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J "- ;~. ,~<JJDGE BERMAl1 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,
-against-
ONE 2003 VIKING 61' CONVERTIBLE MOTOR YACHT KNOWN AS DOROTHY JO, HULL IDENTIFICATION NUMBER VKY61562I203,
ONE 2009 AUDI S5 QUATRO COUPE, VIN WAURV78T89A03128925,
ONE 2007 MERCEDES BENZ E350 4M AWD 4DR, VIN WDBUF87X97X221582, and
ONE 2006 MERCEDES BENZ, VIN 4JGBB75E96A123438,
Defendants in rem. . J
II IIIIII IIIII IIIIIIII
I III II IIIIII IIIIIIIII II II
VERIFIED COMPLAINT
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. ~ 5).
14. 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. ~ 30).
6
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, vn~ 4JGBB75E96A123438.
22. 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: SHARON E. F SE 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.
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
x
UNITED STATES OF AMERICA INFORMATION
-v
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noCUMENT ELECTRONICALLY FUJO \ DOC#: ....._j\DATE FILErA.U~ 1_1 .~._. I -_...--'-=::..----"- ".
FP~NK·DIPASCALI, JR., Og"tRlM 764 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. On March
1:., 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. Madoff,
2
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~ to BLMIS by IA Clients; answering IA Clients' questions
~bo~t their purported investments; and developing the BLMIS
:.:c,mp1.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. In connection with this scheme, FRANK DIPASCALI,
JF the defendant, knew that BLMIS had accepted billions of
dol13rs of IA Clients' funds, cumulatively, from individual
iIlvestors, charitable organizations, trusts, pension funds, and
hedge funds, 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. Under the direction of Madoff, FRANK DIPASCALI,
\n~ 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. Current and prospective IA Clients were promised
that: (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; (b) that basket of stocks would closely mimic the
p~ice 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, those funds
w,:>u] 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. Madoff, FRANK DIPASCALI, JR., the defendant, and
athe~ =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. On a regular basis, Madoff provided guidance to
FP~K 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." Whenever
6
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 basket to Split Strike Clients on a pro rata basis, based
or ~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
that l~ fact did not exist.
15. In practice, the growth in account values reported
,)C : 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. At all times relevant to this Information, BLMIS
had 3 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. Beginning in or about the 1990s, FRANK DIPASCALI,
JJ~., 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. The information provided by DIPASCALI
wbS routinely incorporated as fictitious trades and adjustments
1L 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 if '- 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. At Madoff's direction, FRANK DIPASCALI,
JF., the defendant, and other co-conspirators were responsible
fer l~reating fictitious BLMIS books and records that related to
the :2004 Special Clients for the purpose of misleading the SEC
3Ld ,::oncealing the fraudulent scheme.
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" ("RVP/DVP") format that showed
n< ::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"). Specifically, DIPASCALI and other co-conspirators
c~Eated 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. In fact, as DIPASCALI and his co
~cnspirators 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. Madoff, FRANK
DIPhSCALI 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" (instead of
:::te '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. FRANK DIPASCALI, JR., the defendant, at the
d~recti8n 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 from the execution of that strategy, and the size of the
Ii",. 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. In connection
w::.. th that review, 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
fa2t, they did not. 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. At the direction of Madoff, DIPASCALI, the
deEe~dant, 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. Beginning at least as early as 2003, BLMIS's
~arket 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. On or about December I,
2('08, 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. Within approximately one week of that
c'~T,versation, 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; (b) to commit investment adviser
fraud, 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) to falsify books and records of an
inve~)trnent adviser, in violation of Title 15, United States Code,
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, in
lioLntion of Title 18, United States Code, Section 1341; (f) to
,::cmrn.lt wire fraud, 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: (a)
empl~ying devices, schemes, and artifices to defraud; (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 and potential investors in products offered by BLMIS,
3.Ld ,~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; (b) engage
ill 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 1e 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 and intending to devise a scheme and artifice to defraud,
arld 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. It was further a part and an object of the
c()ns~)lracy 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, it had done no such thing.
d. 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. Madoff, DIPASCALI and other co-conspirators
at :.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. In or about February 1994, at the direction
~f 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. In or about February 1996, at the direction
:)t 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. In or about January 1997, at the direction of
Madol'f, 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. In or about February 1998, at the direction
,~f 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. On or about December 28, 1999, at the request
of a co-conspirator, DIPASCALI provided information about a
fi ,:t: ional options "trade," using historical data, which purported
tCi 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. In or about November 2005, DIPASCALI met with
Lepr~~sentatives 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. On or about May 9, 2006, Madoff met with one
~l ~ore 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. On or about July 26, 2006, DIPASCALI caused
appr~ximately $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. On or about March 29, 2007, DIPASCALI caused
a~proximately $14,828,550 to be wire transferred from the MSIL
!\C'::O'lnts to the BLMIS Operating Account.
cc. In or about April 2008, DIPASCALI met with
LEpr~SeI1tatives 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. On or about December II, 2008, approximately
Jr checks totaling approximately $176,359,965.08 were prepared
fe,r ~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 furth~r charges:
44. The allegations contained in paragraphs 1 through
j; • .:l.nd 42 through 43, above, are hereby repeated, realleged and
i~corporated by reference as if fully set forth herein.
45. From at least the 1990s through on or about
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, in
v~alation of Title 17, Code of Federal Regulations, Section
2~1).lOb-5, by: (a) employing devices, schemes, and artifices to
defraud; (b) making untrue statements of material facts and
rnlitting to state material facts necessary in order to make the
statements made, in light of the circumstances under which they
were made, 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; Title 17, Code of Federal Regulations, Section 240.10b-S;
Title 18, United States Code, Section 2.)
33
COUNT THREE (Investment Adviser Fraud)
The United States Attorney further charges:
46. The allegations contained in paragraphs 1 through
33 dnd 42 through 43, above, are hereby repeated, realleged and
inco~porated by reference as if fully set forth herein.
47. 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, unlawfully, willfully, and knowingly, by the
U~;e ::>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. The allegations contained in paragraphs 1 through
3::', dnd 42 through 43, above, are hereby repeated, realleged and
l~~orporated by reference as if fully set forth herein.
49. Between in or about 2004, and on or about December
11, 2008, FRANK DIPASCALI, JR., the defendant, unlawfully,
Hi llEully, and knowingly, did cause BLMIS, a registered broker-
dEal~r, 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. The allegations contained in paragraphs 1 through
L. :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. The allegations contained in paragraphs 1 through
3~, 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. The allegations contained in paragraphs 1 through
~3, and 42 through 43, above, are hereby repeated, realleged and
i~corporated by reference as if fully set forth herein.
55. 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, to wit, on
01 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
3" and 42 through 43, above, are hereby repeated, realleged and
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, the United Kingdom, and elsewhere, FRANK DIPASCALI,
JP., the defendant, in an offense involving and affecting
in~erstate 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, fraud in the sale of securities, mail fraud, and wire
fl'aud. 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, in order to promote fraud in the sale of
s{~curities, 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. The allegations contained in paragraphs 1 through
3), and 4~: 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. As such, BLMIS was subject to
39
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
"~IPASCALI SEC Testimony") .
60. During the course of the DIPASCALI SEC Testimony,
Fk.A.NK DIPASCALI, JR., the defendant, made numerous false and
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. DIPASCALI
testified, among other things, in substance, that: (a) BLMIS
e):ecuted trades of common stock on behalf of its investment
advisory clients; (b) BLMIS executed options contracts on behalf
01 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, namely, in testimony before an officer of the
SEC, that he would testify, declare, depose and certify truly,
a~d 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 wheMr. Madoff's overall returns have been negative?
re
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, about European contra side dealers?
you are talking
.;: No, no.
Q: About how many derivative dealers do you deal with?
A: Derivative dealers, 20. maybe two dozen. It's not and it's not 30. It's probably 18. 19, 20.
five
Specification Four (Page 73, Lines 1-9)
Q: [D]o you even keep some. this [options] transaction at these parameters?
record that they executed a certain price with
A: I have the entry database that comes back from the dealers that is accessible in any format I want to at it, trade date, dealer, I want to look at it by price. symbol. by any sort of mechanism.
look
Specification Five (Page 71, Lines 12-14)
I;: How does [Bernard L. dealers with whom he
Madoff] communicate with [the executes options transactions]?
A: Telephone. They affirm back to me by computer ..
(Page 104, Specification Six Line 23 - Page 105, Line 9)
~i: I want to switch gears and talk about the the institutional business. What kind of does this business have? Who are they?
customers customers
in
~,: 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 not that many statements.
it out. There [are]
SDecification Eight (Page 112, Lines 17-19)
Q: Any rough managing?
idea about how much [Bernard L. Madoffl is
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 Additional Calendar Taxable Corrected Tax Due and
Year Income Tax Paid Taxable Income Owing
2002 $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
(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), as alleged in Counts One, Two, Six, and Seven of
t~jE Information, FRANK DIPASCALI, JR., the defendant, shall
f)rfe~t to the United States, pursuant to 18 U.S.C.
§ ~JSLa' ~L) (C) and 28 U.S.C. § 2461, all property, real and
personal, 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, in
thd~ s~ch 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:
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;
i 1 1S 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. As the result of committing the money laundering
off~nse ll1 violation of 18 U.S.C. § 1956 (a) (2) (A), alleged in
45
'~:oUl1L E:ight of this Information, FRANK DIPASCALI, JR., the
defendant, shall forfeit to the United States, pursuant to 18
~.s.(~ § 982, all property, real and personal, involved in the
sald money laundering offense and all property traceable to such
property, including, but not limited to, a sum of money equal to
3t 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:
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;
i~ lS 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