Pacer - Frank Dipascali - Forfeiture Of Boat, Cars

_

J "- ;~.

JJDGE BERMAl1

r

,~<

PREET BHARARA United States Attorney for the Southern District of New York By: SHARON E. FRASE BARBARA A. WARD Assistant United States Attorneys One St. Andrew's Plaza New York, New York 10007 Telephone: (212) 637-2329/1048 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

._-------------------------------------------------, UNITED STATES OF AMERICA,

Plaintiff,

I I I I I

I I I I

VERIFIED COMPLAINT

I I I I I

-against-

I I I

I

ONE 2003 VIKING 61' CONVERTIBLE MOTOR YACHT KNOWN AS DOROTHY JO, HULL IDENTIFICATION NUMBER VKY61562I203,

I I I

ONE 2009 AUDI S5 QUATRO COUPE, VIN WAURV78T89A03128925, I I I

ONE 2007 MERCEDES BENZ E350 4M AWD 4DR, VIN WDBUF87X97X221582, and

I

I I I

I

I I I I

ONE 2006 MERCEDES BENZ, VIN 4JGBB75E96A123438, Defendants in rem. .

I I I I

I I I I I I

I I JI

Plaintiff United States of America, by its attorney, Preet Bharara, United States Attorney for the Southern District of New York, for its Complaint alleges, upon information and belief, as follows:

I. JURISDICTION AND VENUE

1.

This action is brought by the United States of America pursuant to 18

§§ 981(a)(1)(C) and 981(a)(1)(A) seeking the forfeiture of all right, title and interest in the following property: ONE 2003 VIKING 61' CONVERTIBLE MOTOR YACHT KNOWN AS DOROTHY JO, HULL IDENTIFICATION NUMBER VKY61562I203 (the "Dorothy Jo"), ONE 2009 AUDI S5 QUATRO COUPE, VIN

WAURV78T89A03128925 (the "Audi"),

ONE 2007 MERCEDES BENZ E350 4M AWD 4DR, VIN WDBUF87X97X221582 (the "2007 Mercedes"), and ONE 2006 MERCEDES BENZ, VIN 4JGBB75E96A 123438 (the 2006 Mercedes"), (hereinafter collectively referred to as the "Defendants in rem"). 2.

This Court has jurisdiction over this action pursuant to 28 U.S.c. §§ 1345 and

1355(a). 3.

Venue is proper pursuant to 28 U.S.c. § 1355(b)(1)(A) because acts and

omissions gi ving rise to the forfeiture took place in the Southern District of New York. 4.

The Dorothy Jo is located in the Southern District of Florida under the custody

and control of the United States Marshals Service ("USMS"), following execution of a seizure warrant issued by the Honorable Theodore H. Katz, United States Magistrate Judge for the Southern District of New York, on or about April 29, 2009, pursuant to 18 U.S.c. §§ 981 (a)(1)(A) and (C).

2

9.

At all times relevant to this Verified Complaint, Bernard L. Madoff ("Madoff')

was the founder ofBLMIS, and served as its sole member and principal. In that capacity, Madoff controlled the business activities of BLMIS. Madoff also owned the majority of the voting shares and served as the Chairman of the Board of Directors of Madoff Securities International Ltd. ("MSIL"), a corporation incorporated in the United Kingdom and an affiliate ofBLMIS, and served as the Chairman ofMSIL's Board of Directors. Madoffalso served on the Board of Directors of the National Association of Securities Dealers Automated Quotations ("NASDAQ"), and for a period served as the non-executive Chairman of NASDAQ. (lnf. ~~

2-3).

10.

On March 12, 2009, in connection with the execution of a massive Ponzi scheme

through BLMIS, Madoff pleaded guilty to securities fraud, investment adviser fraud, mail fraud, wire fraud, two counts of international money laundering, money laundering, false statements, perjury, false filings with the SEC, and theft from an employee benefit plan. Among other things, Madoff admitted that despite his promises to clients and prospective clients that he would invest their money in shares of common stock, options, and other securities of well known corporations, he in fact never invested those clients' funds in the securities as he had promised. (lnf.

~

3). 11.

On June 29, 2009, the Honorable Denny Chin sentenced Madoffto 150 years'

imprisonment, criminal forfeiture in the form of money judgments totaling $170,799,000,000, and forfeiture of specific property. 12.

DIPASCALI was employed at BLMIS between on or about September 11, 1975

and on or about December 11,2008, the day that Madoffwas arrested. During his employment

4

at BLMIS, DIPASCALI had a variety of duties and responsibilities. By the early 1990s, DIPASCALI was one of the BLMIS employees responsible for managing the vast majority of BLMIS's IA accounts into which thousands of BLMIS clients invested, and eventually lost, billions of dollars. Madoff, DIPASCALI, and other co-conspirators were responsible for, among other things: receiving funds sent to BLMIS by clients of the investment advisory business (the "IA Clients") for investment; causing the transfer ofIA Clients' funds between and among various BLMIS bank accounts; handling requests for redemptions sent to BLMIS by IA Clients; answering IA Clients' questiems about their purported investments; and developing the BLMIS computer and other systems that were used to give the false appearance to clients, regulators and others, that client funds were being invested as promised when, in fact, they were not. (lnf.

~

4).

The Scheme To Defraud 13.

From at least as early as the 1980s through on or about December 11,2008,

Madoff, DIPASCALI and other co-conspirators perpetrated a scheme to defraud the IA Clients by accepting billions of dollars ofIA Clients' funds under false pretenses, failing to invest the IA Clients' funds as promised, creating and disseminating false and fraudulent documents to IA Clients purporting to show that their funds had been invested, and lying to the SEC and an accounting firm to conceal the fraudulent scheme. (lnf. 14.

~

5).

To execute the scheme, Madoff solicited, and caused others to solicit, prospective

clients to open trading accounts with BLMIS, based upon, among other things, a promise to use investor funds to purchase shares of common stock, options, other securities, and financial instruments, and representations that he would achieve high rates of return for clients, with limited risk. In truth and in fact, as DIPASCALI well knew, these representations were false.

5

Contrary to representations that DIPASCALI and other co-conspirators caused to be made over

the course of the scheme on millions of pages of account statements and other documents sent to

IA Clients, Madoff, DIPASCALI, and other co-conspirators knew that the IA Clients' funds were

not being invested in securities as promised. Moreover, Madoff, DIPASCALI, and other co­

conspirators misappropriated IA Clients' funds and converted those funds to their own use and

the use of others. DIPAS CALI knew that BLMIS accepted billions of dollars of IA Clients'

funds, cumulatively, from individual investors, charitable organizations, trusts, pension funds,

and hedge funds, among others, and had established on their behalf thousands of accounts at

BLMIS and that those funds had been obtained through false and fraudulent representations.

(Inf.

~~

6-7).

Laundering IA Client Funds Through MSIL To Support BLMIS 15.

Beginning at least as early as 2003, BLMIS's market making and proprietary

trading businesses did not generate sufficient revenue to meet their expenses. In part to support BLMIS's market making and proprietary trading businesses, between at least as early as in or about 2005 and in or about 2008, at the direction of Madoff, DIPASCALI and other co­ conspirators caused at least $250 million of BLMIS investment advisory clients' funds to be transferred to, and between, the bank accounts that funded those businesses. Specifically, at the direction of Madoff, DIPASCALI caused hundreds of millions of dollars of IA Client funds to be transferred between and among a BLMIS account in New York, New York (the "BLMIS Client Account"), accounts held by MSIL in London, United Kingdom (the "MSIL Accounts"), and another bank account in New York, New York, which was principally used to fund BLMIS's operations (the "BLMIS Operating Account"). (Inf.

6

~

30).

THE DEFENDANTS IN REM

16.

The Defendants in rem were acquired and maintained with funds obtained from

defrauded investors of the BLMIS investment advisory business, and funds traceable to such funds. The Dorothy Jo 17.

On or about September 12,2002, DIPASCALI and his wife entered into a

purchase contract with Oyster Harbors Marine of Maine, a dealer for Viking Yacht Company, for a 2003 Viking 61' Convertible motor yacht with Hull Identification No. VKY61562I203 for $1,891,769.00. The vessel was later named the DorothyJo. The balance due after a $190,000 deposit was $1,701,769.00. 18.

On or about September 10,2002, DIPASCALI paid the balance due on the

contract by causing approximately $1,701,769 ofIA Client funds that had been obtained by fraud and to which he was not entitled to be wire transferred from the BLMIS Client Account to the seller. (Inf.

~

43(m». The Defendant Vehicles

19.

In or about October 2008, DIPASCALI purchased a 2009 AUDI S5 Quatro

Coupe, Vehicle Identification Number ("VIN") WAURV78T89A03128925, for over $50,000. 20.

On or about January 22, 2007, DIPASCALI paid approximately $62,872 to

purchase a 2007 Mercedes Benz Model E350 4M AWD 4DR, VIN WDBUF87X97X221582. 21.

On or about October 30, 2006, DIPASCALI paid approximately $45,676 to

purchase a 2006 Mercedes Benz, 22.

vn~

4JGBB75E96A123438.

The Defendant Vehicles are registered to DIPASCALI.

7

23.

DIPASCALI purchased the Defendant Vehicles for cash using bank accounts

funded with money acquired as a result of his employment with BLMIS, and with IA Client funds that had been obtained by fraud and to which DIPASCALI was not entitled. III. FIRST CLAIM FOR FORFEITURE 24.

Pursuant to 18 U.S.C. § 981(a)(1)(C), "[a]ny property, real or personal, which

constitutes or is derived from proceeds traceable to ... any offense constituting 'specified unlawful activity' (as defined in Section 1956(c)(7) of [title 18]), or a conspiracy to commit such offense," is subject to forfeiture to the United States. 25.

"Specified unlawful activity" is defined in 18 U.S.C. § 1956(c)(7), and the term

includes any offense listed under 18 U.S.c. § 1961(1). Section 1961(1) lists, among other offenses, violation of Title 18, United States Code, Section 1341 (mail fraud), Title 18, United States Code, Section 1343 (wire fraud), and "fraud in the sale of securities." 26.

Title 18, United States Code, Section 981 (a)(2)(A) provides, in pertinent part: (A) In cases involving ... unlawful activities ... "the term "proceeds" means property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense. IV. SECOND CLAIM FOR FORFEITURE

27.

Pursuant to 18 U.S.c. § 981(a)(l)(A), "[a]ny property, real or personal, involved

in a transaction or attempted transaction in violation of ... section 1956 or 1957 of this title [relating to money laundering], or any property traceable to such property," is subject to forfeiture to the United States.

8

28.

18 U.S.C. § 1956(a)(1), commonly known as the money laundering statute,

imposes a criminal penalty upon any person who, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity­ (A)

(i) with the intent to promote the carrying on of specified unlawful activity; or (ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or

(B)

knowing that the transaction is designed in whole or in part­ (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under State or Federal Law.

29.

Section 1956(a) further imposes a criminal penalty upon any person who:

(2) ... transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States-­ (A) with the intent to promote the carrying on of specified unlawful activity; or (B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed in whole or in part­ (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or

9

(ii) to avoid a transaction reporting requirement under State or Federal law. 30.

Section 1956(f) provides that:

(f) There is extraterritorial jurisdiction over the conduct prohibited by this section if-­ (1) the conduct is by a United States citizen or, in the case of a non-United States citizen, the conduct occurs in part in the United States; and (2) the transaction or series of related transactions involves funds or monetary instruments of a value exceeding $10,000. 31.

Section 1957 of Title 18, United States Code, provides, in pertinent part, that

"[w]hoever '" knowingly engages or attempts to engage in a monetary transaction [in the United States] in criminally deriyed property that is of a value greater than $10,000 and is derived from specified unlawful activity" shall be guilty of a crime. A "monetary transaction" includes "the deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument ... by; through, or to a financial institution ..." 18 U. S. C.

§ 1957(f)(1). 32.

Title 28, United States Code, Section 1355(b) provides in pertinent part that:

(1) A forfeiture action or proceeding may be brought in­ (A) the district court for the district in which any of the acts or omissions giving rise to the forfeiture occurred, ... WHEREFORE, plaintiff United States of America prays that process be issued to seize and enforce the forfeiture of the Defendants in rem and that all persons having an interest in the

10

Defendants in rem be cited to appear and show cause why the forfeiture should not be decreed, and that this Court decree forfeiture of the Defendants in rem to the United States of America for disposition according to law, and that this Court grant plaintiff such further relief as this Court may deem just and proper, together with the costs and disbursements of this action. Dated: New York, New York August 24, 2009 PREET BHARARA United States Attorney for the Southern District of New York Attorney for the Plaintiff United States of Ameri

By: SE SHARON E. F BARBARA A. WARD Assistant United States Attorneys

11

VERIFICATION

STATE OF NEW YORK ) COUNTY OF NEW YORK ) ss: SOUTHERN DISTRICT OF NEW YORK )

STEVEN N. GARFINKEL, being duly sworn, deposes and says that he is a Special Agent with the Federal Bureau of Investigation, and as such has responsibility for the within action; that he has read the foregoing Verified Complaint and knows the contents thereof, and that the same is true to the best of his own knowledge, information and belief. The sources of deponent's information and the ground of his belief are official records and files of the United States and information obtained directly by deponent during an investigation of alleged violations of Title 18, United States Code.

STEVEN N. GARFINKEL Special Agent Federal Bureau ofInvestigation

Sworn to before me this r7t!!day of August, 2009:

MARCO DASILVA

Notary Public, State of New York

No. 01 DA6145603

Qualified in Nassamunw

My Commission EXpireS;) Of 2010

EXHIBIT

A.

:

USDCSDNY ===::·'1\'I · noCUMENT ELECTRONICALLY FUJO \ DOC#: ..... DATE FILErA.U~ 1_1 .~._. I

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

_j\

x

-_.. - -'-=::..----"- ".­

UNITED STATES OF AMERICA INFORMATION -v­ FP~NK·DIPASCALI,

Og"tRlM 764

JR.,

Defendant.

- x COUNT ONE (Conspiracy to Commit Securities Fraud, Investment Adviser Fraud, Falsify Books and Records of a Broker-Dealer, Falsify Books and Records of an Investment Adviser, Mail Fraud, Wire Fraud, and International Money Laundering) The United States Attorney charges: Relevant Persons and Entities 1.

At all times relevant to this Information, Bernard

L

Madoff Investment Securities LLC, and its predecessor, Bernard

L

Madoff Investment Securities (collectively and separately,

"BLMIS"', had its principal place of business in New York, New York,

most recently at 885 Third Avenue, New York, New York.

BLMIS was a broker-dealer that engaged in three principal types

oE business:

market making; proprietary trading; and investment

advisory services ("IA").

BLMIS was registered with the United

States Securities and Exchange Commission ("SEC") as a broker­ deaJer and also,

on or about August 25, 2006, registered with the

SEC as an investment adviser. 2.

At all times relevant to this Information, Madoff

Secur 1 ties International Ltd.

("MSIL") was a corporation

LnC()1"por'ated in the United Kingdom.

MSIL was an affiliate of

BLMI;, that engaged principally in proprietary trading. 3.

Bernard L. Madoff

("Madoff") was the founder of

BLMIS, and served as its sole member and principal.

In that

capacity, Madoff controlled the business activities of BLMIS. Madoff owned the majority of the voting shares of MSIL, and served as the Chairman of MSIL's Board of Directors.

Madoff also

served on the Board of Directors of the National Association of Securl ties Dealers Automated Quotations ("NASDAQ") '. and for a perlQd served as the non-executive Chairman of NASDAQ. 1:.,

On March

2009, in connection with the execution of a massive Ponzi

scheme through BLMIS, Madoff pleaded guilty to securities fraud, investment adviser fraud, mail fraud, wire fraud,

two counts of

internalional money laundering, money laundering, false statements, perjury, false filings with the SEC, and theft from an employee benefit plan. 4.

FRANK DIPASCALI, JR., the defendant, was employed

a-:: ELMIS between on or about September 11, 1975 and on or about December 11, 2008, the day that Madoff was arrested.

During his

employment at BLMIS, DIPASCALI had a variety of duties and r2sponslbllities.

By the early 1990s, DIPASCALI was one of the

BLMIS employees responsible for managing the vast majority of BLMIS's IA accounts into which thousands of BLMIS clients lnvested, and eventually lost, billions of dollars.

2

Madoff,

DIPASCALI, and other co-conspirators were responsible for, among other things: receiving funds sent to BLMIS by clients of the investment advisory business (the "IA Clients") for investment; c:aus:lng the transfer of IA Clients' funds between and among 'Jarious BLMIS bank accounts; handling requests for redemptions sen~ ~bo~t

to BLMIS by IA Clients; answering IA Clients' questions their purported investments; and developing the BLMIS

:.:c,mp 1.lter and other systems that were used to give the false appearance to clients, regulators and others, that client funds were being invested as promised when, in fact, they were not. The Scheme To Defraud 5.

From at least as early as the 1980s through on or

about December 11, 2008, Madoff, FRANK DIPASCALI, JR., the defendant, and other co-conspirators perpetrated a scheme to defraud the IA Clients by accepting billions of dollars of IA C~ients'

funds under false pretenses, failing to invest the IA

C~lents'

funds as promised, creating and disseminating false and

fraudulent documents to IA Clients purporting to show that their funds had been invested, and lying to the SEC and an accounting flrrr to conceal the fraudulent scheme. 6.

To execute the scheme, Madoff solicited, and

caused others to solicit, prospective clients to open trading a,::::cc,unts with BLMIS, based upon, among other things, a promise to use lnvestor funds to purchase shares of common stock, options,

3

other securities, and financial instruments, and representations that he would achieve high rates of return for clients, with Lmi ted risk.

In truth and in fact,

as FRANK DIPASCALI, JR., the

defendant, well knew, these representations were false.

Contrary

tc representations that DIPASCALI and other co-conspirators caused to be made over the course of the scheme on millions of pages of account statements and other documents sent to IA C]lents through the United States Postal Service, Madoff, DIPASCALI, and other co-conspirators knew that the IA Clients' funds were not being invested in securities as promised. MoreJver, Madoff, DIPASCALI, and other co-conspirators mlsappropriated IA Clients' funds and converted those funds to tnelt own use and the use of others. 7. JF

In connection with this scheme, FRANK DIPASCALI,

the defendant, knew that BLMIS had accepted billions of

dol13rs of IA Clients' funds,

cumulatively, from individual

iIlvestors, charitable organizations, trusts, pension funds, hedge funds,

and

among others, and had established on their behalf

thousands of accounts at BLMIS.

DIPASCALI further knew that

those funds were obtained, in substantial part, through interstate wire transfers from financial institutions located outside New York State and through mailings delivered by the Unlted States Postal Service.

4

The "Split Strike" Strategy 8. \n~

Under the direction of Madoff, FRANK DIPASCALI,

the defendant, helped to develop a purported investment

strategy, referred to as a "split strike conversion"

("Split

Strlke") strategy, that Madoff used to market the IA business to

If, Clients and prospective IA Clients beginning in or about the early 1990s. that:

Current and prospective IA Clients were promised

(a) their funds would be invested in a basket of

approximately 35-50 common stocks within the Standard & Poor's 11)1)

Index (the "S&P 100"), a collection of the 100 largest

putlicly traded companies in terms of their market capitallzation; p~ice

(b) that basket of stocks would closely mimic the

movements of the S&P 100;

(c) the investments would be

hedged by using IA Clients' funds to buy and sell option contracts related to those stocks, thereby limiting potential l,)sses caused by unpredictable changes in stock prices;

(d)

Madcff would opportunistically time the entry and exit from the s:rategy; and (e) when the IA Clients' funds were not invested in t.:1e basket: of stocks and options described above, w,:>u]

those funds

d. be lnvested in money market funds and United States

GJvernment-issued securities such as United States Treasury blJ.JS

9.

In total, thousands of IA Clients, with billions

of dollars of cumulative investments, were told by Madoff, FRANK

5

DIPASCALI, JR., the defendant, and other co-conspirators, that their Eunds were invested with BLMIS using the Split Strike strategy.

(These clients are herein referred to as,

collectively, the "Split Strike Clients".) 10. athe~

Madoff, FRANK DIPASCALI, JR., the defendant, and

=o-conspirators knew that the Split Strike strategy was a

Ei ,::T Lon in that the Split Strike Clients' funds were not invested ir the securities recorded on those clients' account statements.

n.e

r-eported performance of the Split Strike strategy was

EabrLcated by Madoff, DIPASCALI and other co-conspirators through a process in which transactions were "executed" only on paper, cased on historically reported prices of securities, for the purpose of producing and sending to Split Strike Clients documents that falsely made it appear that BLMIS had achieved the plomised "returns" of approximately 10 to 17 percent per year. 11. FP~K

On a regular basis, Madoff provided guidance to

DIPASCALI, JR., the defendant, and, through DIPASCALI, to

other co-conspirators, about the gains or losses that Madoff wanted to be reflected in the account statements of the Split St.rike C'llents.

Based on that guidance, DIPASCALI and other co­

conspirators prepared model baskets of S&P 100 stocks based on h~stori~al

market prices and tracked how those hypothetical

baskets would have performed in the actual marketplace to ,-'

determine whether and when to "enter the market."

6

Whenever

MadoEf informed DIPASCALI that he had decided to "enter the market," DIPASCALI and other co-conspirators caused BLMIS '::e,mputer operators to enter the data related to the chosen basket of securities into the computer that maintained the books and t-ecords of the IA business.

Madoff, DIPASCALI, and other co­

,::onsplrators used computer programs to allocate multiples of the ~~osen

or

basket to Split Strike Clients on a pro rata basis, based

~d.ch

such client's purported account balance.

When Madoff

made a final decision to "enter the market," DIPASCALI and other :x ."

c<)nspi rators would cause the computer to produce tens of

thousands of false documents that purported to confirm the purchases of securities that in fact had not been purchased. 12.

The purported trades by which BLMIS supposedly

"entered the market" were sometimes priced using data from market actl~lty

that occurred one or more days prior to the date on

wtllcn the decision to "enter the market" was finalized.

Because

none of the "trades" actually occurred, Madoff, FRANK DIPASCALI, JF

, the defendant, and other co-conspirators relied on

hIstorical price and trading volume data obtained from published S(IUrCeS of market information.

With the benefit of hindsight,

MadoEf and DIPASCALI chose the prices at which securities purportedly were purchased in light of Madoff's objectives.

In

dOln9 sc, Madoff, DIPASCALI and other co-conspirators attempted to ensure that:

(a) the trade confirmation slips sent to Split

7

Strike Clients reflected prices that fell within the range of prices at which each such security in fact had traded on the pertinent day; and (b) there had been sufficient actual trading volume in the relevant securities so that no client or regulator who 2ame into possession of the Split Strike Clients' confirmation slips or account statements would have reason to question the reported trades. 13.

A similar process to that described

~n

paragraphs

Land 12, above, was used in "exiting the market" by "selling out" C'f the purported stock and option positions and "buying" Ulllted States Treasury bills and shares in a money market fund w:th the "proceeds" of those purported sales.

With the benefit

ot hindsight, Madoff and FRANK DIPASCALI, JR., the defendant, e'Jaluated whether and when to "sellout" of the securities pllsitions that previously had been reported to Split Strike C.ients.

After such decisions were made, DIPASCALI and other co­

cunspirators caused BLMIS computer operators to input data that generated tens of thousands of false confirmations of the purported transactions, which were subsequently printed and sent t(~

Split Strike Clients through the United States mails. 14.

On a monthly basis, Madoff, FRANK DIPASCALI, JR.,

the defendant, and other co-conspirators oversaw the production and mailing of thousands of pages of account statements to Split Strike Clients.

Those documents falsely reflected securities

8

t r a.n~3act ions that had not been executed and securities positions l~

that

fact did not exist. 15.

,)C

:

In practice, the growth in account values reported

he Spl it Strike Clients' account statements generally

arproximated the annualized rates of return that had been targeted by Madoff.

As directed by Madoff, FRANK DIPASCALI, JR.,

che defendant, and other co-conspirators routinely added a6di~lonal

fictitious options "trades" to certain Split Strike

:llent accounts for the purpose of making it appear that those accounts, among other things, had achieved their respective t~rgeted

annual rates of return. Defrauding The "Non-Split Strike Clients" 16.

had

3

At all times relevant to this Information, BLMIS

number of IA Clients other than Split Strike Clients (the

"Non-Split Strike Clients").

The Non-Split Strike Clients were

promised that their investment funds would be used to buy and sell securities in strategies that would realize annual returns in varyIng amounts up to at least approximately 53 percent per yrOdr.

17. JJ~.,

Beginning in or about the 1990s, FRANK DIPASCALI,

the defendant, assisted Madoff and other co-conspirators in

tileil" efforts to make certain Non-Split Strike Clients believe tnat their investments with BLMIS had generated the returns they

9

had been promised by Madoff when,

in fact,

their funds had not

been invested in securities at all. 18.

At various times, but particularly in December of

each lear, at Madoff's direction, FRANK DIPASCALI, JR., the defendant, and other co-conspirators reviewed BLMIS reports ~omparing

year-to-date "returns" with Non-Split Strike Clients'

expected returns on an account-by-account basis.

When there were

shortfalls between the expected returns and those that had been repo:cted to the clients, DIPASCALI provided information to other :x -::onspirators about hypothetically profitable options and other

tlades and adjustments. wbS 1L

The information provided by DIPASCALI

routinely incorporated as fictitious trades and adjustments certain of the Non-Split Strike Clients' accounts at or near

the yeal-end to ensure that the annual returns reported to the Non-split Strike Clients appeared to meet or exceed their expected returns. 19.

Some of the Non-Split Strike Clients were provided

account statements that showed purported investments in United States Treasury bills for nearly the entire calendar year.

At

Mddoff's direction, FRANK DIPASCALI, JR., the defendant, and othel- co-conspirators caused fictitious options transactions that showed purported large gains to appear on those clients' sratements in December, thereby creating the illusion that the acccunts had met or exceeded their expected annual returns.

10

Deceiving The SEC And A European Accounting Fir.m 20.

From in or about 2004, through on or about

December 11, 2008, at Madoff's direction, FRANK DIPASCALI, JR.,

cte defendant, and other co-conspirators deceived both the SEC afid

,i

European accounting firm (the "European Accounting Firm")

that reviewed BLMIS's operations on behalf of certain European IA Cllents, about the true nature and scope of the IA business. Beg1~ning

in at least the early 1990s, DIPASCALI knew that none

of

the books and records generated in the ordinary course of the

Ij~

business was accurate, because none of the purported purchases

and sales of securities reflected on those documents actually occulred.

When the SEC and the European Accounting Firm reviewed

t}le operations of BLMIS,

including its IA business, Madoff,

DIPASCALI, and other co-conspirators attempted to prevent them f'.:olT uncovering the fraudulent scheme.

Among other things,

DIPASCALI and other co-conspirators produced numerous documents created for the sole purpose of misleading the SEC and others aDOL.t the nature and scale of the IA business. Deceiving The SEC In 2004 21.

In or about 2004, Madoff sought to persuade the

SEC that BLMIS was not an investment adviser, but rather operated as a broker-dealer that merely executed trades at the direction of

certain hedge fund clients.

Madoff's objective was to avoid

the additional oversight that would result if BLMIS were

11

consJ.dered to be an investment adviser, and to conceal the scope of BLMIS/s IA business.

By reducing the scope of the BLMIS

business that was exposed to SEC scrutiny, Madoff further sought tc reduce the risk that the fraudulent scheme would be revealed. Te "that end,

Madoff also wanted to create the appearance for the

SEC -:hat, contrary to what IA Clients had been told - that is, that BLMIS had custody of the securities purchased on their beha i f '- BLMIS did not have custody of any such clients' securlties.

By doing so, Madoff intended to reduce the risk that

the SEC would uncover, through records it might obtain from third parties such as the Depository Trust Company ("DTC"),

1

the fact

tllat BLMIS held only a handful of securities on behalf of the IA C~.

ient s ..: 22.

To accomplish these objectives, Madoff directed

that a wholly new set of books and records be created that pt~rtained

only to a small subset of IA Clients, including

approximately 16 Split Strike Clients (collectively, the "2004 Speclal Clients"), even though the IA business had thousands of

DTC, among other things, creates efficiencies in the clearing and settlement of securities transactions by retaining c~stody of securities on behalf of financial institutions, and recording on its books and records changes in the ownership of those securities. The limited number of securities that BLMIS held on behalf of IA Clients were those securities that IA Clients deposlted with BLMIS, not securities purchased by BLMIS on behalf of t.he IA Clients. BLMIS also held securities at DTC for its market making and proprietary trading businesses. 12

,_;llents at the time. JF.,

the defendant, and other co-conspirators were responsible l~reating

fer

At Madoff's direction, FRANK DIPASCALI,

fictitious BLMIS books and records that related to

the :2004 Special Clients for the purpose of misleading the SEC

,::oncealing the fraudulent scheme.

3Ld

23.

Among other things, at Madoff's direction, FRANK

D1PASCALI, JR., the defendant, and other co-conspirators created statements in a format completely different from those that for years had regularly been sent to all IA Clients, including the 2(104

Special Clients.

The account statements that customarily

had been sent to all IA Clients, including the 2004 Special C~ients,

l'eflected purported securities trades and showed

securitles (including stocks, options, and United States Treasury bLlls) or cash being held by BLMIS in those clients' accounts. B~

contrast, the statements prepared for the sole purpose of

defrauding the SEC were created in a so-called "receive-versus­ pdy1Ttent" / "delivery-versus-payment" n<

("RVP/DVP")

format that showed

::ecurities or cash balances in the accounts of the 2004

Soeclal Clients.)

FRANK DIPASCALI, JR., and other co-

In a RVP/DVP arrangement, payment for securities purchased is made to the selling customer's agent and/or delivery of securlties sold is made to the buying customer's agent in exchange for payment at time of settlement, usually in the form of cash. Because transactions in RVP/DVP accounts are settled d 11-,;~(-.:t 1"/ wi th the agent on a transaction-by-transact ion basis, account statements sent by a broker-dealer like BLMIS to C',ISt ,)mers with RVP/DVP accounts generally do not reflect any cash b"Lmce or security position at the end of a period. 13

c.::onspirat.ors involved in the preparation of the 2004 Special Cllents' account statements in RVP!DVP format knew that those spec~ally

created statements were designed to mislead the SEC

about BLMIS's IA business by, among other things, falsely appearing to explain why BLMIS did not hold any securities at DTC on benalf of the 2004 Special Clients.

In furtherance of that

deception, at Madoff's direction, DIPASCALI and other co­ :cnspirators caused the names of the account holders reflected on cr-e 2004 Special Clients' accounts to be changed so that it would faLs~iy

appear that the assets were being held by European

financial institutions for the benefit of the 2004 Special CJients, not by BLMIS at DTC. Deceiving The SEC In 2005 24.

In the course of an SEC review of the broker-

dealer operations of BLMIS that occurred in or about 2005, and in furtherance of the scheme, at Madoff's direction, FRANK D~PASCALI,

JR., the defendant, and other co-conspirators caused

additional BLMIS books and records to be created that related to a different subset of IA Clients (collectively, the "2005 Special CL ients"). c~Eated

Specifically, DIPASCALI and other co-conspirators

new trade blotters that reflected trading activity

p1.lq:ortedly conducted on behalf of the 2005 Special Clients. 4

Trade blotters are records that, in a legitimate tratilng operation, reflect details about the securities transactions actually executed by a broker-dealer. 14

Amonq other things, DIPASCALI and other co-conspirators created falSt~

entries in BLMIS books and records to make it appear that

cert~in

of the counterparties of BLMIS in the fictitious

transactions reflected on the RVP/DVP statements were European financial institutions. ~cnspirators

In fact, as DIPASCALI and his co­

well knew, there were no counterparties because the

t!ansactions were entirely fictitious. 25.

In a further effort to mislead and deceive the SEC

:ired ·:Jthers, at the direction of Madoff, FRANK DIPASCALI, JR., the defendant, and other co-conspirators created a phony computer tlading "platform" for the purpose of making it falsely appear that BLMIS executed securities transactions with European c(Junterparties on behalf of its clients.

DIPASCALI and his co­

conspirators then practiced using the phony trading platform in pl'eparat ion for deceiving the SEC and anyone else who demanded e"idence of their trading activity by purporting to demonstrate the system in action. Deceiving The European Accounting Fir.m In 2005

26.

In or about November 2005, the custodian of

several European IA Clients (the "European Custodian" and ":::uropean Clients," respectively), sent employees of the European A.:'cc>unt 1n9 Firm to review BLMIS' s operations. DIPhSCALI

Madoff, FRANK

JR., the defendant, and other co-conspirators took

steps to mislead the European Accounting Firm about BLMIS's

15

,.Jpera.t ions, knowing that the European Accounting Firm's :cncJusions would be communicated to their mutual clients. Because the European Accounting Firm, the European Custodian and che European Clients were all based in Europe, Madoff, DIPASCALI, and other co-conspirators used a "domestic scenario" :::te

(instead of

'European scenario" that had been employed with the SEC) in

aI. effort to make it less likely that the European Accounting Firm would be able to obtain information that might uncover the flaudulent scheme.

Specifically, DIPASCALI, at the direction of

MadoEf, and with the assistance of other co-conspirators:

(a)

posed as BLMIS's Head of Institutional Operations when, in fact, hE-

W3.S

not;

(b) oversaw the production by co-conspirators of

c(luncerfeit DTC reports that purported to show that BLMIS had custJdy of the securities reflected on the account statements that had been sent to the European Clients and/or the European Cust:>dian;

(c) oversaw the production by co-conspirators of

fl'audulent trade blotters that, contrary to those prepared in connection with the SEC's 2005 examination, purported to show domestic counterparties for the securities transactions reported thereIn; and (d) oversaw the production by other co-conspirators of false and fraudulent documents requested by the European Accounting Firm during its on-site inspection of BLMIS's opera t ic,ns .

16

Deceiving The SEC In 2006

27.

In or about 2006, at the direction of Madoff,

FRANK DIPASCALI, JR., the defendant, and other co-conspirators rn.Lsled and deceived the SEC in connection with its examination of BLMIS's relationship with the hedge fund industry.

Among other

things, at the direction of Madoff, DIPASCALI oversaw the pJ~Oductlon

by other co-conspirators of false trade blotters in

anticipation of inquiries from the SEC when he knew that these trade blotters reflected entirely fictitious transactions because BLMIS was not executing any real securities transactions for its Il~

C1 i ents . 28.

d~recti8n

FRANK DIPASCALI, JR., the defendant, at the

of Madoff, also lied under oath in testimony before the

SEC or" :>r about January 26, 2006.

Among other things, DIPASCALI

l_ed about the Split Strike strategy, the purported trades that rt~su1ted

Ii",.

from the execution of that strategy, and the size of the

bus iness. Deceiving The European Accounting Firm In 2008

29.

In or about 2008, the European Accounting Firm

returned to BLMIS to review its operations as related to the European Custodian and the European IA Clients. w::.. th that review,

In connection

at the direction of Madoff, FRANK DIPASCALI,

JE., :he defendant, and other co-conspirators caused additional false and fraudulent documents to be created and provided to the

17

European Accounting Firm in an effort to persuade the European Accounting Firm that the securities positions reflected on the ELropean Custodian's account statements actually existed when, in they did not.

fa2t,

Specifically, at the direction of Madoff,

DIPASCALI oversaw the production by other co-conspirators of

:,;uJn:.erfeit DTC reports that purported to show BLMIS's custody of securlties for a limited number of IA Clients including the El..1"0pean Clients. deEe~dant,

At the direction of Madoff, DIPASCALI, the

and other co-conspirators also prepared false and

fraudulent trade blotters.

Those documents included fictitious

::ie,meat ic trading counterparties drawn from records of actual tlading activity conducted by the BLMIS's proprietary trading bl..si~ess.

They also reflected trade amounts and times that were

In"Jented using random number generators, in an effort to prevent aLyone

~eviewing

the blotters from detecting patterns of activity

that might prompt additional investigation.

Laundering IA Client Funds Through MSIL To Support BLMIS 30. ~arket

Beginning at least as early as 2003, BLMIS's

making and proprietary trading businesses did not generate

suEflcient revenue to meet their expenses.

In part to support

BLMIS's market making and proprietary trading businesses, between

at

l~ast

as early as in or about 2005 and in or about 2008, at

tlle jirection of Madoff, FRANK DIPASCALI, JR., the defendant, and other co-conspirators caused at least $250 million of BLMIS

18

lDvestment advisory clients' funds to be transferred to, and between, the bank accounts that funded those businesses. Spec:fically, at the direction of Madoff, DIPASCALI caused hundreds of millions of dollars of IA Client funds to be transferred between and among a BLMIS account in New York, New Ycr~

(the "BLMIS Client Account"), accounts held by MSIL in

uCndD!l.,

United Kingdom (the "MSIL Accounts"), and another bank

;l.C':;()l.mt

in New York, New York, which was principally used to fund

BLMIS's operations (the "BLMIS Operating Account"). The Attempt To Steal IA Client Funds In December 2008

31.

As of on or about November 30, 2008, BLMIS had

apprJximately 4,800 client accounts. 2('08,

On or about December I,

BLMIS issued account statements for the calendar month of

Novembe~

2008 reporting that those client accounts held a total

balance of approximately $64.8 billion.

In fact, BLMIS had

approximately several hundred million dollars in cash in the BLMIS Client Account, and IA Clients had informed BLMIS of their intent to redeem sums that far exceeded BLMIS's cash on hand. 32.

On or about December 3, 2008, Madoff explicitly

tuld FRAN¥: DIPASCALI, JR., the defendant, that there were no assets standing behind the tens of billions of dollars of BLMIS obligatlons reflected in the IA Clients' account statements. 33. c'~T,versation,

Within approximately one week of that Madoff, FRANK DIPASCALI, JR., the defendant, and

19

othel'- co-conspirators prepared lists of employees, employees' faml~Y

members, and certain other IA Clients, and the balances in

Lheir IA accounts.

At the direction of Madoff, DIPASCALI and

other co-conspirators caused checks to be prepared that would have used the remaining BLMIS funds to cash out those individuals' IA accounts, thereby putting the interests of those sel,~ct.

few ahead of all the other IA Clients.

On or about

Oecember 10, 2008, Bernard L. Madoff signed certain of those ~~ec~s.

which were subsequently found in Madoff's office desk

fcllc)wing his arrest on December 11, 2008. The Conspiracy 34.

From at least in or about the 1980s through on or

about. December 11, 2008, in the Southern District of New York and else'N'here, FRANK DIPASCALI, JR., the defendant, and others known and .mknown, unlawfully, willfully, and knowingly did combine, ccms[nre, confederate, and agree with others, known and unknown, tc,

c::>mmit offenses against the United States, namely:

(a) to

cummit fraud in connection with the purchase and sale of securities, in violation of Title 15, United States Code, Sections 78j (b) and 78ff, and Title 17, Code of Federal Regulations, Section 240.10b-5; fraud,

(b) to commit investment adviser

in violation of Title 15, United States Code, Sections

80t-6 and 80b-17;

(c) to falsify books and records of a broker­

dealer 1n violation of Title 15, United States Code, Sections

20

78q(a)

and 78ff, and Title 17, Code of Federal Regulations,

Sect:ons 240.17a-3;

(d)

inve~)trnent

in violation of Title 15, United States Code,

adviser,

to falsify books and records of an

Sect:.ons 80b-4 and 80b-17, and Title 17, Code of Federal Regu:.a::ions, Section 275.204-2;

(e) to commit mail fraud,

lioLntion of Title 18, United States Code, Section 1341; ,::cmrn.lt

wire fraud,

in (f) to

in violation of Title 18, United States Code,

Sec'::Lon 1343; and (g) to commit international money laundering, in Ilolation of Title 18, United States Code, Section is,':',:' (a) :2;' (A),

The Objects of the Conspiracy

Securities Fraud

35.

It was a part and an object of the conspiracy that

FfANK DIPASCALI, JR., the defendant, and others known and unKO·)Wn, unlawfully, willfully, and knowingly, directly and Indirectly, by use of the means and instrumentalities of interstate commerce, the mails, and the facilities of national se2urIties exchanges, would and did use and employ manipulative and jeceptive devices and contrivances in connection with the purchase and sale of securities,

in contravention of Title 17,

Code of Federal Regulations, Section 240.10b-5, by: empl~ying

devices, schemes, and artifices to defraud;

(a) (b) making

and causing BLMIS to make untrue statements of material fact and onlltting to state material facts necessary in order to make the

21

stat~ments

made, in light of the circumstances under which they

weLe made, not misleading; and (c) engaging in acts, practices, dnd cour"ses of business which operated and would operate as a

fraud and deceit upon persons who invested in and through BLMIS, LIl

'J:.olation of Title 15, United States Code, Sections 78j (b) and

'781':

Investment Adviser Fraud

36.

It was further a part and an object of the

:cnsplracy that FRANK DIPASCALI, JR., the defendant, acting on DEhaLf of an investment adviser with respect to one and more l~vestors 3.Ld

and potential investors in products offered by BLMIS,

,~thers

known and unknown, unlawfully, willfully, and

knowingly, by the use of the mails and means and instrumentalities of interstate commerce, directly and incilrec:ly, would and did:

(a) employ devices, schemes, and

al-t i f ices to defraud clients and prospective clients; ill

(b) engage

transactions, practices, and courses of business which

operated as a fraud and deceit upon clients and prospective c._ients; and (c) engage in acts, practices, and courses of business that were fraudulent, deceptive, and manipulative, in vcc,lation of Title 15, United States Code, Sections 80b-6 and 8 i)b -1-; .

22

Falsifying Books and Records of a Broker-Dealer

37.

It was further a part and an object of the

c:onnpiracy that FRANK DIPASCALI, JR., the defendant, and others known and unknown, unlawfully, willfully, and knowingly, did cause BLMIS, a registered broker-dealer, to fail to make and keep such records as the SEC, by rule, prescribed as necessary and ,~r:pr()priate

in the public interest for the protection of

ir:vest::Jrs and otherwise in furtherance of the purposes of the .3ecuc;.tles Exchange Act of 1934, in violation of Title 15, United .3tac~s

Code, Sections 78q(a) and 78ff. Falsifying Books and Records of an Investment Adviser

38.

It was further a part and an object of the

COl1Splracy that FRANK DIPASCALI, JR., the defendant, and others known and unknown, unlawfully, willfully, and knowingly, by the use of the mails and means and instrumentalities of interstate cummerce, directly and indirectly, in connection with BLMIS's business as an investment adviser, did cause BLMIS to fail to mdke and keep for prescribed periods such records, furnish such Cl)ples t.hereof and make and disseminate such reports as the SEC, b"1

rule, prescribed as necessary and appropriate in the public

i;lt E resL and for the protection of investors, in violation of T J t 1 e 1 'j

I

United States Code, Sections 80b-4 and 80b-17.

23

Mail Fraud 39.

It was further a part and an object of the

constJl1.-acy that FRANK DIPASCALI, JR., the defendant, and others known and unknown, unlawfully, willfully, and knowingly, having df~Vlsed

and intending to devise a scheme and artifice to defraud,

and for obtaining money and property by means of false and fl-audulent pretenses, representations, and promises, unlawfully, WJ.llfully, and knowingly, for the purpose of executing such scheme and artifice and attempting so to do, would and did place alld cause to be placed in post offices and authorized depositories for mail matters, matters and things to be sent and delivered by the Postal Service, and would and did deposit and cause to be deposited matters and things to be sent and delivered b'/ pri vate and commercial interstate carriers, and would and did take and receive therefrom such matters and things, and would and dld knowingly cause to be delivered, by mail and such carriers acccrding to the directions thereon, and at the places at which tlJe-y were directed to be delivered by the persons to whom they were addressed, such matters and things, in violation of Title 13, Unlted States Code, Section 1341. Wire Fraud 40.

It was further a part and an object of the

c ='nsplracy that FRANK DIPASCALI, JR., the defendant, and others k~O~TI

and unknown, unlawfully, willfully, and knowingly, having

24

d~vised

arld

and intending to devise a scheme and artifice to defraud,

for obtaining money and property by means of false and

fraudulent pretenses, representations, and promises, unlawfully, wi llfully, and knowingly, for the purpose of executing such scl1eme and artifice and attempting so to do, would and did tlansmit and cause to be transmitted by means of wire, radio and tE:'le'vision communication in interstate and foreign commerce, wlitings, signs, signals, pictures, and sounds for the purpose of e~ec~ting

such scheme and artifice, in violation of Title 18,

United States Code, Section 1343. International Money Laundering 41. c()ns~)lracy

It was further a part and an object of the

that FRANK DIPASCALI, JR., the defendant, and others

known and unknown, in an offense involving and affecting illcerstate and foreign commerce, unlawfully, willfully and knowlngly,

transported, transmitted and transferred, attempted to

u-anspoY t,

transmit and transfer, and caused others to transport,

tTansrnit and transfer, and attempt to transport, transmit, and tJ'anster,

funds from a place in the United States to a place

olJtside the United States, and funds from a place outside the UniLed States to a place within the United States, with the illcent to promote the carrying on of specified unlawful activity, ill

violation of Title 18, United States Code, Section

1956 ta) i2:1 (A) ,

25

Means And Methods Of The Conspiracy

42.

Among the means and methods by which Bernard L.

MadoEf, FRANK DIPASCALI, JR., the, defendant, and others, known and unknown, would and did carry out the conspiracy were the fo.Llowing: a.

DIPASCALI assisted Madoff in inventing the

Split StrIke strategy that was marketed to current and prospective Split Strike Clients. b.

At Madoff's direction, DIPASCALI and other

cl;-conspirators conducted research on historical prices and t~ading

volumes to develop baskets of stocks that could be used

t.: generate the appearance of investment returns for Split Strike

Clients c.

At Madoff's direction, DIPASCALI and other

c;-conspirators created and supervised the infrastructure necessary to cause millions of pages of false and fraudulent a~'C'(1unt

statements and confirmations of purported securities

transactions to be sent to Split Strike Clients via the United Scates mails to give the appearance that BLMIS had invested those clients·

funds when, in fact, d.

it had done no such thing.

At Madoff's direction, DIPASCALI and other

c::)· ,:onspl rators caused false and fraudulent books and records to be crear:ed for the express purpose of misleading the SEC and

26

others about the nature, scale, and operations of BLMIS's IA Dusiness. e.

Madoff and DIPASCALI committed perjury in an

effort to prevent the SEC from learning the truth about BLMIS's II> ::Jllsiness.

f. at

Madoff, DIPASCALI and other co-conspirators

:.empted to, and did, misappropriate IA Clients' funds and

::onvert them to their own use and that of others without the

al.t:horization of the IA Clients. g.

At Madoff's direction, DIPASCALI and other

c(l-conspirators used facilities of interstate and foreign commerce, including the mails and interstate and foreign wire transfers, in ,furtherance of the objects of the conspiracy. Overt Acts 43.

In furtherance of the conspiracy and to effect the

i. .Legal obj ects thereof,

FRANK DIPASCALI,

JR.,

the defendant, and

others known and unknown, committed the following overt acts, arncng ot.hers, in the Southern District of New York and elsewhere: a.

In or about the 1980s, DIPASCALI provided

information to Madoff for an options trade based on historical p:ice data. b.

In or about the early 1990s, Madoff, with

DIPASCALI's assistance, created the Split Strike strategy.

27

c.

In or about the early 1990s, Madoff caused

numerous Split Strike Client accounts to be opened on BLMIS's bookB and records. d.

In or about February 1993, at the direction

of Madoff, DIPASCALI caused false and fraudulent BLMIS account 8ta~ements

reflecting purported trades in the Split Strike

strategy to be sent through the United States mails from New '{e l:~.

New York to Pembroke Pines, Florida. e.

~f

In or about February 1994, at the direction

Madoff, DIPASCALI caused false and fraudulent BLMIS account

statements reflecting purported trades in the Split Strike stl"a~egy

to be sent through the United States mails from New

York, New York to Minnetonka, Minnesota. f.

In or about January 1995, at the direction of

MadoEf, DIPASCALI caused false and fraudulent BLMIS account statements reflecting purported trades in the Split Strike st L"a:egy to be sent through the United States mails from New York, New York to Miami Beach, Florida. g. :)t

In or about February 1996, at the direction

Madoff, DIPASCALI caused false and fraudulent BLMIS account

statements reflecting purported trades in the Split Strike strategy

LO

be sent through the United States mails from New

York, New York to Worcester, Massachusetts.

28

h. Madol'f,

In or about January 1997, at the direction of

DIPASCALI caused false and fraudulent BLMIS account

statements reflecting purported trades in the Split Strike strdtegy to be sent through the United States mails from New Yc~k

New York to Coconut Grove, Florida. i.

,~f

In or about February 1998, at the direction

MddofE, DIPASCALI caused false and fraudulent BLMIS account

statements reflecting purported trades in the Split Strike stra:egy to be sent through the United States mails from New Ycrk,

New York to Coconut Grove, Florida. j.

of

a co-conspirator,

On or about December 28, 1999, at the request DIPASCALI provided information about a

fi ,:t: ional options "trade," using historical data, tCi

which purported

3enerate approximately $50,633 in "profit" for a Non-Split

8t Llke

Client. k.

In or about January 2000, the fictional

options trade referred to in subparagraph 43(i), above, was recorded on the books and records of BLMIS and was reflected on the pertinent Non-Split Strike Client's account statement. 1.

On or about December 31, 2001, DIPASCALI

causeo tictional options trades that purported to generate approximately $201,450 in profits to be reflected on a Split Strike Client's December 2001 account statement.

29

m.

On or about September 10, 2002, DIPASCALI

caused approximately $1,701,769 of IA Client funds to which he was no:: entitled to be wire transferred from the BLMIS Client Account: Ear the purchase of a boat for DIPASCALI's personal use. n.

On or about December 31, 2003, DIPASCALI

,:aused fictional options trades that purported to generate a.pproximately $3,202,760 in profits to be reflected on a Split ,:It:cike Client's December 2003 account statement.

o.

On or about February 4, 2004, Madoff had a

tElephone conversation with a representative of the SEC. p.

On or about December 31, 2004, DIPASCALI

::c3used fictional options trades that purported to generate :ippr,]ximately $10,122 in profits to be reflected on the December 2004 statement for an IA account held in the name of a co­ consplrator. q.

On or about April 28, 2005, Madoff met with

aIle :;,r more representatives of the SEC.

r.

On or about October 21, 2005, DIPASCALI

cclUsed approximately $16,597,587 to be wire transferred from the BLMIS Client Account to the MSIL Accounts. s.

On or about October 27, 2005, DIPASCALI

c,lused approximately $8,446,920 to be wire transferred from the MSIl Accounts to the BLMIS Operating Account.

30

t.

In or about November 2005, Madoff met with

representatives of the European Accounting firm in New York, New YCl"K

u. Lepr~~sentatives

In or about November 2005, DIPASCALI met with

of the European Accounting firm in New York, New

ie 1<-<':

v.

On or about January II, 2006, a disc

c0ntainlng false and fraudulent BLMIS books and records was sent ~c

the SEC. w.

~l

~ore

On or about May 9, 2006, Madoff met with one

representatives of the SEC. x.

On or about July 26, 2006, DIPASCALI caused

appr'Jximately $7,751,058 to be wire transferred from the BLMIS :llent Account to the MSIL Accounts. y. appr~ximately

On or about July 26, 2006, DIPASCALI caused

$7,905,340 to be wire transferred from the MSIL

Ac::ounts to the BLMIS Operating Account. z.

On or about December 26, 2006, DIPASCALI

caused fictional options trades that purported to generate approximately $344,190 in profits to be reflected on a Split Strlke Client's December 2003 account statement. aa.

On or about March 22, 2007, DIPASCALI caused

approximately $24,294,714 to be wire transferred from the BLMIS ClIent Account to the MSIL Accounts.

31

bb. a~proximately

On or about March 29, 2007, DIPASCALI caused

$14,828,550 to be wire transferred from the MSIL

!\C'::O'lnts to the BLMIS Operating Account. cc. LEpr~SeI1tatives

In or about April 2008, DIPASCALI met with

of the European Accounting Firm in New York, New

Yc d:.

dd.

On or about June 6, 2008, DIPASCALI caused

=!"f.'pr'.Jximately $15,870,880 to be wire transferred from the BLMIS :llent Account to the MSIL Accounts.

ee.

On or about July 23, 2008, DIPASCALI caused

approximately $7,265,690 to be wire transferred from the MSIL A(~o~nts

to the BLMIS Operating Account.

ff.

On or about December 10, 2008, approximately

IlJ :hecks totaling approximately $173,788,956.82 were prepared

for :-ertain IA Clients including BLMIS employees, employees' famIly members, and others. 99. Jr

fe,r

On or about December II, 2008, approximately

checks totaling approximately $176,359,965.08 were prepared ~ertain

IA Clients including BLMIS employees, employees'

famIly members, and others. hh.

On or about December II, 2008, DIPASCALI

attempted to delete certain computer files that evidenced the fraudulent scheme. (Title 18, United States Code, Section 371.)

32

COUNT TWO

(Securities Fraud)

The United States Attorney 44. j; •

furth~r

charges:

The allegations contained in paragraphs 1 through

.:l.nd 42 through 43, above, are hereby repeated, realleged and

i~corporated

by reference as if fully set forth herein. From at least the 1990s through on or about

45.

OE-cember 11, 2008, in the Southern District of New York and else'tJhere,

FRANK DIPASCALI, JR., the defendant, unlawfully,

wlllEully,

and knowingly, directly and indirectly, by the use of

means and instrumentalities of interstate commerce, the mails,

and the facilities of national securities exchanges, in connection with the purchase and sale of securities, did use and empl~y

manipulative and deceptive devices and contrivances,

v~alation

of Title 17, Code of Federal Regulations, Section

2~1).lOb-5,

defraud;

in

by:

(a) employing devices, schemes, and artifices to

(b) making untrue statements of material facts and

rnlitting to state material facts necessary in order to make the statements made, were made,

in light of the circumstances under which they

not misleading; and (c) engaging in transactions,

al:CS, practices, and courses of business which operated and would '~perate

as a fraud and deceit upon persons.

iTitle 15, United States Code, Sections 78j (b) and 78ff; Code of Federal Regulations, Section 240.10b-S; Title 18, United States Code, Section 2.)

Title 17,

33

COUNT THREE

(Investment Adviser Fraud)

The United States Attorney further charges: 46. 33

The allegations contained in paragraphs 1 through

dnd 42 through 43, above, are hereby repeated, realleged and

inco~porated

47.

by reference as if fully set forth herein. From at least the 1990s through on or about

ue.::ember 11, 2008, in the Southern District of New York and e1 se'Nhere, FRANK DIPASCALI, JR., the defendant, acting on behalf ::>1

3Lj

investment adviser with respect to clients and potential

cJ lents of BLMIS, U~;e

unlawfully, willfully, and knowingly, by the

::>f the mails and means and instrumentalities of interstate

commerce, directly and indirectly, did:

(a) employ devices,

schemes, and artifices to defraud clients and prospective c~ients;

lb) engage in transactions, practices, and courses of

business which operated as a fraud and deceit upon clients and prcspective clients; and (c) engage in acts, practices, and c(~urses

of business that were fraudulent,

deceptive, and

mdr.lpulative. Title 15, United States Code, Sections 80b-6 and 80b-1?;

Title 18, United States Code, Section 2.)

34

COUNT FOUR

(Falsifying Broker-Dealer Books and Records)

The United States Attorney further charges: 48. 3::',

dnd 42 through 43,

l~~orporated

49. 11,

The allegations contained in paragraphs 1 through

2008,

Hi llEully, dEal~r,

above, are hereby repeated, realleged and

by reference as if fully set forth herein. Between in or about 2004, and on or about December

FRANK DIPASCALI, JR., the defendant, unlawfully, and knowingly, did cause BLMIS, a registered broker-

to fail to make and keep such records as the SEC, by

rLle. prescribed as necessary and appropriate in the public ir:terest for the protection of investors and otherwise in fl.rtnerance of the purposes of the Securities Exchange Act of E· 34

I

tc:' wi t,

on or about January II, 2006, DIPASCALI caused

false and fraudulent BLMIS trade blotters to be made and kept and plodJced to the SEC. (~itle 15, United States Code, Sections 78q(a) and 78ff; ritle 17, Code of Federal Regulations, Section 240.17a-3; Title 18, United States Code, Section 2.)

COUNT FIVE

(Falsifying Investment Adviser Books and Records)

The United States Attorney further charges: 50. L.

The allegations contained in paragraphs 1 through

:md 42 through 43, above, are hereby repeated, realleged and

lfh~orpolated

by reference as if fully set forth herein.

35

51.

Between in or about September 2006 and on or about

Decembel 11, 2008, in the Southern District of New York and elsewhere, FRANK DIPASCALI, JR., the defendant, unlawfully, wl11Eully, and knowingly, by the use of the mails and means and instrumentalities of interstate commerce, directly and indirectly, in connection with BLMIS's business as an investment adviser, did cause BLMIS to fail to make and keep for prescribed perIods such records, furnish such copies thereof and make and dlsseminate such reports as the SEC, by rule, prescribed as necessary and appropriate in the public interest and for the protection of investors, to wit, in or about April 2008, DIPASCALI caused false trade blotters to be made and kept by BLMI8, an investment adviser registered with the SEC. (Title 15, United States Code, Sections 80b-4 and 80b-17; Title 17, Code of Federal Regulations, Section 275.204-2; Title 18, United States Code, Section 2.) COUNT SIX (Mail Fraud)

The United States Attorney further charges: 52. 3~,

The allegations contained in paragraphs 1 through

aud 4:: through 43, above, are hereby repeated, realleged and

inCCrpOl"at.ed by reference as if fully set forth herein. 53.

From at least as early as the 1990s through on or

about December 11, 2008, in the Southern District of New York and e L sewhel-e,

FRANK

DIPASCALI, JR., the defendant, unlawfully,

~Llltully,

and knowingly, having devised and intending to devise 36

d

scheme and artifice to defraud, and for obtaining money and

property by means of false and fraudulent pretenses, representations, and promises, for the purpose of executing such scheme and artifice and attempting so to do, did place in post IJfflCeS and authorized depositories for mail matter, matters and thlnys to be sent and delivered by the Postal Service, and did deposit and cause to be deposited matters and things to be sent a~d

dellvered by private and commercial interstate carriers, and

did :ake and receive therefrom such matters and things, and did knowingly cause to be delivered, by mail and such carriers according to the directions thereon, and at the places at which they were directed to be delivered by the persons to whom they were addressed, such matters and things, to wit, on or about December 1, 2008, DIPASCALI sent and caused to be sent and delivered via the Postal Service a false and fraudulent account st:atement from BLMIS to a client in New York, New York. ITitle 18, United States Code, Sections 1341 and 2.) COUNT SEVEN

(Wire Fraud)

The united States Attorney further charges: 54. ~3,

The allegations contained in paragraphs 1 through

and 42 through 43, above, are hereby repeated, realleged and

i~corporated

55.

by reference as if fully set forth herein. From at least as early as the 1990s through on or

aDoLt December 11, 2008, in the Southern District of New York and 37

else'lJhere,

FRANK DIPASCALI, JR., the defendant, unlawfully,

willfully, and knowingly, having devised and intending to devise ~

scheme and artifice to defraud, and for obtaining money by

means of false and fraudulent pretenses, representations and promises, did transmit and cause to be transmitted by means of wiLe,

radio, and television communication in interstate and

foreign commerce, writings, signs, signals, pictures, and sounds f01: the purpose of executing such scneme and artifice, 01

to wit, on

acout March 29, 2007, DIPASCALI caused approximately

$}Q,828,550 to be sent by wire from London, England to New York,

New 'York. (Title 18, United States Code, Sections 1343 and 2.) COUNT EIGHT

(International Money Laundering To Promote

Specified Unlawful Activity)

The United States Attorney further charges: 56.

The allegations contained in. paragraphs 1 through

and 42 through 43, above, are hereby repeated, realleged and

3"

illcor'por'ated by reference as if fully set forth herein. 57.

From at least as early as in or about 2002,

through ou or about December II, 2008, in the Southern District 0;:

New York,

JP.,

the United Kingdom, and elsewhere, FRANK DIPASCALI,

the defendant,

in~erstate

in an offense involving and affecting

and foreign commerce, unlawfully, willfully and

knowingly. transported, transmitted and transferred, attempted to

38

tlansport. transmit and transfer, and caused others to transport, tlansmit and transfer, and attempt to transport, transmit, and tlansfer,

funds from a place in the United States to a place

outside the United States, and funds from a place outside the Unlted States to a place within the United States, with the lTite:lt to promote the carrying on of specified unlawful activity, teo wit, fl'aud.

fraud in the sale of securities, mail fraud, and wire to wit, DIPASCALI caused funds to be wire transferred from

BLMIS bank accounts,

including the BLMIS Investor Account in New

York, New York, to the MSIL Accounts in the United Kingdom, and to be transferred from the MSIL Accounts in the United Kingdom, to BLMIS bank accounts, including the BLMIS Operating Account, in Ne~

York, New York,

s{~curi ties,

in order to promote fraud in the sale of

mail fraud, and wire fraud.

(TitlE' 18, United States Code, Sections 1956(a) (2) (A) and 2.) COUNT NINE (Perjury)

The United States Attorney further charges: 58. 3),

and

4~:

The allegations contained in paragraphs 1 through

through 43, above, are hereby repeated, realleged and

i,ccrporated by reference as if fully set forth herein. 59,

As described in paragraph 1 above, BLMIS was at

certain times, among other things, a broker-dealer and investment ad\'j ser registered with the SEC.

39

As such, BLMIS was subject to

periodic examinations by the SEC.

The SEC has broad authority to

conduct investigations into various aspects of the securities markets and,

in or about 2006, was conducting such an

investigation of BLMIS.

As part of that investigation, on or

about January 26, 2006, employees of the SEC took the voluntary :::esti.mony of FRANK DIPASCALI, JR., the defendant, under oath (the SEC Testimony") .

"~IPASCALI

60.

During the course of the DIPASCALI SEC Testimony,

DIPASCALI, JR., the defendant, made numerous false and

Fk.A.NK

mlsl~ading

statements for the purpose of deceiving the SEC and

bJding the unlawful conduct of himself and others described in paragraphs 1 through 33, and 42 through 43, above. testified, among other things, in substance, that:

DIPASCALI (a) BLMIS

e):ecuted trades of common stock on behalf of its investment advisory clients; 01

(b) BLMIS executed options contracts on behalf

its lnvestment advisory clients;

(c) BLMIS had only about 20

c.ients of its IA business; and (d) BLMIS managed only about $10­ 1. bil110n of IA Client funds.

61.

On or about January 26, 2006, in the Southern

Dl:::trict of New York, FRANK DIPASCALI, JR., the defendant, having taken an oath before a competent tribunal, officer and person, in a case

lD

which the law of the United States authorizes an oath

t: be admlnistered,

SEC, a~d

namely, in testimony before an officer of the

that he would testify, declare, depose and certify truly, that any written testimony, declaration, deposition and 40

certificate by him subscribed, would be true, unlawfully, WJllfully, knowingly, and contrary to such oath, stated and subscribed material matters which he did not believe to be true, namely,

in his testimony on or about January 26, 2006, DIPASCALI

krlowingly testified falsely as to the material matters in the porticns of his cited testimony underlined below: Specification One (Page 63, Lines 3-16) ~:

Have there been instances in the last ten years whe re Mr. Madoff's overall returns have been negative?

A.:

I don't believe so. For the year, no. For any particular period of time, definitely, but not over the course of a year. No, I don't remember one.

Q:

How does the firm

A:

I don't want to interrupt you, but keep in mind that there has been market corrections that have occurred. We are not in the market all the time. We are in the market for short periods of time. Specification Two (Page 87, Lines 1-9)

J;

I wanted to make sure that the basket is put on during a trading day and the options are put on subsequent to the basket?

h:

The basket is put on during the European trading day. The options are put on prior to the New York open and after the European trading day is ended. when I am complete. Specification Three (Page 124, Lines 3-18)

Q:

The people that you execute your equities with, are they the same broker-dealers that you execute the options with?

A:

No,

they are not. 41

Q:

None of them are the same?

A:

PeoDle I execute the equities with, you are talking about European contra side dealers?

.;:

No,

Q:

About how many derivative dealers do you deal with?

A:

Derivative dealers, 20. maybe two dozen. It's not five and it's not 30. It's probably 18. 19, 20.

no.

Specification Four (Page 73, Lines 1-9) Q:

[D]o you even keep some. record that they executed this [options] transaction at a certain price with these parameters?

A:

I have the entry database that comes back from the dealers that is accessible in any format I want to look at it, trade date, dealer, I want to look at it by price. symbol. by any sort of mechanism. Specification Five (Page 71, Lines 12-14)

I;:

How does [Bernard L. Madoff] communicate with [the dealers with whom he executes options transactions]?

A:

Telephone.

They affirm back to me by computer ..

Specification Six (Page 104, Line 23 - Page 105, Line 9) ~i:

I want to switch gears and talk about the customers in the institutional business. What kind of customers does this business have? Who are they?

~,:

Who are they. I guess there [are] about 20, the larqest of which would be Fairfield, which I guess is an offshore hedge fund. I am thinking of some of the names. what they do. They are either a hedge fund or some sort of a European institution. They are not natural people like a client would be, Joe Schmo,

42

Specification Seven (Page 129, Lines 10-18) ~:

You mentioned confirmations and a~count statements that get sent to customers earlier. Who is in charge of generating them and sending them to customers?

A:

The computer actually gets all the information, spits it out and a printer - one of the operators is told to print me that file and they print it out. There [are] not that many statements. SDecification Eight (Page 112, Lines 17-19)

Q:

Any rough idea about how much [Bernard L. Madoffl is managing?

A:

10, $11 billion. (Title 18, United States Code, Section 1621.) COUNT TEN (Income Tax Evasion)

The United States Attorney further charges: 63.

For certain tax years between 2002 and 2007, FRANK

OlPASCALI, JR., the defendant, failed to report certain income, including:

(a) millions of dollars of withdrawals from a BLMIS IA

account held in the name of a limited liability corporation furmed by OIPASCALI (the "LLC") i

(b)

interest income earned from

a money market account held in the name of the LLCi and (c) Salary paId by BLMIS from IA Client funds to a boat captain employed by DIPASCALI. 64.

From on or about January 1, 2002, through on or

about August 10, 2009, in the Southern District of New York and e~sewhele,

FRANK DIPASCALI, JR., the defendant, unlawfully, 43

wiL.full'!, and knowingly, did attempt to evade and defeat a substant.ial part of the income tax due and owing by DIPASCALI to ~he

United States of America for calendar years 2002, 2005, 2006

dnd :!007 by various means,

including depositing personal income

In,l) bank accounts held in the name of nominees and filing and :au3.ing to be filed,

a false and fraudulent u.s. Individual

Ircrnne Tax Return, Form 1040, for the 2005 tax year, which return faLsely omitted certain income, resulting in taxes due and owing

fer each of the following tax years in the following amounts:

Reported Taxable Income

2002

Tax Paid

Corrected Taxable Income

Additional Tax Due and Owing

$0

$327,121

$3,254,163

$889,745

2005

$999,999

$314,278

$2,265,734

$452,791

2006

$0

$676,150

$2,559,703

$192,996

2007

$0

$867,367

$4,050,810

$522,622

Calendar Year

(Title 26, United States Code, Section 7201.) FORFEITURE ALLEGATION (Offenses Constituting Specified Unlawful Activity)

65.

As the result of committing the offenses

c0nstitutlng specified unlawful activity as defined in 18 U.S.C. §

]956((:) !7),

t~jE

Information, FRANK DIPASCALI, JR., the defendant, shall

f)rfe~t

§

as alleged in Counts One, Two, Six, and Seven of

to the United States, pursuant to 18 U.S.C.

~JSLa' ~L)

personal,

(C) and 28 U.S.C.

§

2461, all property, real and

that constitutes or is derived from proceeds traceable

44

teo the commission of the said offenses, including, but not Limited to, a sum of money equal to at least $170 billion, thd~

s~ch

in

sum in aggregate represents the amount of proceeds

ottdLned as a result of the said offenses or is traceable to such ploperty. Substitute Asset Provision 66.

If any of the above-described forfeitable

ploperty, as a result of any act or omission of the defendant:

i

1

1S

a.

cannot be located upon the exercise of due diligence;

b.

has been transferred or sold to, or deposited with, a third person;

c.

has been placed beyond the jurisdiction of the Court;

d.

has been substantially diminished in value; or

e.

has been commingled with other property which cannot be subdivided without difficulty;

the intent of the United States, pursuant to Title 21,

United States Code, Section 853(p), to seek forfeiture of any o~her

property of the defendant up to the value of the

f':rfeitable property described above. (Title 18, United States Code, Section 981 (a) (1) (C), and Title 28, United States Code, Section 2461.) FORFEITURE ALLEGATION (Money Laundering) 67. off~nse

ll1

As the result of committing the money laundering

violation of 18 U.S.C. 45

§

1956 (a) (2) (A), alleged in

'~:oUl1L

E:ight of this Information, FRANK DIPASCALI, JR., the

defendant, ~.s.(~

§

shall forfeit to the United States, pursuant to 18

982, all property, real and personal, involved in the

sald money laundering offense and all property traceable to such property, 3t

including, but not limited to, a sum of money equal to

l·=ast $250 million,

in that such sum in aggregate represents

tbe3.mount of property involved in the money laundering offense OJ

1'3

traceable to such property. Substitute Asset Provision 68.

If any of the above-described forfeitable

pl."operty, as a result of any act or omission of the defendant:

i~

lS

a.

cannot be located upon the exercise of due diligence;

b.

has been transferred or sold to, or deposited with, a third person;

c.

has been placed beyond the jurisdiction of the Court;

d.

has been substantially diminished in value; or

e.

has been commingled with other property which cannot be subdivided without difficulty;

the intent of the United States, pursuant to Title 18,

Un2-ted States Code, Section 982(b) and Title 21, United States C~de,

Section 853(p), to seek forfeiture of any other property of

46

thE, defendant up to the value of the forfeitable property des,::~:ibed

above. (Title 18, United States Code, Section 982.)

47