Young businessmen with big ambitions every day fighting for greater profits, which would have made their names known on Wall Street. Representatives of regulatory bodies to come into this office to obtain advice of a professional - the president of the company. He used equipped with the latest technology terminals to ensure the sale and purchase of shares for the major, well-known clients, such as: Bear Stearns, Charles Schwab, Fidelity and Lehman Brothers.
In modern furnished and self-restrained in gray and black tones offices were flawless and exciting at the same time: the phone rings, screaming traders. For visitors it looked like a lively, profitable, successful activities (exactly the same as on paper) the well-known and reputable company: Bernard L. Madoff Investment Securities.
Successful business
Madoff built a broker-dealer business and the business of trading in securities for more than forty years. Company traded stocks, bonds and other securities for the benefit of clients and their own profits. According to consultants from the investment bank Lazard, income broker-dealer business before taxes totaled $ 67 million in 2006. Of these, $ 52 million came from trading in securities or from the activities of individual traders.
Net income from trading in 2006 amounted to $ 72.5 million, and expenses, including staff costs were only $ 30 million
The brokerage business was regulated by the Commission on the Securities and Exchange Commission (SEC) and other oversight agencies. Regulators checked brokerage books and records, studied in the cash flow of trade confirmations, bank statements, etc. The audits were conducted at least once every two years. None of this helped to identify that business Madoff not limited to the 18 th and 19 th floors of the building "Lipstick."
This spring, the supervisory body - and the world - and learn about the other goals of the company: to lure wealthy investors in a huge pyramid, which ran the floor below. In the offices of the 17 th floor was a mess. Everywhere there were scattered papers and printouts. Men and women at the 18 th and 19 th wore costumes, but here the people were dressed in simple everyday clothing. On the 18 th and 19 th worked very hard and long hours, the 17 th - in nine parishes, five left. Floors 18 th and 19 th were intended to demonstrate the activities of the empire Madoff around the world, visitors to the 17-th floor were rare and few. Enter the 17 th was practically a secret: the left of the elevator door in the dark wall of mahogany, without any signs or other markings.
Most of the employees of broker-dealer of the company Madoff was not allowed to attend the 17 th floor. "We heard that there is at the bottom of a hedge fund, but nothing else about him did not know," - says one of them.
Robert MakMeyon, who worked for the company Madoff two years as a specialist in computer systems, read the article about the company before you come and settle here - and in the paper saying that Madoff, apparently led by the management of monetary assets worth about $ 7 billion
But when MakMeyon in 2004 mentioned the consulting business, someone said to him: "None of your business. Do not mention this story, if you want to stay here. Bernie manages another company. We have nothing to do with it does not have. You do not have anyone about her questioning. "I said - Well, well - and forgot about it." But five years later he recalled.
Floor below
Man, 17 main floor, called Frank Di Pascali Jr. He was once expelled from college, he usually wore sneakers Puma, ironing, jeans and slicked back hair in the style of the fifties. For many investors, Madoff Di Pascali was the sole contact person for the Fund for many years or even decades.
Di Pascali was rather uncomfortable in communicating man. "I have spoken with him several times, and yet he called my mother - says one investor from San Francisco. - But what is more, the less I wanted to talk to him. With customers treated in a violent manner. Frank Hamil all the time. They not trying to talk to me like a man, and were very unfriendly. "
Di Pascali Madoff joined the firm in 1975, after he graduated from high school. Molloya archbishop, a Catholic college in Queens. He took a job Annette Bongiorno, many years, the former personal assistant Madoff and also lived at the 17 th floor. Bongiorno and di Pascali were kindred spirits, both originally from Howard Beach, unsafe area for the working class in Queens. (In the 1980 Howard Beach became notorious after the riots provoked by the murder of black white teenagers). Half-brother Di Pascali - Robert Kardayl - was also taken to the company and, as Bongiorno and di Pascali, remained there for many years.
Cabinet de Pascali located in the southwestern part of the 17-th floor. More classrooms were Kardayla, Eric Lipkin, who was involved in wage employees, as well as perform some duties to cooperate with customers; Jo Ann Krupa, nicknamed "Jody", processing client requests, receipts and expenditure of funds from customer accounts, and Erin Reardon that one long-term customer called the contact person of the company.
The method of Madoff was: to make private investors to open brokerage account - which in reality was not brokerage account, because he was not connected with the brokerage part of the business. Thus, Madoff has access to their funds. Then, instead of putting their money in a hedge fund, Madoff just spent part of them on their needs, and paying old investors with new investors' money: to get the classic "pyramid".
Investors will sign the checks - or, frequently, to send money directly into his bank account at JP Morgan Chase, formerly Chase Manhattan. Account number - 140081703. It is on this account Madoff spent parishes and expenses funds from investors in a bogus hedge fund. It in no way was this hedge fund, where investors must first complete a pile of papers, just to confirm that they are accredited, or rich enough to invest, and actually receive a share in the partnership. Most of the victims Madoff not distinguish one from another, and if and distinguished, then they are still working through an intermediate third fund.
Intermediate funds were an important source of investment for Madoff. Also, these sources were his friends and relatives, many of whom worked for the percentage of the deal, persuading others to invest in the company Madoff.
In addition to its role as Secretary-Bongiorno (according to the 162-page list of investors Madoff, released by the trustee of his victims), also focused on raising funds in the fund to lure members of the family, friends, neighbors to the area, Howard Beach. According to the lists of investors and the data of one of the lawsuits against Madoff, Bongiorno and her husband paid for bringing customers to the account, a wound-addressed RuAnn. Agitation candidates for investors was also taking place at a respectable 18 th floor "Lipstick", in the office Cohmad, owned by Madoff and his friend, Maurice Cohn, nicknamed Sonny.
Mushrooms Madoff
According to the Commission on the Securities and Exchange Commission (SEC), the main business Cohmad consisted in raising funds, which are then diverted to the 17 th floor. Presumably, Madoff used company Cohmad as "cash register" for the family and friends to sign checks and pay with the "agitators" who are paid to attract new investors. SEC and investors accused lawyer Cohmad illegally raising funds for the financial pyramid. Representatives Cohmad himself Cohn denied the charges and require close the case.
Cohmad paid a fee for referring clients, as well as a real hedge fund would pay a third party to bring to market. While remuneration impressed with its size. The most successful of the "agitators" Cohmad earned this month to $ 500 000. Thus instead designate payments as such, Madoff has described them as a trading or brokerage fees, thus creating the impression that many Cohmad engaged in trading for its clients.
Two businesses - a legitimate broker-dealer company and a fraudulent hedge fund - are closely intertwined.
Examples of this are many: for example, the daughter of Marcia Cohn Beth was listed as the person responsible for compliance with the law, but from time to time sitting on the floor of the broker-dealer company. Family "Dynasty" were also quite frequent in the offices Madoff.
Peter Madoff, Bernard's brother, was part of a legitimate broker-dealer business since its foundation, and Ruth Madoff, his wife, occasionally worked there and had a private room at the 18 th floor. Sons, Bernard and Ruth - Andrew and Mark - worked for the company at the 19 th floor, and the daughter of Peter named Shana after law school took a job in the company by a person responsible for compliance with regulations, the department, who worked in the securities market.
Between people who worked in legal and illegal businesses Madoff, there was a big cultural gap. "People from the 19 th floor were residents of Mount Olympus, the gods, traders extra-class", - said Robert MakMeyon. "People with 18-floor had to ensure that all work" - refers to IT-systems with the 18 th and 19 th floors. But people with the 17 th, said Makmeyon were "not very competent, and that is to put it mildly."
17-th floor was "the world Burnie," says MakMeyon, and many staff it sat their working hours from nine to five for the big salary. Most have never worked anywhere except Wall Street. "They obviously had no idea about the things that worked. Simply orders. It looks like mushrooms: abundantly watered and keep in the dark."
Madoff managed to hide the fraud by splitting or withholding information. Few of the workers at the 17 th floor were allowed to ask why they are completely separate from the broker-dealer firm at the 18 th and 19 th: they are too well paid, so compare the suspicious facts were not in their interest.
Two brothers (the sons of Dan Bonventre, a long-term employees Madoff) each earned up to $ 400 000 per year for the collation of data, or correlation trades reporting on transactions for each customer. It was completely paperwork, usually employees of the Department documentation to receive a salary comparable to salaries for secretaries and other administrative workers - during the boom of the New York market, they have calculated the figures with five zeros, but still $ 400 000 - is too much.
In the western section of the 17-th floor, in front of di Pascali, located personal office Annette Bongiorno. She had two assistants, Winnie Jackson and Semona Anderson, and their offices were on either side of her cabinet. Jackson and Anderson were responsible for the study of stock prices that were included in the portfolio Madoff, over the past weeks and months. Madoff answered those who asked (though not all) that the money he earns through invest-strike strategy for the division (split-strike conversions).
Hedge fund manager, actually using this strategy, you first would have bought shares from Standard & Poors 100 c options, (it's securities, which provide the option to buy share later at an agreed price). Then he bought and sold stock options would be playing against the same index.
Madoff chose a complex strategy, as a legend, to avoid inquiries from investors. In addition, he needed a strategy of investors, which could plausibly explain how he was able to achieve such high profits for many hundreds of clients.
Perfect Pyramid
Since Madoff used only "blue chips" for the portfolios of its clients, employees of the 17-th floor was easy to get XAG data over a long period, sometimes for tens of years ago. Investigators believe that it is so Madoff managed to forge their own deals.
It decided that in November 2008, for example, all accounts of his clients need to rise by 1%, and then figured, what the action would have to then buy that profit is made up 1%. Madoff or di Pascali have entered a transaction that never took place, with real prices at that time in the old computer, IBM AS/400, which was used for the consulting business, and - voila! - He appeared documented. Then, using a simple spreadsheet like Excel to more than 2300 customer accounts are automatically updated - and they fit into "profit" obtained by dividing the 1% at all.
Now, when these "transactions" were allegedly carried out, it was necessary to provide paper confirming them, even if false. According to a version of federal investigators, members of the oversight services and Irwin Picard (who is a trustee involved in the liquidation of assets Madoff), Anderson and Jackson also helped to create verification of stock trading in customer accounts, which should show profits.
All the supporting documents, all transactions, in general, all - it was a forgery.
It is likely that the team with a 17-floor unknowingly participated in the production of bogus supporting documents, and knew nothing about the fraudulent scheme. Last month, Di Pascali was charged with fraud, he mentioned "other conspirators" in his speech the defendant, but has not named any specific names. To date, no one else from the former employees of the 17-th floor of the charges are not filed.
For many years, Madoff sent out thousands of supporting documents for transactions that never occurred. According to client accounts there was not a real bargain for the past 13 years, and maybe more.
Most of the time people who have been recipients of these documents had no reason to doubt that everything is as it should. They showed that their reporting accountants and accountants no doubt signed under them. Why should they suspect something?
The main tool of rogue
Madoff not allow its employees to store archives of e-mails to my hard drive or anywhere else, despite the requirement SEC, requiring that all companies on Wall Street kept the archives.
Instead, he ordered that all e-mails were printed and then erased from the memory of computers. For equipped with the latest technology 19-floor, and for secure storage of data on transactions for the 18 th floor of the company Madoff purchased a package of technical services at Stratus Technologies, which deliver information on the value of securities traders, connected through a network of companies. Stratus specializes in super-systems for the securities industry.
At the same time, the main technical device used in the scheme Madoff, was an old IBM AS/400 (server, manufactured back in 1997). "I always said that the AS/400 - a personal computer Bernie, and nobody can touch him" - shows MakMeyon.
Every day Stratus system on the 19 th floor traders Madoff automatically delivers the latest data on transactions: stock prices in dollars and cents at 4 pm (when the auction closes). At the end of each day on the AS/400 to send files from the latest data on share prices. All data in older computers, however, had to be entered manually. A hammering by hand, as noted MakMeyon, you can enter anything.
MakMeyon said that later was able to guess why Madoff not want to part with the cumbersome, inconvenient system, whose support was expensive: the risk of detection of fraud in another case was too large. "He would have to hire consultants, people from outside to help those working to move data from the existing system," - says MakMeyon. Newer computers might automatically generate reports, and there would be no need for AS/400: "All these data would be transferred and stored in the new system - but, again, foreign men were a risk factor: the risk that the discrepancy of data on transactions will reveal.
Madoff could not allow them to use one and the same data on stock price, because that is what the prices were the essence of the whole scheme.
It turned out that Madoff used data on the history of trades for the establishment of documentary evidence, but sometimes he made mistakes. For example, the report Madoff for November 2008 stated that he had bought Apple shares on 12 November, a month before his arrest, the rate of $ 100.78. But Apple shares were traded that day no higher than $ 93.24. It also alleged that he bought shares of Intel on Nov. 12 for $ 14.51, but the highest price per share, Intel was the day $ 13.97.
A professional trader would be able to trace this error. But the staff Madoff with 17 floors were not professionals, and they have not been reluctant to ask questions. Madoff and other members of the 17 th hammered stock prices in the IBM AS/400, and injected these figures to obtain the desired income. Thereafter Bongiorno and her assistants print reports and send them to clients.
Madoff relied on the fact that customers will not verify anything. It was one of the few really risky behavior, which he had done in the framework of its "hedge fund". Fund, which, he claims, brought from 6% to 20% of annual income due to his exceptional abilities. But this particular move was entirely safe. All of his clients: from housewives in Minnesota to the "High Fliers" - managers of the London hedge funds - received their reports and have never tried to look deeper.
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