New Description of Timing on Madoff’s Confession

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By DIANA B. HENRIQUES
Published: January 9, 2009
Peter B. Madoff, the younger brother and longtime business partner of Bernard L. Madoff, has said that his brother disclosed his huge fraud scheme to him the evening before confessing to his sons, according to people briefed on the chronology of the scandal.


The timing of the confessions raises questions about whether Peter Madoff had an obligation to report his brother’s alleged $50 billion Ponzi scheme to federal authorities immediately, as the Madoff sons did when their father informed them the next day, Dec. 10.

Since his arrest on Dec. 11, Mr. Madoff has remained free under a $10 million bond signed by his wife and his brother and secured by his wife’s residential property in New York City, Long Island and Florida. Since Dec. 18, he has been confined to his apartment under 24-hour guard.

A federal magistrate has said that he will rule at noon on Monday whether to order Mr. Madoff to jail pending a trial on criminal securities fraud charges. Federal prosecutors asked that bail be revoked after Mr. Madoff and his wife mailed about $1 million worth of diamond watches and other jewelry to friends and family members, including his brother, on Dec. 24, despite a freeze on his assets.

These fresh details highlight an interlocking relationship at the heart of the Madoff stock-trading business, a family business now considered a crime scene that leaves family members to communicate with one another through lawyers.

John R. Wing, the lawyer for Peter Madoff, declined to answer questions about the timing of Bernard Madoff’s disclosures to his brother. Mr. Wing has said in recent weeks that Peter Madoff did not know about the fraud beforehand and was cooperating fully with federal investigators.

Ira Lee Sorkin, a lawyer for Bernard Madoff, also refused to comment on the chronology of his client’s confession. In a filing he made this week opposing bail revocation, Mr. Sorkin reported that his client confessed to his sons, his brother and his wife on the same day, Dec. 10.

But the federal criminal complaint says only that Bernard Madoff told his sons that day that he had confessed to his brother “recently.” People briefed on that chain of events say that Peter actually learned about the alleged crime on Dec. 9.

Besides being a lawyer by training, Peter Madoff was senior managing director and the chief compliance officer for his brother’s firm, Bernard L. Madoff Investment Securities.

Did that give him a special obligation to immediately report the confession?

Absolutely, according to some securities law experts, who cite the heavy reliance of the brokerage industry on self-regulation and internal compliance — a reliance that would certainly have been familiar to Peter Madoff, a longtime official on various industry compliance committees and self-regulatory associations.

“If there is just a strict employee relationship, as chief compliance officer, there should be zero pause time before you report it,” said Lilly Ann Sanchez, a former federal prosecutor and a white-collar criminal defense lawyer with Fowler White Burnett, a law firm in Miami.

But even Justice Department manuals acknowledge that family relationships are different, she said. “He may just have needed a night to sleep on it — it was his brother, after all,” she added.

Neil V. Getnick, a lawyer in New York City who works as a corporate monitor in fraud cases, sees it differently — but agrees there are plausible reasons Peter Madoff may have waited.

Because of his official position, Peter Madoff “may have more narrow options than the sons because he may have to follow some sort of compliance protocol that prevented immediate action,” Mr. Getnick said. For example, he may have needed time to locate and retain outside or independent counsel, he said.

“The best that can be said is: he did not make an individual report,” Mr. Getnick said. “But that in no way means that he did not take the appropriate action — we just don’t know the answer to that.”

When Bernard Madoff’s sons were told by the father about the fraud, they quickly sought legal advice from a friend, Martin Flumenbaum, of the Paul, Weiss, Rifkind, Wharton & Garrison law firm in New York, who advised them to make an immediate report of what seemed to be a continuing crime, according to court filings.

Indeed, lawsuits have claimed that Mr. Madoff was accepting new cash from investors within a week of his arrest. Authorities have subsequently found 100 signed checks in his office desk drawer, totaling more than $173 million, that he was ready to mail as early bonuses to employees, family members and friends.

Peter Madoff would most certainly have been on that bonus list. Now 62, he joined his brother’s firm in 1970, after earning his undergraduate degree from Queens College and his law degree from Fordham Law School.

He had embraced his brother’s interest in developing computer-driven trading methods that could harness technology to speed up stock transactions and reduce costs. Although his brother would tease him about his sometimes legalistic comments, he was a frequent spokesman for the firm while it helped pioneer the development of what became the Nasdaq marketplace.

Now, he is mired in the mess that his brother has made of that business. Along with assisting regulators in tracing assets and standing bail for his brother, he has been served a subpoena in a separate investigation being done by Massachusetts regulators, according to William F. Galvin, the secretary of the commonwealth and chief securities regulator for Massachusetts. Mr. Galvin said the Madoff collapse had cost investors and institutions in his state hundreds of millions of dollars.

More Articles in Business »A version of this article appeared in print on January 10, 2009, on pag