After more than six years and 15 convictions, the Bernie Madoff Ponzi scheme, which cost his investors an estimated $50 billion, is finally coming to close.
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Three of Bernie Madoff’s ex-employees, who helped prosecutors convict some of the players in the biggest fraudulent scheme in U. S. history have been sentenced, while the last two sentencings will take place in early July.
David Friehling, Madoff’s accountant, who spent nearly two decades “cooking the books” for Madoff was sentenced to time served today. He will be on supervised release for 2 years, including home detention for 12 months. Friehling, who began working off his potential sentence as a government witness against other alleged fraudsters, didn't admit to the crime early on. He told a judge back in 2009 that he didn’t know anything about Madoff's scheme. He later admitted that it “was the biggest mistake of his life.”
David Kugel, a longtime trader for Madoff’s firm was sentenced to 10 months of home confinement and ordered to perform 200 hours of community service yesterday after he was credited for cooperating with prosecutors. He admitted that he helped create fake, backdated trades for Madoff’s private investment business and was the first witness to testify in 2013 at the trial of five former Madoff employees (“Madoff Five”).
Kugel’s son, Craig, another cooperator who worked for Madoff as a human resources employee was sentenced to two years of supervised release.
“Cooperating witnesses are typically not sentenced until they have completed their cooperation with the Government, which includes completely describing their criminal conduct, assisting with the review of documents and other evidence, and testifying at trial,” says John Zach, who was part of the ”Madoff Three” that prosecuted the “Madoff Five” back in March of 2014.
Zach says with the Madoff case being a decades’ long deceit, it’s not a surprise that these sentences took so long but it’s what you can expect under the circumstances. His colleague and partner at Boies, Schiller & Flexner, Matthew L. Schwartz, who was also part of “The Madoff Three” agreed.
“It is customary in the Southern District of New York for cooperators’ sentencing to be delayed – in some cases numerous times – until their cooperation is substantially complete. That way, the judge who sentences the cooperator can evaluate not only the severity of his or her criminal conduct, but also the scope and usefulness of his or her cooperation. In this case, the cooperating defendants pleaded guilty as early as 2009, and their sentencings have been adjourned repeatedly since then for precisely this purpose,” say Schwartz.
According to court documents, the last two Madoff-related sentencings will take place in early July. Irwin Lipkin, who was the former controller of Madoff Securities will be sentenced on July 7th. His son, Eric Lipkin, a former payroll clerk and assistant to Madoff’s late chief financial officer, Frank DiPascali, was sentenced last week to nine months of home detention, two years of probation and 200 hours of community service after he cooperated with prosecutors. Paul Koningberg, another one of Madoff’s accountants will be sentenced on July 9th.
“Irwin Lipkin, unlike his son, did not cooperate with the government and his sentencing has been delayed principally at his lawyers’ requests. Konigsberg is cooperating, although he did not plead guilty until after the trial,” said Schwartz.
Schwartz says because most of the accused pled guilty early on, they never stood trial and everyone except for Eric Lipkin testified at the trial.
Schwartz, Zach, and Prosecutor Randall Jackson were the trio (“The Madoff Three”) that successfully convicted five employees that aided and covered up Madoff’s enormous Ponzi scheme. The former employees did not participate with investigators early on which in return led to prison sentences that ranged from two-and-a-half to ten years. The six-month trial was also one of the longest-ever white collar trials in New York federal court history.
“The size and scope of the decades-long Madoff fraud was unprecedented. The five defendants were variously involved in an intricate and evolving securities fraud scheme, an elaborate accounting ruse, numerous species of tax fraud, and a computer-driven books and records scam. To boil this sprawling conduct down for presentation to a jury was a huge a challenge,” says Zach.
Schwartz says being connected to the Madoff investigation and prosecution was a real honor.
“As a result of our work, 15 people were convicted for their roles in the fraud, almost $10 billion in crime proceeds was forfeited, and one of the world’s largest financial institutions, JPMorgan Chase (NYSE:JPM), entered into a deferred prosecution agreement and promised to make important reforms to its compliance program,” says Schwartz.
And, starting this June—“The Madoff Three” will be back together again at the law firm, Boies, Schiller & Flexner LLP when Prosecutor Randall Jackson joins the firm, an addition that both Schwartz and Zach are excited about.
“Going to trial with someone is a bit like going to war with them - you learn to respect, trust and rely upon your trial partners. We were in the trenches together and we felt that our ability to work as a team was something that would really benefit the firm and its clients,” says Zach.