascali, “because you morons talk to each other.” DiPascali added that Madoff’s family members frantically scrubbed emails before one major audit.

When Madoff came up with what he considered to be a fool-proof way to trick investigators, he would become very excited, DiPascali said.

When a prosecutor asked DiPascali if the SEC probes ever reached a conclusion, he replied: “No. They just suddenly stopped asking questions, and you would conclude it was over.”

Before one dreaded audit, DiPascali and three of the defendants checked into a fancy hotel, the Plaza Athénée, to prepare and made a toast, “Here’s to tricking the auditor,” he said.

DiPascali earlier testified he learned to commit securities fraud under Madoff starting when he was a 19-year-old fresh out of high school.

He decided to cooperate with the government within days of getting a call from Madoff five years ago that the Ponzi scheme had collapsed.

DiPascali, 57, who is out on bail but facing substantial prison time, carries his own baggage as the beneficiary of a bank account filled with investors’ money that amounted to a slush fund for Madoff’s family and top employees. Authorities say he withdrew more than $5 million from the account between 2002 and 2008 to fund personal expenses, including the purchase of a new boat.

DiPascali testified he is hoping for a sentence of substantially less than 125 years in prison in return for his cooperation.

In a guilty plea in 2009, DiPascali described himself as unsophisticated “kid from Queens” who began working for Madoff in 1975 and stayed until the bitter end.

Prosecutors have described the defendants as “necessary players” in Madoff’s $17 billion scheme.

They allege that Annette Bongiorno and account manager JoAnn Crupi used old stock tables to fabricate account statements and other fake records intended to dupe clients by showing steady returns even during economic downturns; that computer programmers Jerome O’Hara and George Perez developed a software program that automated the scheme; and that Daniel Bonventre, director of operations for investments, kept three separate books on the business designed to fool the Securities and Exchange Commission, banks or anyone else who examined them.

The defendants also rewarded themselves with tens of millions of dollars in salary and bonuses from a “slush fund” of stolen money, prosecutors say.

The defendants have denied the charges.

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