Madoff Criminal Charges: Summary of the 11 Counts Against Him

Madoff Criminal Charges: Summary of the 11 Counts Against Him

By David Voreacos

March 11 (Bloomberg) -- Bernard Madoff was charged March 10 in federal court in Manhattan with 11 counts related to the largest Ponzi scheme in U.S. history. Prosecutors detailed the charges in a 25-page criminal information.

Below is a summary of each count:

Count 1, Securities Fraud: Bernard L. Madoff Investment Securities Inc. (BLMIS) was a broker-dealer with three types of business: market making; proprietary trading; and investment advisory services. Madoff Securities International Ltd. (MSIL) was a U.K. affiliate engaged in proprietary trading.

From the 1980s through Dec. 11, 2008, Madoff ran a “massive Ponzi scheme” as he used false pretenses to solicit billions of dollars of funds. On Dec. 1, 2008, BLMIS issued statements to 4,800 account holders showing they had total balances of $64.8 billion. The firm held “a small fraction” of that balance.

Madoff took money from individuals, charities, trusts, pension funds and hedge funds. He failed to invest funds as promised and converted them to his own use. He falsely promised to achieve high rates of return, including as much as 46 percent, with limited risk. He falsely represented his “split strike conversion” investment strategy, saying he put money in a basket of stocks that would mimic price movements of the Standard & Poor’s 100 Index, invest intermittently in government-issued securities, and buy and sell option contracts in stocks.

Madoff created a “broad infrastructure” at BLMIS to give the impression he ran “a legitimate investment advisory business in which client funds were actively traded as he had promised.” He hired many back office employees who weren’t qualified. He directed workers to generate false client account statements and trade confirmations that reflected fictitious returns and purportedly showed the firm bought and sold securities.

Madoff directed the transfer of $250 million from investment advisory clients’ funds to his market making and proprietary trading businesses. Those transfers, through his London business, gave the false appearance that he was conducting transactions in Europe on behalf of investors.

Madoff repeatedly lied to the Securities and Exchange Commission in written submissions and sworn testimony. He caused the creation of false financial statements about the business.

Count 2, Investment Adviser Fraud: From at least the 1980s through Dec. 11, 2008, Madoff acted as an investment adviser for clients of BLMIS and employed devices and schemes to defraud clients and prospective clients.

Count 3, Mail Fraud: On Dec. 1, 2008, Madoff caused to be sent via the U.S. Postal Service a false and fraudulent account statement from BLMIS to a client in New York.

Count 4, Wire Fraud: On Aug. 5, 2008, as a part of a scheme to defraud, Madoff caused $2 million in investor funds to be wired from Bloomington, Minn., to New York.

Count 5, International Money Laundering to Promote Specified Unlawful Activity: From 2002 to December 2008, Madoff caused the transfer of funds from the BLMIS investor account in New York to MSIL accounts in London, and from those accounts to BLMIS accounts in New York. The money was derived from fraud in the sale of securities and theft from an employee benefit plan.

Count 6, International Money Laundering to Promote Specified Unlawful Activity: From 2006 to December 2008, Madoff caused the transfer of funds from BLMIS investor accounts in New York to MSIL accounts in London, then back to New York to give the false appearance that he was operating a legitimate investment advisory business. From 2002 to December 2008, he caused funds to be transferred from BLMIS accounts in New York to MSIL accounts in London, and from there to “purchase and maintain property and services for the personal use and benefit of Madoff, his family members and associates.” The money was derived from fraud in the sale of securities and theft from an employee benefit plan.

Count 7, Money Laundering: On April 13, 2007, Madoff caused $54.5 million to be transferred from a BLMIS investor account in New York to a BLMIS account in London. The money was derived from fraud in the sale of securities and theft from an employee benefit plan.

Count 8, False Statements: On Jan. 7, 2008, Madoff caused the filing with the SEC of a Uniform Application for Investment Adviser Registration. The form falsely stated that BLMIS had custody of advisory clients’ securities.

Count 9, Perjury: On May 19, 2006, Madoff made “numerous false and misleading statements” under oath to the SEC. He falsely testified that his firm executed stock and options trades on behalf of investment advisory clients; had custody of assets managed on behalf of those clients; and used the same trading strategy for all its investment advisory clients.

Count 10, False Filing With the SEC: On Dec. 20, 2007, Madoff caused the filing of a false and misleading certified BLMIS audit report.

Count 11, Theft From an Employee Benefit Plan: On Sept. 24, 2008, Madoff stole $10 million in pension fund assets sent to BLMIS by a master trust on behalf of about 35 labor union pension plans.

The criminal case is U.S. v. Madoff, 08-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

To contact the reporter on this story: David Voreacos in New York federal court at dvoreacos@bloomberg.net.

Last Updated: March 11, 2009 22:13 EDT