Madoff Redux: Trial of Madoff Employees to Commence

The public is set to get its first in-depth look at one of the biggest frauds in U.S. history. The criminal trial of five former employees of Bernard Madoff begins in New York this month.

While Madoff claims to have acted alone, the federal government’s investigation suggests otherwise. Key staff members, ranging from Madoff’s former secretary to computer programmers, face criminal charges of fraud and conspiracy in connection with the $17 billion Ponzi scheme.

The defendants are the only former employees not to accept plea deals and have instead chosen to challenge the government’s evidence against them. Bernie Madoff pleaded guilty to 11 criminal counts and is currently serving a 150-year prison term. While he is not expected to testify, Frank DiPascali, Madoff’s former chief financial officer, has agreed to take the stand for the prosecution in exchange for leniency. His testimony will play a crucial role in explaining how the massive role operated and detailing the specific role each defendant played.

In a separate legal action, Irving H. Picard, the trustee seeking reimbursement on behalf of scorned investors, recently asked the U.S. Supreme Court to decide whether he has standing to sue financial institutions like JPMorgan Chase and HSBC Holdings PLC for the role they may have played in aiding the Ponzi scheme. Picard contends that the banks ignored red flags that strongly suggested Madoff was operating a Ponzi scheme.

“Bernard L. Madoff did not act alone,” the brief argues. The scheme “could not have persisted for so long, or defrauded so many of so much, without a network of financial institutions, feeder funds and individuals who participated in his fraud or acquiesced in it — just like any large-scale financial fraud.”

The United States Court of Appeals for the Second Circuit sided with the bank, holding that because the trustee “stands in the shoes” of Madoff, he could not sue third parties alleged to have aided and abetted the fraud. Other federal courts have ruled differently, increasing the chances for Supreme Court review.

If you have any questions about these cases or would like to discuss the legal issues involved, please contact me, Jay Surgent, or the Scarinci Hollenbeck attorney with whom you work.