Madoff Indictment1118

8/12/2019 Madoff Indictment1118

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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK- - - - - - - - - - - - - x

UNITED STATES OF AMERICA

DANIEL BONVENTREANNETTE BONGIORNOJOANN CRUPI,a /k / a Jod i ,JEROME O HARA, and

GEORGE PEREZ,Defendants .

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INDI TMENTS2 10 Cr. 228 (LTS)

OUNT ONEConspiracy to Commit Securi t i es Fraud, to Fals i fy Records of a

Broker-Dealer, to Fals i fy Records o f an Investment Adviserand to Make False Fi l ings With the SEC

The Grand Jury charges:Relevant Persons and ntit ies

1. At a l l t imes r e levan t to t h i s Indictment , BernardL. Madoff Investment Secur i t i e s LLC, and i t s predecessor , BernardL. Madoff Investment Secur i t i e s (co l l ec t ive ly and separa te ly ,

BLMI$ ), had ts p r i n c i p a l place of business in New York, NewYork. BLMIS was a broker -dea le r t ha t engaged in three pr inc ipa ltypes of bus iness operat ions : Market Making ; Propr i e t a ryTrading ; and Investment Advisory ( IA ) se rv ices . BLMIS wasr e g i s t e r e d with the United Sta tes S e c u r i t i e s and ExchangeCommission ( SEC ) as a broke r -dea le r and, as o f on o r about


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August 25, 2006, as an investment adviser . BLMIS opera ted on af i s c a l year ending October 31.

2. As a reg is te red broker-dealer and as an investmenta d v i se r , BLMIS was required to make and keep ce r t a i n books' andr ecords in i t s ordinary course of business . Among o ther th ings ,t hose books and records inc luded the fol lowing:

a . B l o t t e r s (or o ther records of or ig ina l entry)con ta in ing an i temized da i ly record of a l l purchases and sa les ofs e c u r i t i e s and a l l rece ip t s and de l ive r ie s of secu r i t i e s( including c e r t i f i c a t e numbers), showing the account for whicheach such t ransac t ion was e f fec ted , the name and amount ofsecu r i t i e s , the un i t and aggregate purchase o r sa le p r i c e ( i fany) , the t r ade da te , and the name or o ther des ignat ion of theperson from whom the secu r i t i e s were purchased o r rece ived or towhom the secu r i t i e s were so ld o r del ivered ( the cont ra party ) ;

b. Documents r e f l e c t i ng each brokerage order ,and any o ther ins t ruc t ion , given o r rece ived fo r the purchase ors a l e of secu r i t i e s , whether executed o r unexecuted, inc luding theaccount fo r which the order o r o ther i n s t ruc t ion was entered, thet ime the order was rece ived, the t ime a t which the order wasen te red , the pr ice a t which the order was executed and, to theex ten t feas ib le , the t ime of execut ion o r cancel la t ion;


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c . Records i den t i fy ing the name and address ofthe b e n e f i c i a l owner of each cash and margin account he ld a t thebroker-dea le r and/or investment adviser ;

d. Ledgers (or o ther records) r e f l e c t i ng a l lassets and l i a b i l i t i e s , income and expense and c a p i t a l accounts;

e . e d ~ e r s r e f l e c t i ng moneys borrowed and moneysloaned toge ther with a record of the c o l l a t e r a l t he re fo r and anysubs t i tu t ions in such c o l l a t e r a l ) ;

f . A journal or journals , inc luding cashreceip ts and disbursements , records, and o ther records ofor ig ina l en t ry f o r m ~ n g the bas i s of en t r i e s in any l edger ;

g. General and a ux i l i a ry l edgers (or o thercomparable records) r e f l e c t i ng asse t , l i ab i l i t y , rese rve ,capi ta l , income and expense accounts; and

h. All check books, bank s ta tements , cance l ledchecks and cash reconc i l i a t ions of the investment adviser .

3. At a l l t imes r e levan t to t h i s Indictment , MadoffSecur i t i e s In te rna t iona l Ltd. ( MSIL ) was a corpora t ionincorpora ted in the United Kingdom. MSIL was an a f f i l i a t e ofLMIS t ha t engaged pr inc ipa l ly in p ropr i e t a ry t r ad ing .

4. Bernard L. Madoff ( Madoff ) was the founder ofLMIS and se rved as i t s so le member and pr inc ipa l . In t ha t

capaci ty, Madoff cqn t ro l l ed the bus iness a c t i v i t i e s of BLMIS

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Madoff owned the major i ty of the vot ing shares of MSIL and serveda s the Chairman of MSIL's Board of Direc to r s .

5. Frank DiPasca l i , J r . ( DiPascal i ) was employed a tBLMIS between on o r about September 11, 1975, and on o r aboutDecember 11, 2008. During his employment a t BLMIS DiPasca l i hada var i e t y of dut ies and r e spons i b i l i t i e s . By the e a r ly 1990s,DiPasca l i was one of the BLMIS employees respons ib le for managingt he major i ty of BLMIS's IA accounts i n to which thousands of BLMISc l i e n t s inves ted , and even tua l ly l o s t , b i l l i ons of dol la r s .Spec i f ica l ly , DiPasca l i managed the IA accounts t ha t werei nves ted in the s p l i t s t r i k e convers ion s t ra t egy , as describedin Sec t ion B below.

6. DANIEL BONVENTRE the defendant , was employed byBLMIS from in o r about August 1968, through a t l e a s t on o r aboutDecember 11, 2008. BONVENTRE began working a t BLMIS as anaudi tor , and subsequent ly was given inc reas ing r e s pons ib i l i t y forsuperv i s ing the back of f i c e opera t ions of BLMIS. BONVENTREeven tua l ly assumed the pos i t ion of Direc tor of Operat ions fo rBLMIS beginning a t l e a s t as ea r ly as in o r about 1978. In his. capac i ty as Direc to r of Operat ions, BONVENTRE was respons ib lefo r , among other th ings : (a) maintaining and supe rv i s ing theproduc t ion of the pr inc ipa l i n t e rna l account ing documents forBLMIS, inc luding the General Ledger ( GIL ); (b) maintaining thes tock record fo r BLMIS and resolv ing any discrepartc ies between

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i n t e rna l and ex te rna l records ; (c) supervis ing the use andr e c onc i l i a t i on of BLMIS bank accounts through which the MarketMaking, Propr ie t a ry Trading, and IA bus iness ope ra t ions werefunded; (d) supe rv i s ing BLMIS employees who worked in theaccoun t ing depar tment and the cage, , ; l and (e) supervis ing JEROMEO HARA and GEORGE PEREZ, the defendants , i n so fa r as t h e i r workr e l a t e d to the product ion of the G/L and other BLMIS account ingrecords .

7. ANNETTE BONGIORNO the defendant , was employed a tBLMIS from on o r about Ju ly 1, 1968, through a t l ea s t on o r aboutDecember 11, 2008. During her employment, BONGIORNO had ava r i e ty of du t i e s and r e spons i b i l i t i e s , inc luding managinghundreds o f IA accounts purpor t ed ly having a cumulat ive balanceof approximately $8.5 b i l l i o n dol la r s as of November 30, 2008.BONGIORNO a l s o superv i sed employees who worked fo r the IAbus iness .

8. JOANN CRUPI, a /k / a Jodi , the defendant , wasemployed a t BLMIS from on o r about Ju ly 5, 1983, through a t l e a s ton o r about December 11, 2008. During her employment a t BLMIS,CRUPI had a var i e t y of ~ t i e s and r e s pons ib i l i t i e s , inc ludingt r ack ing the da i ly a c t i v i t y of the bank account i n to whichb i l l i o n s o f do l l a r s of IA c l i e n t s ' money for investment was

1 The cage was the area of BLMIS's of f i c e i n whichse t t l emen t and c lea r ing func t ions occurred, and in which checksand wire t r a n s f e r s were sen t and/or received.

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depos i ted , and from which IA c l i en t redempt ions were pa id ( theIA Bank Account ) , and d i rec t ing wire t r a ns f e r s i n to and out of

t h e IA Bank Account. In addi t ion , CRUPI managed severa l BLMIS IAaccounts purpor t ed ly having a cumulat ive balance of approximately$900 mi l l i o n as of November 30, 2008. CRUPI a l so a s s i s t e dDiPasca l i in managing the Spl i t St r ike accounts .

9. At a l l t imes r e levan t to t h i s Indictment , J ROMO HARA and G ORG PEREZ, the defendants , were employed by BLMISs t a r t i n g in o r about 1990 and 1991, respec t ive ly . O HARA andPEREZ were each respons ib le for , among o ther th ings , developingand maintain ing computer programs for computers t ha t suppor tedt he opera t ions o f BLMIS, inc luding i t s Market Making, Propr ie taryTrading, and IA operat ions .

BackgroundA The Ponzi Scheme

10. From a t l e a s t as ea r ly as the 1980s through on o rabout December 11, 2008, Madoff, DiPasca l i , and other co-consp i ra to r s perpe t ra t ed a scheme to def raud the c l i e n t s of theBLMIS IA bus iness ( IA Clients ) by accept ing b i l l i ons of do l l a rsof IA Cl ien t s ' funds under fa l se pretenses , f a i l i ng to inves t theIA Cl ien t s ' funds as promised, crea t ing and dissemina t ing fa l seand f raudulent documents to IA Clients purpor t ing to show t ha tt h e i r funds had been inves ted , crea t ing fa l se books and records

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of BLMIS, and ly ing to the SEC and an accounting f i rm to concealt he f raudulent scheme.

11. To execute the scheme, Madoff so l i c i t ed , andcaused others to s o l i c i t , prospec t ive c l i en t s to open t rad ingaccounts with BLMIS, based upon, among o ther th ings , a promise touse i nves to r funds to purchase shares of common s tock, opt ions ,o the r secu r i t i e s , and f inanc ia l ins t ruments , and representa t ionst h a t he would achieve high ra te s of re tu rn fo r c l i en t s withl im i t e d r i sk . These r ep resen ta t ions were fa l se . Contrary torep resen ta t ions made on account s ta tements and o ther documentss e n t to IA Clients , Madoff, DiPasca l i , and o ther co-conspi ra torsknew t ha t the IA Cl ien t s ' funds were not being inves ted ins e c u r i t i e s as promised. Moreover, Madoff, DiPasca l i , and otherco-consp i ra to r s misappropr ia ted IA Cl ien t s ' funds and conver tedthose funds to t h e i r own use and the use of o ther s .B. The Spl i t Strike Strategy

12. Under the d i r e c t ion of Madoff, DiPasca l i helped todeve lop the purpor ted sp l i t s t r i ke convers ion ( Sp l i t Str ike )investment s t ra tegy tha t Madoff used to market the IA business toIA Cl ien t s and prospect ive IA Clients beginning in o r about thee a r l y 1990s. Current and prospec t ive IA Clients who werei nves ted in the Spl i t St r ike s t ra tegy were promised t ha t : (i)t h e i r funds would be inves ted in a baske t of approximate ly 35-50common s tocks within the Standard & Poor ' s 100 Index ( the S&P

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100 ) , a c o l l e c t i on of the 100 l a rge s t pub l ic ly t r aded companiesin terms o f t h e i r market c a p i t a l i z a t i on ; ( i i ) the baske t ofs tocks would c lose ly mimic the pr ice movements of the S P 100;( i i i ) the inves tments would be hedged by using IA Cl ien t s ' fundsto buy and s e l l opt ion con t rac t s r e l a t e d to those s tocks , therebyl imi t ing po t en t i a l losses caused by unpredic table changes ins tock pr ices ; (iv) Madoff oppor tun i s t i ca l ly would t ime the en t ryand e x i t from the s t ra t egy ; and (v) when the IA Cl ien t s ' fundswere not inves ted in the baske t of s tocks and opt ions descr ibedabove, those funds would be inves ted in money market funds andUnited Sta tes Government-issued secu r i t i e s such as United Sta tesTreasury b i l l s .

13. In t o t a l , thousands of IA Cl ien t s , inc ludingind iv idua l i nves to rs , cha r i t ab le organizat ions , t r u s t s , pensionfunds, and hedge funds, among o ther s , with b i l l i ons of do l l a rs ofcumulat ive inves tments , were t o ld by Madoff, DiPasca l i and otherco-consp i ra to r s t ha t t h e i r funds were inves ted with BLMIS usingthe Spl i t St r ike s t ra t egy . (These c l i en t s are here in re fe r redto , c o l l e c t i ve ly , as the Spl i t S t r ike Cl ien t s . )

14. Madoff, DiPascal i , and o ther co-consp i ra to rs knewt ha t the S p l i t St r ike s t ra t egy was a f i c t i on i n t ha t the Spl i tSt r ike Clients ' funds were not i nves t ed in the s e c ur i t i e srecorded on t hose c l i en t s ' account s ta tements . The repor tedperformance of the Spl i t St r ike s t r a t e gy was f ab r ica ted by


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Madoff , DiPasca l i , and o ther co-conspi ra tors through a process inwhich t r ansac t ions were executed only on paper , based onh i s t o r i c a l l y repor t ed p r i c e s of s e c ur i t i e s , fo r the purpose ofproducing and sending 'documents to Spl i t S t r ik e Cl ien t s t ha tf a l s e ly made t appear t ha t BLMIS had achieved the promised

re tu rns of approx imate ly 10 to 17 percent p e r year .15. On a r eg u l a r b a s i s , Madoff prov ided guidance to

DiPasca l i and, through DiPasca l i , to othe r co -consp i ra to rs , aboutthe gains o r losse s t h a t Madoff wanted to be r e f l e c t e d i n theaccount s ta tements o f the S p l i t St r ike Cl ien t s . Based on t ha tguidance, DiPasca l i and o ther co-consp i ra to rs prepared modelbaskets of S P 100 s tocks based on h i s t o r i c a l market p r i ce s andt racked how those hypothe t i ca l baske t s would have performed inthe ac tua l marketp lace to determine whether and when to ente rthe market . Whenever Madoff informed DiPasca l i t ha t he haddecided t o en te r the market , DiPasca l i and o ther co-consp i ra to rs caused da ta r e l a t e d to the chosen baske t o fs ecu r i t i e s t o be en te red i n to a computer ded ica ted to the IAbusiness , which was housed p r i n c i p a l l y on the seven teen th f loorof BLMIS's o f f i c e s . That computer was r e f e r r e d to by c e r t a i nBLMIS employees as House 17 . Madoff, DiPasca l i , and othe r co-consp i ra to rs used computer programs developed by JEROME O HARAand GEORGE PEREZ, the defendants , t o , among o ther th ings ,a l loca te mUlt ip les of the chosen baske t to Spl i t S t r ik e Clients

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on a pro r a t a bas i s based on each such c l i e n t ' s purpor ted accountbalance . When Madoff made a f i na l dec i s ion purpor tedly to en te rthe market , DiPasca l i and o ther co-consp i ra to rs would cause t ensof thousands o f fa l se documents to be produced from da ta s to redon House 17 t h a t purpor ted to confi rm the purchases of s e c ur i t i e stha t , i n f a c t , had not been purchased .

16. The purpor ted t r ades by which BLMIS supposedlyen te red the market were pr iced using da ta from market a c t i v i t y

t h a t a l ready occur red sometimes one o r more days p r i o r to theda te on which t he dec i s ion to en te r the market was f ina l i zed .Because none o f the t rades a c t u a l l y occurred, Madoff,DiPasca l i , and o ther co-consp i ra to rs r e l i ed on h i s t o r i c a l pr iceand t rad ing volume da ta obta ined from publ i shed sources of marketinformat ion . With the benef i t of hinds igh t , Madoff and DiPasca l ichose the pr i c e s a t which s e c ur i t i e s purpor tedly were purchasedin l i g h t o f Madoff ' s ob jec t ives . In doing so, Madoff, DiPasca l i ,and o ther co -consp i ra to r s at tempted to ensure t ha t the t r adeconf i rmat ion s l i p s sent to S p l i t St r ike Cl ien t s r e f l e c t e d pr icest ha t f e l l with in the range of pr ices a t which each such s ecu r i t yi n f a c t had t r aded ~ the p e r t i n e n t day.

17. A s imi la r process to t ha t descr ibed in paragraphs15 and 16 above was used in ex i t i n g the market by s e l l i ng outo f t he purpor t ed s tock and opt ion pos i t ions and buying UnitedS ta t e s Treasury b i l l s and shares in a money market fund with the

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c The Non Spl i t Strike Client Accounts20. BLMIS had many IA Cl ien t s o the r than Spl i t Str ike

Cl ien t s ( the Non-Spl i t St r ike Cl i en t s ) . As desc r ibed morefu l l y below, the Non-Spli t St r ike Clients were promised t ha tt h e i r inves tment funds would be used to buy and s e l l secur i t i e si n s t r a t eg i e s t ha t would r e a l i z e annual r e tu rns in vary ingamounts up to a t l e a s t approximate ly 45 percent p e r year .Madoff, DiPasca l i , ANNETTE BONGIORNO and JOANN CRUPI, a /k / a

Jodi , the defendants , and o ther s , took s teps to make t appeart ha t funds from the Non-Spli t St r ike Clients had been inves tedand genera ted the r e tu rns they had been promised by Madoff when,in fac t , they had not .D. LMIS Operations and Computer Systems

21. BLMIS made use of numerous in fo rmat ion technologysystems in support of i t s Market Making, propr i e t a ry Trading andIA businesses . Madoff, DiPasca l i , DANIEL BONVENTREi ANNETTEBONGIORNO and JOANN CRUPI, a /k / a Jodi , the defendants , andt he i r co-consp i ra to rs r e l i ed upon BLMIS computers opera ted byBLMIS employees, and computer programs developed and maintainedby JEROME O HARA and GEORGE PEREZ, the defendants , among others ,to ca r ry out and conceal the f raudulent scheme.

1. House 05: Market Making and Proprietary Trading22. The opera t ions of the Market Making and

Propr ie ta ry Trading businesses were suppor ted pr inc ipa l ly by two

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those t h i rd pa r t i e s fo r use in crea t ing BLMIS books and records .BLMIS employees regu la r ly used the programs on House 05 tocompare t r ad ing da ta rece ived from the STRATUS system withinformat ion obta ined from DTC and genera ted break sheetsshowing any discrepancies between BLMIS's in fo rmat ion and DTC'sda ta .

c. Both O HARA and PEREZ were respons ib le fordeve loping programs for , and maintaining, House 05. O HARA andPEREZ had d i r e c t knowledge of House 05, the BLMIS books andrecords crea ted by House 05, the sources of da ta t ha t House 05i ncorpora t ed i n to BLMIS's books and records , and the manner inwhich House 05 rece ived informat ion from t h i rd pa r t i e s , inc lud ingDTC.

2 House 7: The IA Business

23. The ope ra t ions of the IA business were suppor tedby House 17, which was a separ 'a te I M AS/400 server . As JEROMEO HARA and GEORGE PEREZ, the defendants , wel l knew, unl ike House05, House 17 did not receive t rad ing da ta r e l a t e d to the IAbus iness e l e c t r o n i ~ l l y from any computer t ha t communicated witht h i r d par t i e s , inc luding t r ad ing cont ra par t i e s . Rather , Madoff,

custody of secu r i t i e s on beha l f of f inanc ia l i n s t i t u t i ons andrecording on i t s books and records changes in the ownership ofthose secu r i t i e s . BLMIS had an account a t DTC in which thes e c u r i t i e s of the Market Making and Propr ie ta ry Tradingopera t ions were cus todied , as well as a few equ i ty s e c ur i t i e she ld on beha l f of ce r t a i n IA Cl ien t s .

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DiPasca l i l NNETTE BONGIORNO and JO NN CRUPI a /k / a Jodi l thedefendants 1 and o ther s involved in the IA business l crea tedt rad ing da ta r e l a t ed to the purpor ted a c t i v i t i e s of the IAbusiness and caused t ha t data to be ente red i n to the House 17se rve r .

24. JEROME O ~ A R A and GEORGE PEREZ 1 the defendants 1developed and maintained computer programs on House 17 ( the

House 17 Programs t ha t were used t o en te r fake IA bus inesst rade da ta . The House 17 Programs were used to genera te amongo ther th ings 1 account s ta tements 1 t r ade confi rmat ions 1 t rad ingb lo t t e r s 1 and o ther books and records re la ted to BLMIS/spurpor t ed IA bus iness . As O HARA and PEREZ well knew 1 House 171unl ike House 05 1 did not ob ta in da ta concerning the purportedt rades r e l a t ed to the IA business from T a l though t couldhave been programmed to do so. As O HARA and PEREZ fu r the r knew House 171 un l ike House 05 1 did not r econc i le the purpor ted t radeda ta genera ted by BLMIS employees aga ins t any outs ide source .

25. The House 17 Programs produced fake IA businessbooks and records as fol lows:

a . For Spl i t St r ike Cl ien t s : (i) informat ionabout a baske t of purpor ted t r ades (purchases when en te r ing themarket 1 and sa le s when ex i t ing the market) was entered i n to House17 and was used to generate data r e f l ec t i ng purpor ted t rades ;

i i ) the da ta desc r ib ing the purpor ted t rades was s to red in

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severa l f i l e s , inc luding the S e t t l e d Trades Fi le ; ( i i i ) t r adeda ta and o th e r in fo rmat ion s to red on House 17 was merged within fo rmat ion con ta ined in a f i l e t i t l e d A. NAME ( the A. NAMEFi l e ) , which con ta ined c e r t a i n informat ion about a l l the IACl ien t s , inc luding, but not l imi ted to , unique BLMIS accountnumbers, the names of account holders , and the mail ing addressesto which s ta tements and o ther documents were to be sent ; (iv) themerged in fo rmat ion was fo rmat ted fo r p r e s en t a t i o n on BLMISaccount s ta tements and conf i rmat ion s l i p s ; and (v) accounts ta tements and conf i rmat ion s l i p s were pr in ted and d i s t r i b u t e d toIA Cl ien t s , p r imar i ly through the u .S. mai ls .

b. For IA Cl ien t s who were not S p l i t St r ikeCl ien t s , the process was s imi la r ; however, because t h e i r t radesgenera l ly d id not inc lude purpor ted baske t t rades , those t radeswere ente red i nd iv idua l ly i n to House 17 based on i n s t ruc t ionsprov ided by BLMIS employees on an accoun t -by-accoun t bas i s .

26. The books and records genera ted by the House 17Programs fo r BLMIS's IA business were en t i r e l y fa l se andf raudulent because, among othe r th ings , they purpor ted to r e f l e c ts e c ur i t i e s t ransac t ions tha t , in fac t , had never been executed.E Avell ino Bienes and the Liquidity r is i s o f 1992

2 ~ In o r about 1992, the SEC brought charges aga ins tAvel l ino Bienes ( A&B ), an investment fund t ha t was inves tedpr imar i ly in BLMIS, fo r o f fe r ing s e c ur i t i e s i n unreg i s t e red

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t r a n sa c t i o n s t o inves to r s in v io l a t i on of the law. Consequently,a r e c e i v e r was appointed by the cour t in the SEC's enforcementa c t i o n ( the Rec eiver ) . Since A B's funds were a t BLMIS theRece iver r equ i red tha t BLMIS l i qu ida te the A B accounts andprovide account records subs tan t i a t ing the va lues and t r ad ing inthose accounts .

28. Madoff wel l knew t ha t A B f a l s e ly had representedto ts c l i e n t s t ha t BLMIS was engaged in bona f ide conver t ib lea rb i t r a ge , a market neu t ra l investment s t r a t e g y involving thes imul taneous purchase of conver t ib le s e c ur i t i e s and the shor ts a l e of the same i s s u e r ' s common s tock. In fac t , the purpor tedt rades in the numerous A B accounts , which fo r years had beenc rea ted by ANNETTE BONGIORNO, the defendant , did not fo l low ac o n s i s t e n t , organized, o r d ive r s i f i e d investment s t r a t e g y t h a tmi t iga ted r i sk . In order to genera te for the Receiver and theSEC the h i s t o r i c a l records t ha t purpor ted to subs tan t i a t epro f i t ab l e t r ades in the A B accounts , Madoff e n l i s t e d the helpof DiPasca l i , BONGIORNO and JOANN CRUPI a /k / a Jodi , thedefendants , and o ther s in developing a s t r a t e g y whereby the A Bs t a t ement s would be r ec rea ted to r e f l e c t what A B had representedto ts c l i en t s .

29. Over severa l months, ANNETTE BONGIORNO, thedefendan t , and o ther s , c rea ted h i s t o r i ca l records and accounts t a t ement s t ha t purpor ted to r e f l ec t pro f i t a b l e t r ad ing in the

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A B account s . BONGIORNO made r ev i s ions to the account s ta tementsto hide from the Receiver and the SEC the exis tence of andt ransac t ions in c e r t a in IA accounts . For example, an IA accounthe ld in the name of Avel l ino & Alpern ( A&A ) per iod ica l ly hadt r a n s fe r r e d funds to and from an A B account . An accounts ta tement i s sued to A B in 1989 showed a t r a ns f e r of funds t ha tA B had rece ived from A A. In orde r to hide from the Receiverthe ex is tence of the A A account and the 1989 t r ans fe r BONGIORNOcrea ted r ev i sed A B account s ta tements to r e f l ec t t h i s inf low offunds as a purpor t ed dividend from General Motors, in s tead of asa t r a ns f e r from A A. None of these r ev i s ions would have beennecessary i the t r ades and pos i t ions r e f l e c t e d on the accounts ta tements had been r e a l in the f i r s t place . Fur ther asBONGIORNO wel l knew, the resu l t ing f ab r ica ted account s ta tementswere provided to the Receiver .

30. Because the pos i t ions A B he ld a t BLMIS did notex i s t they cou ld not be l i qu ida ted to redeem A B's investmentsupon the d i s s o lu t ion of A B. Moreover, in o r about the Fal l of1992, the IA Bank Account did not have enough funds to pay thehundreds of mi l l i o n s of d o l l a r s due the Receiver and, u l t imate lythe A B customers. In o rde r to provide funds fo r t h i s purpose,in o r about November 1992, Madoff obta ined secu r i t i e s from a tl ea s t two IA c l i e n t s and used those s e c ur i t i e s as co l l a t e ra l forloans . Some o f the loan proceeds were t r a n s fe r r e d to BLMIS bank

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accounts and were used to p a y o f f a por t ion of the balance duet he Receiver and, u l t imate ly , A B cus tomers .

31. DANIEL BONVENTRE, the defendant , was aware of thedepos i t of s e c ur i t i e s from the two IA c l i en t s , and t ha t thes e c ur i t i e s belonged to the IA c l i en t s , not BLMIS. In fac t , thesecu r i t i e s were c red i t ed to the IA c l i en t s ' r espec t ive IAaccounts and were r e f l e c t e d on the IA c l i en t s ' r espec t ive accounts ta tements as of November 30, 1992. BONVENTRE a l so was aware ofthe balance in the IA Bank Account and reviewed and i n i t i a l e ddocuments r e f l e c t i ng the balance in the IA Bank Account in orabout October and November 1992.

32. DANIEL BONVENTRE, the defendant , well knew t ha tloan proceeds were used to p a y o f f a por t ion of the balance duethe Receiver and, u l t imate ly , A B cus tomers . However, BONVENTREcaused the inc lus ion of e n t r i e s i n to the G/L, and/or i t ssupport ing books and records , t ha t f a l s e ly crea ted the appearancetha t the loan proceeds t ha t had been used to pay A B, and /or i t scustomers, had been used to purchase asse t s fo r BLMIS.

33. The Receiver , upon rece ip t of the l i qu ida ted fundsand in r e l i ance on the fa l se account s ta tements a l t e r e d byMadoff, DiPasca l i , ANNETTE BONGIORNO and JOANN CRUPI, a /k / a

Jodi , the defendants , and o ther s , re imbursed the thousands ofA B inves to r s fo r the f u l l amount of the purpor ted investments ,in excess of 300 mil l ion .

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The Management o the Non Split Str ike Cl ient IA Accounts34. From a t l ea s t as ea r ly as the 1990s, through in

o r about December 2008, ANNETTE BONGIORNO the defendant , managedhundreds of Non-Spl i t St r ike IA Cl ien t s ' accounts for which BLMISpurpor ted ly used an inves tment s t r a t e gy us ing long and shor te qu i t i e s . The accounts managed by BONGIORNO purpor tedly had acumulat ive balance of approximately $8.5 b i l l i o n as of November30, 2008. From a t l ea s t as ea r ly as the 2000s, through in orabout December 2008, JOANN CRUPI a /k / a Jodi , a l so managedsevera l Non-Spl i t St r ike IA accounts purpor tedly inves ted ine qu i t i e s and opt ions , and those accounts had a cumulat ive balanceof approximately $900 mil l ion as of November 30, 2008.

35. ANNETTE BONGIORNO and JOANN CRUPI a /k / a Jodi ,the defendants , managed these Non-Spl i t St r ike IA accounts byi den t i fy ing which t r ades to include on IA Cl ien t s ' accounts ta tements us ing h i s t o r i ca l pr ice informat ion repor ted in theWall St r e e t Journa l and Bloomberg. BONGIORNO and CRUPI crea tedt r ades with the goal of a r r iv ing a t a spec i f i c annual r a t e ofre tu rn , c a l l e d a benchmark r a t e of r e tu rn , tha t was pre determined by Madoff. Benchmark re tu rns ranged fromapproximately 11 percent to up to a t l ea s t approximately 45pe rcen t p e r year and var ied depending on the IA Cl ien t . Madoffcommunicated the benchmark r e tu rns fo r each account o r group of

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accounts to BONGIORNO and CRUPI who in tu rn caused the benchmarkr e tu rns to be en te red i n to House 17.

36. At the end of each month, quar t e r o r year , ANNETTEBONGIORNO and JOANN CRUPI a /k / a Jodi , the defendants , andothers , reviewed BLMIS r epor t s comparing the benchmark re tu rn foreach account with the purpor ted year - to -da te re tu rns earned byNon-Spl i t S t r i k e Cl ien t accounts they managed. When there weredif ferences between the benchmark r e tu rns and the re turns t ha tpurpor tedly had been earned by the t ime the repor t s were run,BONGIORNO CRUPI, and o ther s , c rea ted t r ades and adjus tments ince r t a in IA Cl ien t s ' accoun ts to ensure t ha t the annual re turnsrepor ted to the Non-Spl i t St r ike Clients appeared to meet o rexceed t he i r expected re tu rns .A. NNETTE BONGIORNO s Management o Hundreds

o Non Spl i t Str ike IA Accounts

37. From a t l e a s t as ea r ly as the e a r ly 1990s, throughin or about December 2008, ANNETTE BONGIORNO the defendant ,managed hundreds of Non-Spl i t St r ike IA accounts ( the BongiornoHigh Net Worth Clients ) . During the course of managing these IAaccounts which con ta ined b i l l i ons of do l l a rs , BONGIORNO amongother th ings , (a) executed t r ades in the accounts of theBongiorno High Net Worth Cl ien t s only on paper , based onh i s to r i c a l l y repor t ed pr ices of s e c ur i t i e s t ha t she researched,and t ha t achieved annual ra te s of re tu rn t ha t had been pre-determined by Madoff; (b) processed except iona l gains in the IA

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accoun ts of the Bongiorno High Net Worth Cl ien t s t ha t purpor tedlyoccurred months before the IA accounts had been es tab l i shed ; (c)asked Bongiorno High Net Worth Cl ien t s to re tu rn previous ly-i s sued BLMIS account s ta tements so tha t she could a l t e r them, andof ten inc lude add i t iona l backdated t r ades ; (d) rece ived spec i f i ci n s t ruc t ions from the Bongiorno High Net Worth Clients about theamount of apprec ia t ions and ga ins they wanted to be re f lec ted int h e i r IA accounts ; and (e) used the STMTPRO program, descr ibed inparagraph 40 below, to c rea te dozens of IA account s ta tements forthe Bongiorno High Net Worth Clients t ha t conta ined t ens ofmil l ions of dol la r s worth of gains from t rades created byBONGIORNO months before the Bongiorno High Net Worth Cl ien t s 'accoun ts even had been opened a t BLMIS

38. As pa r t of the process of crea t ing t rades to ber e f l e c t e d in the Bongiorno High Net Worth Clients ' accounts ,BONGIORNO e i t h e r re fe r red to an i n t e rna l r epor t , t i t l e d JodiStocks , which was based on da ta from Bloomberg and showed pr icechanges fo r many of the s tocks in the S P 500 dur ing the previousmonth, quar t e r , and year , o r she d i rec ted others to p r i n t repor tsd i r e c t l y from Bloomberg t ha t r e f l e c t e d s imi la r informat ion.Using the h i s t o r i c a l pr ice in format ion , BONGIORNO and o ther swrote up t r ade t i c ke t s se t t i ng fo r th the de t a i l s of par t i cu l a rt rades to be re f lec ted on indiv idual BLMIS account s ta tements .Spe c i f i c a l l y , BONGIORNO and o ther s f i l l e d in t rade t i cke t s with

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s tock symbols t r ade da tes , se t t lement dates , the na ture of thet ransac t ion (e .g . , a buy se l l , shor t , o r cover ) , the pr ice ofthe secur i ty , the number of shares , and sometimes the expectedga in or los s as soc ia ted with the t ransac t ion .

39. General ly , a l l t rade t i cke t s were completed anden te red i n t o House 17 a t the end of the month o r the beginningo f the fo l lowing month pr io r to the account s ta tements beingi ssued, and the t r ades were re f lec ted on the month-end s ta tementst ha t were sen t to IA Cl ien t s .

40. At t imes ANNETTE BONGIORNO the defendant ando thers , backdated t r ades so t ha t they appeared to have occurredmonths e a r l i e r on IA Cl ien t s account s ta tements . To do soBONGIORNO and o ther s c rea ted an account s ta tement using a House17 computer program c a l l e d STMTPRO. The STMTPRO program wasc r ea t ed a t l ea s t as ea r ly as 1993 and was main ta ined by JEROMEO'HARA and GEORGE PEREZ, the defendant s s ince a t l ea s t tha tt ime. STMTPRO al lowed the user to e i t h e r c rea te an accounts ta tement with a l a rge ly blank account s ta tement , or r ev i se ane x i s t i ng account s ta tement . BONGIORNO of ten used STMTPRO to makeaccount s ta tements from a previous month in order to incorpora tebackdated t rades .

1 This program went through severa l modif ica t ions s ince i t sincep t ion and as a r e su l t , was saved as severa l d i f f e r e n tve rs ions on House 17.

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41. ANNETTE BONGIORNO the defendant asked ce r t a in IACl ien t s to r e t u rn account s ta tements they prev ious ly had receivedfrom BLMIS. BONGIORNO, a t t imes crossed the s ta tements out andwrote new t ransac t ions and balances , and o ther changes on theses ta tements t ha t were to be inc luded on revised s ta tements .BONGIORNO then caused the changes to be en te red on House 17 andused STMTPRO to c rea te manipulated s ta tements r e f l e c t i ng thenewly revised t ransac t ions and balances . These r ev i seds ta tements were then d i s t r i bu t e d to ce r ta in IA Cl ien t s .

42. In o r about the ea r ly 1990s when some House 17programs were modif ied to t rack inves to r t rades , ANNETTEBONGIORNO the defendant reques ted the a b i l i t y to backdatet rades and manipulate the appearance of IA account s ta tements .BONGIORNO worked c lose ly with DANIEL BONVENTRE the defendant todevelop the programs t ha t could produce the manipulated accounts ta tements , t ransac t ions , and balances ; and on occas ionBONGIORNO descr ibed in wri t t en d e t a i l to BONVENTRE how she wantedthese programs to work. For example i n o r about the ea r ly1990s BONGIORNO wrote to BONVENTRE s ta t ing :

Dan. . Here are some of the problems with thenew programs t ha t I saw r i gh t away. . I need thea b i l i t y to give any se t t lement da te I want[ . ]Trades can be punched any t ime on any day and as longas the se t t l emen t da te i s a f t e r the previous monthend these t r ades have to h i t the l edgers sta tementin the cor rec t se t t l ement da te orde r . I f se t t lementda te before previous month end then they should bel i s t e d on cur ren t month end s ta tements and l edgersf i r s t . No t r ades should show as ' a s of s ' unless I

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want them to . No comps should have en t ry da tes onthem j u s t t r ade and se t t l emen t .B. JO NN CRUPI s Management of IA Clients Accounts

43. From approximately the ea r ly 2000s, through in o rabout December 2008, JO NN CRUPI a /k / a Jodi , the defendant ,

m ~ n g e d severa l IA accounts a f f i l i a t e d with an IA Cl ien t ( theCrupi High Net Worth Cl ien t ) . During the course of managing

t he se IA accoun ts , which purpor t ed ly contained approximately $900mi l l i o n as of November 30, 2008, CRUPI crea ted accounts ta tements , t rade conf i rmat ions , and o ther documents t ha tr e f l e c t e d s e c u r i t i e s t ransac t ions t ha t had not been executed andsecu r i t i e s pos i t ions t ha t did not ex i s t . In addi t ion , CRUPIamong o ther th ings , (a) executed t r ades in the accounts of theCrupi High Net Worth Cl ien t only on paper , based on h i s t o r i ca l l yr epor ted p r i c e s of secu r i t i e s t ha t she researched, and tha tach ieved annual ra te s of re tu rn t ha t had been pre-determined byMadoff; (b) backdated the purchase da tes of purpor ted t r ades sot ha t she could con t ro l t he amount of gains r e f l e c t e d in the CrupiHigh Net Worth Cl ien t accounts ; (c) executed the purchase andsa l e of p a r t i c u l a r secu r i t i e s on the same da te ; (d) causeddividends to be c red i t ed to the Crupi High Net Worth Cl ien taccount s ta tements before the div idends had been pa id by thei s su ing company; (e) caused wire t r ans fe r s to be sent to theCrupi High Net Worth Cl ien t before any s e c ur i t i e s were sold inthe accounts and, days l a t e r , backdated purpor ted sa les of

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secu r i t i e s o r u s Treasury b i l l s to match the date of the wiret r ans fe r s , making t appear t ha t the sa les occur red on the sameday as the wire t r a ns f e r s .

Reviews o LMIS Between 2 3 and 2 844. BLMIS was subjec ted to a t l e a s t f ive separa te

reviews by the SEC and a European accounting f i rm ( the EuropeanAccounting Firm ) between 2003 and 2008 (co l l ec t ive ly , the

Reviews ) . 245. Beginning a t l ea s t as ea r ly as in o r about

December 2003, in connec t ion wi th the Reviews, Madoff and/orDiPasca l i caused DANIEL BONVENTRE JOANN CRUPI, a /k / a Jodi ,JEROME O HARA and GEORGE PEREZ, the defendants , to c rea teadd i t iona l fa l se and f raudulent BLMIS's books and records .Madoff ' s goal s in d i r e c t i n g the c r ea t i o n of add i t iona l fa l se andf raudu len t books and records inc luded, among o ther th ings :(a) r evea l ing in fo rmat ion about as few of BLMIS's IA Cl ien t s asposs ib le , the reby concea l ing the sca le of the business i(b) presen t ing explana t ions of BLMIS's opera t ions t ha t would maket more d i f f i c u l t fo r the SEC and /or the European Accounting Firm

to a t t empt to ve r i fy with t h i r d pa r t i e s the informat ion providedby BLMISi and (c) f a l s i f y ing informat ion to ensure t ha t the

2 The European Accounting Firm's c l i e n t was a Europeanf inanc ia l i n s t i t u t i o n t ha t se rved as cus todian fo r the asse t s ofan IA c l i e n t ( the European IA Client ) and t ha t had a sub-cus todian agreement with BLMIS.

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documents produced looked authent ic and did not con ta insuspic ious pa t t e rns t ha t might a l e r t the SEC and/or the EuropeanAccounting Firm to the f raud.

46. In an e f f o r t to achieve these goa ls , Madoffcaused: (a) DiPascal i , DANIEL BONVENTRE JOANN CRUPI, a /k / aJodi,1I JEROME O HARA and GEORGE PEREZ, the defendants , and

others , to c rea te fake spec ia l ve rs ions of h i s t o r i c a l BLMISbooks and records to show to the SEC and the European AccountingFirm; and (b) DiPasca l i , BONVENTRE O HARA and PEREZ, and others ,to c rea te fa l se documents purpor tedly obta ined from t h i rd par t ie sin the ordinary course of BLMIS's business .

47. The spec ia l ve rs ions of h i s t o r i c a l BLMISdocuments were prepared only fo r a smal l subse t of the BLMIS IAClients ( the Special Cl ien t s so t ha t Madoff could conceal thescale of h i s purpor ted IA business . DiPascal i and JOANN CRUPI,a/k /a Jodi,1I the defendant , a s s i s t e d i n se lec t ing the SpecialClients accounts t ha t would be shown to the SEC and the EuropeanAccounting Firm, knowing tha t the few Spec ia l Cl ien t s u l t imate lyse lec ted represented only a smal l f r a c t i o n of the thousands of IAClients a t BLMIS. In he r desk, CRUPI maintained a l st ofSpecial Cl ien t s .

The False Special Trade lotters48. JOANN CRUPI, a /k / a Jodi , JEROME O HARA and

GEORGE PEREZ, the defendants , crea ted fa l se re t rospec t ive da i ly

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t r ade b l o t t e r s ( the Spec ia l Blo t te r s ) t ha t purpor ted toi den t i fy , on a t r ade-by- t r ade bas i s , in fo rmat ion such as thec l i e n t for whom the t r ade was conducted, t he con t ra par ty to thet r ade , the number of shares t raded, and the pr ice a t which thet r ade was executed. The Specia l B l o t t e r s repor t ed informat iont ha t was m a t e r i a l l y incons i s ten t with informat ion conta ined inthe BLMIS S e t t l e d Trades Fi le . As descr ibed in fu r the r de t a i lbelow, O'HARA and PEREZ developed and maintained spec ia l House 17Programs ( the Spec ia l House 17 Programs ) and f i l e s , many ofwhich were used in con junc t ion with one ano ther , to c rea te theSpec ia l Blo t t e r s .A O HARA and PEREZ Changed the Iden t i t i e s o f

Certain IA Clients on the Spec ia l lo t ters49. In connec t ion wi th the SEC's 2004 Review, Madoff

a t t empted tp make t appear t ha t BLMIS did not have custody ofi t s IA Cl ien t s ' a s s e t s because he knew tha t , were the SEC tocheck with DTC, t would l ea rn t ha t DT was not hold ing thesecu r i t i e s l i s t e d on the IA Cl ien t s ' account s ta tements in asegrega ted account fo r BLMIS. To exp la in why DT would not holdthese secu r i t i e s , Madoff d i r ec t ed the prepara t ion of documents ina rece ive-versus -payment / de l ivery-versus -payment ( RVP/DVP )format tha t showed no s e c ur i t i e s o r cash balances in the accountso f IA Cl ien t s . 3 To be cons i s ten t with an RVP/DVP scenar io , the

In a RVP/DVP arrangement, payment fo r s e c ur i t i e spurchased i s made to the s e l l i ng cus tomer ' s agent and /or de l ive ry28


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nanes of the Specia l Cl ien t s were changed to f inanc ia li n ~ t i t u t i o n s hold ing asse t s fo r the benef i t of the Spec ia lCl ien t s because RVP DVP accounts requ i re the involvement of sucha tCustodian.

50. In crea t ing the Specia l Blo t t e rs to prepare fo rthE SEC's 2004 Review, JEROME O'HARA and GEORGE PEREZ, thede Iendants , used a f i l e t i t l e d "S.NAME6" tha t con ta inedi n Io rma t ion d i f f e r e n t from t ha t conta ined in the A.NAME Fi le ,

d e ~ c r i e d in paragraph 25(a) above, to produce accounts ta tements , b l o t t e r s and o ther books and records with misleadinga n d inaccura te informat ion about the i d e n t i t i e s of BLMIS c l i e n t s .Not only did the S.NAME6 F i l e conta in informat ion about a smal lf r a c t i on (approximately 20) of the thousands of IA Cl ien t s whosei n fo rma t ion was contained in the A.NAME Fi le , but the in format ionabou t the Spec ia l Cl ien t s was changed to make t f a l s e ly appeart h a t the IA account holders were f inanc ia l i n s t i t u t i ons tha t heldcus tody o f the IA Cl ien t s asse t s for the benef i t of thosec l i e n t s . For example, an account held in the name of ABC Fund

of secu r i t i e s so ld i s made to the buying cus tomer s agent inexchange for payment a t t ime of se t t lement , usua l ly in the formof cash. Because t ransac t ions in RVP DVP accounts a re se t t l edd i r e c t l y with the agent on a t r ansac t ion-by- t r ansac t ion bas is ,account stateme,nts sent by a broker-dealer l i ke BLMIS tocustomers with RVP DVP accounts genera l ly do not r e f l ec t any cashba lance o r se c u r i t y p o s i t io n with the broker-dealer a t the end ofa per iod . Thus, an RVP DVP account i s i ncons i s t en t with anaccount as to which the broker -dea le r holds secu r i t i e s on behal fof a c l i e n t a t DTC in a segrega ted posi t ion .

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in the A.NAME F i l e was changed to XYZ Financ ia l Ins t i t u t i onf / b /o ABC Fund in the S.NAME;6 F i l e . 4 Other spec ia l programsdeveloped and mainta ined by O HARA and PEREZ fo r the purpose ofproducing documents fo r the SEC in 2004 drew c l i en t in format ionfrom the S.NAME6 F i l e r a t h e r than the A.NAME Fi le . As aconsequence, those Spec ia l House 17 Programs produced b l o t t e r s ,account s ta tements , and o ther books and records with m is leadingand inaccura te in fo rmat ion about the i den t i t i e s of BLMIS c l i en t s .

51. For subsequent Reviews by the SEC and the EuropeanAccount ing Firm in 2005 and 2006, JEROME O HARA and GEORGE PEREZ,the defendan t s , crea ted o ther ve rs ions of the S.NAME Fi le (e .g . ,S.NAME7, S.NAME7B, and S.NAME8) tha t were used in connect ion withc rea t ing Spec ia l B l o t t e r s and o ther fa l se and f raudulentdocuments , i nc lud ing fa l se account s ta tements .B. BONVENTRE, CRUPI O HARA and PEREZ Changed Detai l s

About the Number of Shares Execution TimesContra Part ies and Transaction Numbers for TradesReported on the Special Blotters

52. JEROME O HARA and GEORGE PEREZ, the defendants ,a l so developed and mainta ined Spec ia l House 17 Programs tha t , inconnect ion with the 2004, 2005 and 2006 SEC Reviews, enabledMadoff and DiPasca l i to change in fo rmat ion about t r ades t ha tpurpor t ed ly a l ready had occurred. For example, O HARA and PEREZdeveloped and mainta ined Specia l House 17 Programs to: (a)

4 F/b /o i s a term t ha t means fo r the benef i t o f .30


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randomly divide each equi ty t rade contained in the S e t t l e d TradesF i l e associa ted with the Spec ia l Clients i n to up to 15 separa te

s l i ce s ; (b) randomly ass ign to each subdiv ided equ i ty t rade af a l s e execut ion t ime so as to ensure , among o ther th ings , t ha tthe ass igned t rade t imes for e q u i t i e s occur red dur ing t rad inghours in London, before the u.S. e q u i t i e s markets had opened; and(c) randomly ass ign a new fake t ransac t ion number to eachsubdivided equ i ty t r ade in the Spec ia l B l o t t e r fo r the SEC sReview.

53. Although the Se t t l e d Trades Fi le i de n t i f i e d thecon t ra pa r ty fo r each purpor ted t r ade as CLEARING BANK, a t thed i r e c t ion of Madoff and DiPasca l i , DANIEL BONVENTRE JOANN CRUPI,a /k / a Jodi , JEROME O'HARA and GEORGE PEREZ, the defendants ,changed o r pa r t i c ipa t e d in changing the con t ra p a r t i e s on theSpecial Blot te r s .

54. JEROME O'HARA and GEORGE PEREZ, the defendants ,a lso c rea ted a s e r i e s of modif ica t ions to the S.NAME f i l e s andother House 17 Programs t ha t al lowed BLMIS to p resen t di f fe ren tscenar ios to the SEC and the European Accounting Firm about thepurpor ted con t ra par t i e s to BLMIS t rades .

55. Spec i f i ca l ly , when the SEC was performing areview, Madoff and DiPasca l i , with the ass i s t ance of DANIELBONVENTRE JOANN CRUPI, a /k /a Jodi , JEROME O'HARA and GEORGEPEREZ, the defendants , and o ther co -consp i ra to rs , fo r the purpose

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of produc ing documents to the SEC t ha t would conceal the t rueopera t ions of BLMIS, caused Spec ia l Blo t t e rs to be crea ted t ha tf a l s e ly showed t ha t BLMIS had executed t r ades on beha l f of theSpec ia l Cl ien t s with European con t ra pa r t i e s about which t wouldbe more d i f f i c u l t for the SEC to ob ta in in fo rmat ion as pa r t ofi t s review.

56. Conversely when the European Accounting Firm wasperforming a review BLMIS took the opposi te approach by makingt appear as though t r ades occur red wi th con t ra par t i e s in the

United Sta t e s . Madoff and DiPascal i , with the ass i s tance ofDANIEL BONVENTRE, JOANN CRUPI, a /k / a Jodi , JEROME O HARA andGEORGE PEREZ, the defendants and other co-conspira tors , causedSpec ia l Blo t t e r s to be crea ted t ha t f a l s e ly showed t ha t BLMIS hadexecuted t r a d e s on beha l f of Spec ia l Clients with United Sta tes based con t ra p a r t i e s about which t would be l e ss l i ke l y for theEuropean Accounting Firm to ob ta in informat ion as pa r t of i t sreview.

57. For h i s pa r t , DANIEL BONVENTRE the defendantreviewed a l st of European f inanc ia l i n s t i t u t i ons to be used ascon t ra p a r t i e s .

58. In add i t ion to changing the con t ra par t i e s , JOANNCRUPI, a / k / a J o d ~ , the defendant ensured t ha t the fake S p ~ c i a lB l o t t e r s looked au then t ic . For example CRUPI checked whetherthe f i na nc i a l i n s t i t u t i o n s used as purpor ted con t ra par t i e s

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appeared in a random fash ion on the Spec ia l Blo t t e rs . When CRUPIfound t ha t a f inanc ia l i n s t i t u t i o n was used too f requen t ly in theSpecia l B l o t t e r s , and the re fo re the B l o t t e r s did not lookauthent ic , she brought it to the a t t e n t ion of DiPasca l i . CRUPIand DiPasca l i then d iscussed methods of solv ing the problem withGEORGE PEREZ and/or JEROME O HARA, the defendants . In CRUPI'sdesk, she mainta ined a list of European f inanc ia l i n s t i t u t i ons tobe used as con t ra par t i e s on the fake Spec ia l Blo t t e rs .

59. JOANN CRUPI, a /k /a Jodi , the defendant , a l sochecked the fake Spec ia l Blo t t e rs to ensure t ha t they lookedauthent ic by reviewing whether the purpor ted execu t ion t imes ofthe t rades looked random enough. CRUPI ensured t ha t theSpecia l Blo t t e rs did not r e f l e c t too many t r ades occurr ing a t thesame t imes, o r o ther pecu l i a r i t i e s t ha t would a l e r t the SEC orthe European Accounting Firm t ha t the Spec ia l Blo t t e rs were fake.When CRUPI found t ha t a Spec ia l B l o t t e r showed too many t radestha t purpor tedly occur red a t a par t i cu l a r t ime, she brought it tothe a t t e n t ion of DiPasca l i . DiPasca l i and CRUPI then discussedthe problem, and methods of solv ing it with GEORGE PEREZ and/orJEROME O HARA, the defendants .

JEROME O HARA and GEORGE PEREZ reated False and FraudulentOrder Entry nd Execution Reports

60. In connec t ion with the Reviews, JEROME O HARA andGEORGE PEREZ, the defendants , a l so developed and mainta ined House7 Programs t ha t re t rospec t ive ly crea ted fa l se and f raudulent

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order en t ry and execu t ion r epor t s ( the Specia l OERs ), based inp a r t on the outpu t from the Spec ia l B l o t t e r programs descr ibedabove. The Spec ia l OERs inc luded informat ion about when ordersf o r equ i ty secu r i t i e s had been execu ted (as found in the Spec ia lBl o t t e r s ) , in add i t ion to the t imes a t which the order under lyingeach executed equ i ty t r ade purpor tedly had been placed .

61. J ROM O HARA and G ORG PEREZ, the defendants ,developed and mainta ined Spec ia l House 17 Programs t ha t addedf a l s e order in fo rmat ion to the f i c t i t i o u s t r ade execu t ioni n fo rma t ion con ta ined in the Spec ia l Blo t t e rs . The programs theydeveloped employed a se r ie s of mathematical formulas to generate ,a t random, the t ime t ha t any given purpor ted order for thepurchase o r s a l e of an equ i ty was placed.

JEROME O HARA Created False and Fraudulent Recordsbout BLMIS Commissions

62. On o r about January 6, 2004, the SEC reques tedc e r t a i n informat ion and documents from BLMIS inc luding, but notl imi t ed to , in fo rmat ion about commissions, broken out by customerand by secur i ty , rece ived by BLMIS in connec t ion with i t s work onbeha l f of c e r t a in IA Cl ien t s .

63. Among the f i r s t Spec ia l House 17 Programsdeveloped and mainta ined by J ROM O HARA, the defendant , inconnec t ion with the SEC's 2004 review of BLMIS, were a se r i e s ofcomputer programs ( the 2004 Spec ia l Commission Programs ) tha twere c rea ted wi th in a few days a f t e r BLMIS rece ived the SEC's

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January 6, 2004 document reques t . Because BLMIS did not ac tu a l l yea rn any commissions on ts t r ades , the 2004 Specia l CommissionPrograms genera ted fake r e t rospec t ive r epor t s fo r t h e p e r i o dunder review t h a t f a l s e l y p u rp o r t ed to show commissions rece ivedby BLMIS broken out by account and by se c u r i t y by mul t ip ly ing theshares t r ad ed f o r those c l i e n t s by 0.04 pe r share . In f ac t , nosuch t r ades ev e r had occurred , and t h e r e fo r e no such ca l cu l a t i o nof the commissions owed to BLMIS in connect ion wi th the IAbus iness prev ious ly had been made.

JOANN CRUPI JEROME O HARA and GEORGE PEREZCreated False and Fraudulent I l ient ccount Statements

64. To meet the goals s e t f o r th in paragraph 45 above,a t c e r t a i n t imes , inc lud ing dur ing c e r t a i n SEC Reviews, Madoffwanted to produce documents concern ing c e r t a i n IA Cl ien t s in anRVP/DVP format .

65. DiPasca l i , JO NN CRUPI, a / k / a Jodi , JEROMEO HARA and GEORGE PEREZ, the defendan ts , c rea t ed f a l s e IA accounts tatements in a completely d i f f e r e n t format from the IA accounts tatements t ha t r eg u l a r l y had been sen t to a l l IA Cl ien t s ,including the 2004 Specia l Cl ien t s , fo r years . The RVP/DVPsta tements c rea t ed by DiPasca l i , JO NN CRUPI, a / k / a Jod i ,JEROME O HARA and GEORGE PEREZ, the defendan ts , a t the d i r ec t i o nof Madoff, showed add i t iona l fake t r ansac t ions t h a t had not beenrepor ted t o the 2004 Sp ec i a l Cl ien t s and which zeroed out anys ecu r i t i e s balances ( the Specia l RVP/DVP Sta tements ) . Whereas

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the non-RVP/DVP s ta tements showed long pos i t ions and/or cashbalances in the c l i e n t s ' accounts , the Specia l RVP/DVP Statementsprovided to the SEC did not show any long o r shor t pos i t ionsbe ing he ld by BLMIS on beha l f of the account holde rs .

66. Further , so t ha t BLMIS would not have to v e r i fyt h a t t was holding IA Cl ien t s a s se t s , the account t i t l e s werechanged on some of the Spec ia l RVP/DVP Sta tements . Spec i f i ca l ly ,the names of account holders were changed to f inanc ia li n s t i t u t i ons holding accounts fo r the benef i t of the Specia lCl ien t s .

67. In c rea t ing the Spec ia l RVP/DVP Statements , JOANNCRUPI, a /k / a Jodi , the defendant , researched f inanc ia li n s t i t u t i ons to be used in the a l t e r e d account t i t l e s and causedthe account t i t l e s to be changed. For example, an account heldin the name of ABC Fund was changed to XYZ Financ ia lIns t i t u t i on f / b /o ABC Fund. Once the account t i t l e s werechanged on the Spec ia l RVP/DVP Statements , the a l t e r e d accountt i t l e s a l so were r e f l e c t e d on the Spec ia l Trade Blo t t e rs , andr e la ted documents, as descr ibed in Paragraphs 49-50 above.

68. JEROME O HARA and GEORGE PEREZ, the defendants ,wrote, modif ied and/or mainta ined House 17 Programs t ha t crea tedSpecial RVP/DVP Sta tements .

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69. The Specia l RVP/DVP Statements were crea ted inconnect ion with the SEC Reviews in 2004, 2005 and 2006, and werekept a t BLMIS as par t of i t s books and records .

D NIEL BONVENTRE, JEROME O HARA AND GEORGE PEREZreated False and Fraudulent DTC Reports70. DANIEL BONVENTRE JEROME O'HARA and GEORGE PEREZ,

the defendants , were fami l i a r with the p rocess by which House 05obta ined in fo rmat ion from DTC about the secu r i t i e s he ld a t DTC onbeha l f of BLMIS s Market Making and Propr ie ta ry Tradingbusinesses . BONVENTRE O'HARA and PEREZ knew tha t : (a) House 05communicated d i r e c t l y with computers a t DTC and rece ived da tafrom DTC in severa l f i l e s , inc luding an APIBAL f i l e , a f t e rprovid ing BLMIS s DTC account number and password; and (b)programs on House 05 enabled user s to compare the in format ionobta ined from DTC with tha t produced by the STRATUS system.

71. On o r about January 31, 2004, JEROME O'HARA, thedefendant , crea ted a House 17 Program ( DTC17EOM ) designed togenera te a monthly r epor t t ha t looked l i ke the r epor t s previous lyproduced by DTC fo r House OS, but which added the purpor tedholdings of the IA Spec ia l Clients to the BLMIS hold ings fo r i t sPropr ie ta ry Trading and Market Making ope ra t ions . DTC17EOM

permi t ted an opera to r to pu l l the DTC APIBAL f i l e for a givenmonth using the House 05 backup t ape fo r t ha t month and to addthe Spec ia l C l i e n t s purpor ted s tock records ob ta ined from theHouse 17 Stock Record F i l e to t ha t f i l e . DTC17EOM enabled a

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BLMIS computer ope ra to r to p r i n t f raudu len t DTC r epor t s t h a tr e f l e c t e d the combined da ta .

72. As DANIEL BONVENTRE JEROME O HARA and GEORGEPEREZ, the defendants , wel l knew, fa l se and f raudu len t DTCr e p o r t s der ived from DTC17EOM and o ther programs developed andmain ta ined by O HARA and PEREZ, and which were reviewed byBONVENTRE, were in tended to be suown to r ep resen ta t ives o f theEuropean Accounting Firm who v i s i t e d BLMIS dur ing the 2005Review.

LMIS Payments to J ROM O HARA and G ORG P R ZAfter the SEC s 2004 Review o LMIS

73. After the SEC's 2004 review of BLMIS, in o r aboutOctober 2004, JEROME O HARA, the defendan t , rece ived a paymentfrom BLMIS t o t a l i ng approximate ly 116,950. The payment wasdi sgu i sed as a t r a ns f e r from an IA Account to ano ther IA Accounth e l d in the names of O HARA and h is wife. The payment to O HARAwas not ind ica ted in the records of BLMIS as sa la ry , bonus o ro t h e r type of compensat ion . The 116,950 in funds were

inves ted a t BLMIS and purpor ted ly earned approximate ly 33,500in gains u n t i l O HARA withdrew the funds in o r about 2006, asdesc r ibed below.

74. Simi la r ly , in o r about October 2004, GEORGE PEREZ,t he defendan t , r ece i v ed a p y m ~ n t from BLMIS t o t a l i ngapprox imate ly 108,530. The payment was disguised as a t r a n s fe rfrom an IA Account to ano ther IA Account held in the name of

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PEREZ and his wife . The payment to PEREZ was not ind ica ted inthe records of BLMIS as sa lary , bonus or o ther type ofcompensation. The funds were inves ted a t BLMIS and purpor tedly/earned approximately $53,800 in ga ins un t i l PEREZ withdrew thefunds in o r about 2006, as descr ibed below.

BONVENTRE, O HARA and PEREZ mpty Their I ccounts75. During the SEC's review of BLMIS in 2006, DANIEL

BONVENTRE JEROME O HARA and GEORGE PEREZ, the defendants , eachemptied t h e i r IA Accounts on o r about the same da te - Apri l 6,2006.

76. On o r about Apri l 6, 2006, DANIEL BONVENTRE thedefendant , dur ing the course of the 2006 SEC Review, received acheck drawn on the IA Bank Account in the amount of approximately$577,954.81 ( Check No. 1 ) . On o r about Apri l 7, 2006, CheckNo. 1 was depos i ted in a bank account he ld by BONVENTRE and hiswife .

77. Following the depos i t of Check N o . 1 , Bonventre ' sIA account r e f l ec t ed a balance of approximately -$116,944.81.Bonvent re ' s IA account s ta tement r e f l e c t i ng a c t i v i t y through June30, 2006 shows a journal en t ry in the amount of approximately$116,944.81, which then brought the balance in the account to $0.

78. On o r about Apri l 6, 2006, JEROME O HARA, thedefendant , dur ing the course of the 2006 SEC Review, c losed BLMIS

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IA Accounts in which he had an i n t e re s t and rece ived more than976,000 by checks.

79. On o r about Apri l 6, 2006, GEORGE PEREZ, thedefendant , dur ing the course of the 2006 SEC Review, c losed aBLMIS IA Account in which he had an i n t e r e s t and rece ivedapproximately 289,000 by check.

The Conduct o The DefendantsAfter the 2 6 SEC Review o LMIS

80. In o r about September 2006, JEROME O'HARA andGEORGE PEREZ, the defendants , met with Madoff and DiPascal i ands ta ted t ha t they would no longer crea te computer programs used toproduce f a l s e and f raudulent BLMIS books and records .

81. In o r about September 2006, in an e f fo r t to keepJEROME O'HARA and GEORGE PEREZ, the defendants , working a t BLMIS,Madoff author ized DiPascal i to meet any sa l a ry demands made byO HARA and PEREZ. DiPasca l i t r ansmi t ted Madoff ' s of f e r to bothO HARA and PEREZ.

82. In o r about the Fal l of 2006, JEROME O'HARA andGEORGE PEREZ, the defendants demanded sa l a ry inc reases ofapproximate ly 20 percent . In o r about November 2006, O'HARA andPEREZ each rece ived a sa l a ry inc rease of approximately 20 percentand a l so rece ived net bonuses of approximately 64,812, and

60,165, respec t ive ly .

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83. In o r about the Fal l of 2006, JO NN CRUPI, a /k /aJod i , the defendant , a l so rece ived a sa la ry inc rease ofapproximately 20 percent .

84. When JO NN CRUPI, a /k / a Jod i , the defendant ,l e a rned t ha t JEROME O HARA and GEORGE PEREZ, the defendants ,refused t o c rea te computer programs used to produce fa l se andf raudulent BLMIS books and records , CRUPI of fe red to providea d d i t i o n a l ass i s t ance with the spec ia l work.

85. In o r about February 2008, the European AccountingFirm conducted ano ther review of BLMIS. Even though theyprev ious ly had re fused to c rea te programs to produce more fakebooks and records , JEROME O HARA and GEORGE PEREZ, thedefendants , agreed to c rea te computer programs t ha t al lowedDiPascal i , JO NN CRUPI, a /k /a Jodi , the defendant , and others ,to use House 17 to a l t e r da ta about IA Cl ien t s and to producef a l s e and f raudulent BLMIS books and records in connect ion witht ha t review.

86. In o r about 2008, JO NN CRUPI, a /k / a Jodi , thedefendan t , rece ived another sa la ry i nc rea se of approximately 20percen t .

87. In add i t ion , in o r about 2008, JO NN CRUPI, a / k / aJod i , the defendant , rece ived payments from Madoff t o t a l i ng

more than 2,700,000, which she used i n pa r t to purchase a beachhouse in Mantoloking, New Je rsey , for approximately 2,225,000.

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Spec i f i ca l ly , on o r about June 25, 2008, Madoff made a payment of$475,000 to CRUPI. Tliese funds were t r a n s fe r r e d d i rec t l y out ofthe IA Bank Account, the account i n to which IA Cl ien t s ' money wasdepos i ted . On o r about October 16, 2008, Madoff made anotherpayment to CRUPI in the amount of $2,225,000. These funds alsowere t r a n s fe r r e d d i rec t l y out of the IA Bank Account.

88. The payments to JO NN CRUPI, a /k / a Jodi , the/defendant , were not ind ica ted in the records of BLMIS as sa lary ,

bonus o r o ther type of compensat ion to CRUPI.BLMIS s Finances

A The Principal Bank and Brokerage Accounts o LMIS and MSIL89. Bi l l ions of d o l l a r s of funds rece ived from IA

Clients for inves tment were depos i ted pr inc ipa l ly i n to the IABank Account. The funds used to f u l f i l l reques t s from IA Clientsfor withdrawals from t h e i r BLMIS accounts were obta inedpr inc ipa l ly from the IA Bank Account. The IA Bank Account wasmainta ined most recen t ly a t a bank in New York, New York ( BankN o . 1 ) , along with a checking account main ta ined a t Bank N o . 1tha t was a f f i l i a t e d with the IA Bank Account ( the IA CheckingAccount ) .

90. The end-of -day balances in the IA Bank Account -balances which genera l ly were in the range of hundreds ofmil l ions of do l l a r s during the 2001-2008 pe r iod - were swept in toa v a r i e t y of overn igh t depos i t accounts ( the IA Sweep

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Accounts ) . In add i t ion , beginning in o r about 2007, in excesso approximately $1 b i l l i o n was inves ted in u.s. Treasury b i l l sand other s im i l a r investments and was cus todied in a separa teaccount he ld by BLMIS a t Bank N o . 1 . (The above-descr ibed BLMISaccounts he ld a t Bank No. 1 c o l l e c t i ve ly are r e f e r r e d to he re inas the IA Bank Account ) . In t e r e s t earned on those investmentsgenera l ly was t r a n s fe r r e d to the IA Bank Account on a regularbas i s .

91. BLMIS main ta ined a separa te bank account t ha t waspr inc ipa l ly used to fund, d i rec t l y and i nd i r e c t l y , the opera t ionsof BLMIS ( the BLMIS Operat ing Account ) . The BLMIS Operat ingAccount was cus todied most r ecen t ly a t a bank in New York, NewYork ( Bank N o . 2 ) . BLMIS opened one o r mbre l i ne s of c re d i t a tBank N o . 2 (co l l ec t ive ly the Bank N o . 2 LOC ).

92. At a l l t imes r e levan t to t h i s Indictment , BLMISa lso maintained brokerage accounts_at a va r i e ty of f inanc ia li n s t i t u t i ons ( the IA Brokerage Accounts ) . Funds in the IABrokerage Accounts genera l ly were i nves t ed in u.s. Government-i s sued secu r i t i e s such as U.S. Treasury b i l l s .

93. At a l l t imes r e levan t to t h i s Indictment , MSILmainta ined a bank account in the United Kingdom ( the MSIL BankAccount ) .

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B Maintaining The IA Bank Account94. Before approximate ly the mid-1990s, ANNETTE

BONGIORNO the defendant , kept t r ack of the da i ly balance and thefunds t r a ns f e r r e d i n to and out of the IA Bank Account. In orabout the mid-1990s, t h i s r e s pons ib i l i t y was t r a n s fe r r e d fromBONGIORNO to Y 0ANN CRUPI a /k / a Jodi , the defendant .

95. From approximate ly the mid-1990s, through in o rabout December 2008, JOANN CRUPI a /k /a Jodi , the defendant ,prepared handwri t t en note cards r e f l e c t i ng the da i ly balance , aswel l as the funds t rans fe r red in to and out of the IA Bank Account( the Note Cards ) . On a da i ly bas i s , CRUPI a l so prepared ar e p o r t regarding the IA Bank Account for Madoff and others (the

Dai ly Report ) . The Dai ly Report , which was handwr i t ten , se tfo r th on a s i n g l e page the day ' s opening balance , the end-of-daybalance, the funds t r a n s fe r r e d to BLMIS by check o r wire by IACl ien t s t ha t were depos i ted in to the IA Bank Account, and fundst r a ns f e r r e d out o f the IA Bank Account, inc luding a l l redemptionssen t to IA Cl ien t s . The Dai ly Report a l so l i s t e d redemptionst ha t IA Cl ien t s had reques ted but tha t had not yet beenfu l f i l l e d .

96. By t r a ck ing , on a da i ly bas i s , the cash f lowingi n t o and out of the IA Bank Account and l i s t i n g the redemptionst ha t had been requested, but not ye t fu l f i l l ed , the Daily Reportenabled Madoff, DiPasca l i , JOANN CRUPI a /k / a Jodi , the

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defendant , and others to determine whether the re were s u f f i c i e n tfunds ava i l ab le to cover reques ted redemptions.

97. When the balance on the Dai ly Report appeared toolow to cover the expected redemptions, JOANN CRUPI a /k /a Jodi ,t he defendant , of ten brought t h i s to the a t t e n t ion of DiPascal io r Madoff and asked them whether add i t iona l c l i e n t funds would becoming in to BLMIS to cover the expected redemptions .

98. From a t l ea s t in o r about the 1990s through in o rabout 2008, DANIEL BONVENTRE the defendant , reconc i l ed o rsuperv i sed the reconc i l i a t ion of the IA Bank Account on a monthlybas i s . Further , BONVENTRE of ten reviewed and i n i t i a l e d the NoteCards mainta ined by JOANN CRUPI a /k /a Jodi , the defendant ,t ha t kept t rack of the da i ly balance and the funds t rans fe r redin to and out of the IA Bank Account.C The Use o IA Funds to Support BLMIS s Market Making

and Proprietary Trading Operations99. As DANIEL BONVENTRE the defendant , and others ,

well knew, between in o r about 1998 and in o r about December2008, hundreds of mil l ions of do l l a rs were t r a n s fe r r e d from theIA Bank Account to the BLMIS Operat ing Account, e i t he r d i r e c t lyor through o ther accounts inc luding the IA Brokerage Accounts andthe MSIL Bank Account. These t r a n s fe r s were accounted fo rimproperly: (a) in the G/L in the a s se t account t i t l e d Trading iand/or (b) in the G/L as revenue in the form of CommissionsRevenuei and/or (c) on BLMIS Financ ia l and Operat ional Combined

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Uniform Sing le Repor ts ( FOCUS Reports ) f i l ed with the SEC asBLMIS revenue in the form of Gains o r losses on f i rm s e c ur i t i e st rad ing accounts from a l l o ther t r ad ing ; and/or (d) on BLMISFOCUS r epor t s as Commissions on t ransac t ions in l i s t e d equ i tysecu r i t i e s executed on an exchange. In t ru t h and in fac t ,however, and as BONVENTRE wel l knew, contrary to the e n t r i e s inthe G/L, s ubs t a n t i a l l y a l l of these t r ans fe r s or ig ina ted with theIA Bank Account and not from any t r ad ing a c t i v i t i e s of BLMIS, o rfrom any commissions earned by BLMIS.D The Financial Condition of LMIS

100. Beginning a t l e a s t as e a r l y as in o r about 2002,as DANIEL BONVENTRE the defendant , well knew, BLMIS's MarketMaking and Propr ie ta ry Trading opera t ions d id not genera tesu f f i c i en t revenue to meet BLMIS's expenses .

101. Moreover, as DANIEL BONVENTRE the defendant , wel lknew, BLMIS su f fe red a l i qu i d i t y c r i s i s between in o r aboutNovember 2005 and June 2006 caused by demands for withdrawals byIA Cl ien t s t ha t exceeded the f i rm ' s av a i l ab l e funds.1. The Liquidity Cris is November 2005 June 2006

102. On o r about November 2, 2005, BLMIS's Daily Reportfor the IA Bank Account showed an end-of -day ba lance ofapproximate ly $13 mi l l i o n - a sum t ha t was i n s u f f i c i e n t to coverthe approximately $105 mil l ion in payments by BLMIS scheduled tobe made to IA Cl ien t s fo r the fol lowing th ree bus iness days.

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Therefore , funds were t r a n s fe r r e d from the BLMIS BrokerageAccounts to meet the cash needs of the IA opera t ions on o r aboutNovember 3, 2005.

a The Client Bonds103. On o r about November 4, 2005, an IA c l i e n t ( IA

Cl ien t A ) sen t approximately $100 mil l ion of Federal Home LoanBank ( FHLB ) bonds to BLMIS to be c red i t ed to accountsa f f i l i a t e d with IA Client A. DANIEL BONVENTRE the defendant ,was well aware of the depos i t of the FHLB bonds and the f ac t t ha tthey were to be c red i t ed to accounts a f f i l i a t e d with IA Client A.

104. On o r about November 14, 2005, DANIEL BONVENTREthe defendant , d i rec ted t ha t a l e t t e r be wri t t en to Bank No. 1 inwhich he reques ted a $95 mil l ion loan on beha l f of BLMIS usingCl ien t A's FHLB bonds as co l l a t e ra l .

105. On o r about January 18, 2006, IA Cl ien t A sentanother approximate ly $54 mi l l i o n of FHLB bonds to BLMIS to bec red i t ed to accounts a f f i l i a t e d with IA Cl ien t A. (The $154mi l l i o n in FHLB bonds descr ibed in t h i s paragraph and paragraph103, above, a r e r e f e r r e d to here in c o l l e c t i ve ly as the Cl ien t ABonds. ) DANIEL BONVENTRE the defendant , was aware of thedepos i t of the Cl ien t A Bonds and the fac t t ha t they belonged toCl ien t A not BLMIS.

106. On o r about January 23, 2006, DANIEL BONVENTREthe defendant , caused BLMIS to borrow ano ther approximately $50

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milLion us ing t he C l i en t A Bonds as co l l a t e ra l . (Theapproximate ly $145 mil l ion in debt incurred by BLMIS using theCl ien t A Bonds as c o l l a t e r a l i s r e f e r r ed t o he re in c o l l e c t i v e l yas the Cl ien t Col la t e ra l i zed Loans. ) The proceeds of theClient C o l l a t e r a l i z e d Loans were depos i t ed in the IA Bank Accountand were used to s a t i s f y reques t s fo r withdrawals from IACl ien t s .

b. The Four Wire Transfers107. Between in o r about January 2006 and in o r about

AprLl 2006, depos i t s by IA Cl ien t s i n to the IA Bank Accountf i ~ e d to keep pace with reques t s fo r withdrawals by IA Cl ien t s .

108. Between in o r about January 2006 and in o r aboutApri l 2006, approx imate ly four wire t r a n s fe r s t o t a l i ngapproximately $262 mi l l i o n were made from the BLMIS Operat ingAccount d i r e c t l y to four sepa ra t e IA Cl ien t s to s a t i s f y t h e i rrequests fo r withdrawals from t h e i r re spec t ive IA accounts ( the

Four Wire Trans fe r s ) . Those t r a n s fe r s occur red on January 30,2006 (approximate ly $28 mi l l i o n ) , February 1, 2006 (approximately38 mil l ion) , Apr i l 4, 2006 (approximate ly $76 mi l l i o n ) , and

Apri l 13, 2006 (approximate ly $120 mil l ion) .109. Because the Four Wire Trans fers carne out of the

LMIS Opera t ing Account (which, unl ike the IA Bank Account , wasr e f lec ted on the GIL those t r ansac t ions had to be accounted fo ron the GIL. According to Genera l ly Accepted Accounting

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Pr inc ip les ( GAAP ), and SEC ru les and r egu la t ions , the GILandlor i t s suppor t ing books and records , were requ i red to r e f l ec taccura te ly BLMIS's use of , andlor the r e c i p i e n t s of , the FourWire Transfers .

110. DANIEL BONVENTRE the defendant , d i r ec t ed thei nc lus ion of e n t r i e s i n the GIL and i t s suppor t ing books andrecords t ha t concealed the fac t t ha t the Four Wire Transfe rsr e l a t ed to IA business opera t ions inc lud ing withdrawals by IACl ie n t s ) . The GIL e n t r i e s and o ther books and records t ha tBONVENTRE caused to be made fa l se ly crea ted the appearance t ha tthe Four Wire Transfe rs had been used to purchase a s se t s forBLMIS inc luding the Cl ien t A Bonds), when, in fac t , they had notbeen used fo r tha t purpose.

111. Likewise, in o r about June 2006, DANIEL BONVENTREthe defendant , made e n t r i e s on the GIL r e l a t e d to t r ansac t ionst ha t t r ans fe r red approximately $261.8 mi l l i o n from the IA BankAccount to the BLMIS Opera t ing Account in a way tha t fu r the rconcea led the purpose of the Four Wire Transfe rs and ther e l a t i ons h ip between the BLMIS Operat ing Account and the IAbus iness operat ions .

2 ~ On o r about June 1, 2006, and June 6, 2006, DANIELBONVENTRE the defendant , caused e n t r i e s to be made in the GILtha t , in substance, reversed the e n t r i e s t ha t had concealed thet r u e purpose of the Four Wire Transfe rs in the f i r s t ins tance .

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S p e c i f i c a l l y , two wire t r a n s fe r s (approximate ly near ly 110mil l ion and approximate ly 151.8 mil l ion , respect ively t o t a l i ngapproximately 261.8 mil l ion were executed from the IA BankAccount to the BLMIS Operat ing Account, thereby repaying theBLMIS Operat ing Account for s ubs t a n t i a l l y a l l of the funds t ha thad been used to keep the Ponzi scheme going through the FourWire Transfers . As ONVENTRE well knew, e n t r i e s on the GIL andts suppor t ing books and records , f a i l e d accura te ly to r e f l ec t

the purpose of these two wire t r ans fe r s .c LMIS Incurs Hundreds o f Mil l ions of ol lars of

ebt to Meet the Liquidity Cris i s113. On o r about March 31, 2006, BLMIS drew down

approximately 110 mil l ion on the Bank No. 2 LaC. On o r aboutApr i l 12, 2006, another approximately 160 mil l ion was drawn onthe Bank No. 2 LOC The balance owed on the Bank No. 2 LaCreached a peak of approximately 342 mi l l i o n on o r about May 25,2006.

114. On o r about June I , 2006, the Cl ien tC o l l a t e r a l i z e d Loans balance of approximately 145 mil l ion wasf u l l y repa id us ing funds from the IA Bank Account.

115. On o r about June I , 2006, the pr inc ipa l balance ofthe Bank No. 2 LaC was reduced by approximately 103 mil l ion . Ono r about June 6, 2006, the pr inc ipa l balance of the Bank N o . 2LaC was reduced by an add i t iona l approximately 167 mil l ion .

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SEC, f a i l e d accura te ly to r e f l e c t the a s se t s contained in the IABank Account , the BLMIS Brokerage Accounts, and the o ther BLMISIA Accounts , and l ikewise d id not r e f l e c t the l i a b i l i t y of BLMISto i t s IA Cl ien t s t ha t arose from the custody of IA Client fundsin those accounts . The omit ted a s se t s and assoc ia ted l i a b i l i t i e sof BLMIS's IAopera t ions were mater ia l .

120. As DANIEL BONVENTRE the defendant , well knew, theFOCUS Repor ts f i l ed by BLMIS with the SEC f a i l e d accura te ly tor e f l e c t the a s s e t s contained in the IA Bank Account, the BLMISBrokerage Accounts and the o ther BLMIS IA Accounts, and l ikewisedid not r e f l e c t the l i a b i l i t y of BLMIS to i t s IA Cl ien t s t ha tarose from the custody of IA Cl ien t funds in those accounts . Atvar ious po in t s in t ime, the asse t s and assoc ia ted l i a b i l i t i e s ofBLMIS's IA ope ra t ions which were omit ted from the FOCUS Reportsf i l e d by BLMIS with the SEC, ranged from mil l ions to b i l l i ons ofdo l l a r s .

121. For example, as DANIEL BONVENTRE the defendant ,well knew, BLMIS's l i a b i l i t i e s were unde rs t a t ed by a t l ea s tapproximately $299 mil l ion in a FOCUS Report f i l e d by BLMIS withthe SEC on o r about May 22, 2006.

D NIEL ONVENTRE Received Proceeds From False and Fraudulentrof i table Trades Executed In His IA Account

122. DANIEL BONVENTRE the defendant , maintained a tBLMIS an IA account ( the Bonventre IA Account ) from a t l e a s t ase a r l y as 1983 through December 2008. At BONVENTRE s reques t

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ANNETTE BONGIORNO the defendant , crea ted a number of backdated,f i c t i t i o u s t r ades to c rea te fa l se gains in h i s account . Ones e r i e s of t r ades in a par t i cu l a r s tock was backdated byapproximately twelve years , and produced a purpor ted ga in of over$999,000. Two more s e r i e s of backdated t r ades were crea ted in2004 and 2006 fo r illi it prof i t s of over $977,000. Asdescr ibed below, between approximately 2002 and 2006, BONVENTRErece ived the benef i t of more than approximately $1.8 mil l ion inth ree separa te backdated s e c ur i t i e s t ransac t ions in the BONVENTREIA Account tha t , in fac t , were not a c t u a l l y executed.A. The November 2002 i c t i t ious Big Lots Trade

123. On o r about November 12, 2002, Madoff s igned acheck drawn on the IA Bank Account made out to DANIEL BONVENTREthe defendant , and h i s wife in the amount of approximately$999,375 ( Check N o . 2 ) . That check was t he r e a f t e r depos i t ed ina j o i n t bank account he ld by BONVENTRE and h i s wife ( the

Bonventre Bank Account ) .124. On o r about November 22, 2002, ANNETTE BONGIORNO

the defendant , d i rec ted a backdated t r ade to be ente red in therecords of the Bonventre IA Account main ta ined on House 17 t ha tpurpor tedly had taken place in 1990, approximately twelve yearsea r l i e r . The fa l se t r ade c rea ted by BONGIORNO had the e f f e c t ofshowing, on paper , purchases of 40,000 shares of common s tock ofConsol idated Stores on January 31, 1990, for approximately

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9 0 ~ O O O , and sa l e s of approximate ly 62,500 shares of common s tockof Big Lots Inc . (ad jus ted for a s tock s p l i t and the change ofConsol idated S to r e s corpora te name to Big Lots Inc . ) onSeptember 26, 2002, fo r approximate ly $1,089,375. These

p u r ~ o r t e d purchases and sa les of Big Lots Inc. common s tockr esu l ted in purpor ted long- te rm gains of approximate ly $999,375.

125. The backda ted t r ades in Big Lots were c rea t ed inorder t o d i sgu i se payments made by BLMIS to DANIEL BONVENTRE thedefendant , as a s tock t r an s ac t i o n in orde r fo r BONVENTRE to t akeadvantage of the lower t ax r a t e fo r long- te rm c a p i t a l gains (asopposed to the higher t ax r a t e fo r ord ina ry income) .

126. Fol lowing the backdated Big Lots f t t rade , and thewithdrawal e f f e c t e d th rough Check N o . 2 , the Bonventre IA Accountr e f l e c t ed a balance o f approximate ly $182,000.B The July 2004 ic t i t ious Lucent Trade

127. The Bonventre IA Account s ta tements fo r the per iodMarch 2003 th rough March 2004 r e f l e c t e d no s e c ur i t i e s pos i t ions ,and a cons tan t cash ba lance of approximate ly $182,000. In o rabout Apri l 2004, DANIEL BONVENTRE the defendant , and h i s wiferece ived from BLMIS a check drawn on the IA Account in the amountof approximate ly $200,000, and the balance in the Bonventre IAAccount was reduced by the same amount, l eav ing a balance , as ofon o r about Apri l 30, 2004, of approximate ly -$18,000.

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128. On o r about Ju ly 12, 2004, a t the d i r e c t i o n of~ T T BONGIORNO the defendant , a se r ie s of fa l se , backdatedt rades were en te red in the records of the Bonventre IA Accountmaintained on House 17. Those fa l se t r ades had the e f f e c t ofshowing, on paper : (a) the purchase of approximately 90,000shares of common s tock of Lucent Technologies Inc . ( Lucent ) onMarch ' l l , 2003, fo r a t o t a l pr ice of approximately $144,000; (b)the purchase o f approximately 67,000 shares of-Lucent on Marchl2, 2003, fo r a t o t a l pr ice of approximately $102,510; (c) thesa le of approximate ly 67,000 shares of Lucent on Apri l 19, 2004,for a t o t a l pr i c e of approximately $285,420; and (d) the sa le ofapproximately 90,000 shares of Lucent on Apri l 20, 2004, for at o t a l pr ice of approximately $360,900.

129. The purpor ted purchases and sa les of Lucent s tockdescr ibed above, resu l t ed in purpor ted ne t p r o f i t s ofapproximate ly $399,810 . ANNETTE BONGIORNO the defendant ,documented t h i s t ransac t ion on an account s ta tement belonging toDANIEL BONVENTRE the defendant , on which she wrote: Dan had meput t h r u a p r o f i t t r ade fo r 399,810.00 then add t ha t f igure tocap add i t ions . Immediately fol lowing the Lucent t r ansac t ion ,the Bonventre IA Account r e f l e c t e d a balance of approximately$381,000.

130. The backdated t r ades in Lucent were crea ted inorder to d i sgu ise payments made by BLMIS to DANIEL BONVENTRE the

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defendant , as a s tock t r ansac t ion in order for BONVENTRE to t akeadvantage of the lower t ax r a t e for long- term cap i t a l gains' (asopposed to the h igher t ax r a t e for ordinary income).

131. On o r about May 25, 2005, a check drawn on the IABank Account in the amount of approximately $400,0 00 ( Check No.3 ) was made out to DANIEL BONVENTRE the defendant , and hi swife. Immediate ly fol lowing the withdrawal e f f e c t e d by Check No.3, the Bonventre IA Account r e f l ec t ed a cash ba lance ofapproximate ly - 18,190.c. The March 2006 ic t i t ious Apple Trade/

132. During t he pe r iod between in o r about January 2005through in o r about February 2006, the Bonventre IA Accounts ta tements r e f l ec t ed no secu r i t i e s pos i t i ons , and a cons tan t cashbalance o f approximate ly - 18 ,190 .00 .

133. In o r about March 2006, DANIEL BONVENTRE thedefendant , provided the fol lowing handwri t ten i ns t ruc t ions toANNETTE BONGIORNO the defendant :

Hi AnnetteAs per our phone conversa t ion , Ineed a long term cap i t a l gain of$449000. - on an investment of$129000. - for a sa l e proceed of

578000 . - -I l l be back in NY on March 30 t

but i f you need to speak to me beforethen, c a l l me on []

56

ThanksDan


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134. On o r about March 31, 2006, ANNETTE BONGIORNO thedefendant , en te red a s e r i e s of purpor ted t r ades in the records ofthe Bonventre IA Account. Those fa l se t r ades had the e f f e c t ofshowing: (a) the purchase of approximately 8,000 shares of commons tock of Apple Computer Inc. ( Apple ) on January 25, 2005, for at o t a l p r i c e of approximate ly $577,760; and (b) the sa l e ofapproximate ly 16,000 shares of Apple on March 9, 2006, for t o t a lproceeds of approximately $1,056,960. 5

135. The backdated t rades in Apple were crea ted inorder to disguise payments made by BLMIS to DANIEL BONVENTRE thedefendan t , as a s tock t ransac t ion in order fo r BONVENTRE to t akeadvantage of the lower t ax r a t e for long- term c a p i t a l gains (asopposed to a higher t ax r a t e for ord ina ry income) .

136. The purpor ted purchases and sa les of Apple,descr ibed above, r e su l t e d i n purpor ted ne t long term gains ofapproximately $479,200, and immediately fol lowing the Apple

t ransac t ion , the Bonventre IA Account r e f l e c t e d a balance ofapproximate ly $461,010. On o r about Apri l 6, 2006, BONVENTRErece ived a check drawn on the IA Bank Account in the amount ofapproximate ly $577,954.81. A balance of -116,944.81 resu l t edand, as descr ibed in paragraph 77 above, BONVENTRE s IA Accountbalance was brought to $0.

5 The add i t iona l 8,000 shares were c red i t ed to theBonventre IA Account as a consequence of a two-for-one Apples tock s p l i t on March 2, 2005.

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NNETTE BONGIORNO Received Proceeds from False and Fraudulentrof i table Trades Executed in Her IA Accounts137. ANNETTE BONGIORNO the defendant , and her husband,

Rudy, main ta ined a BLMIS account c a l l e d the Ru nn Family Planaccount , named a f t e r Rudy and ANNETTE BONGIORNO ( the RuAnnAccount ) a t l e a s t as ea r ly as the 1980 's , and r e c ru i t e d manyind iv idua l s to inves t in it BONGIORNO crea ted and sen thandwri t t en s ta tements t ha t purpor tedly showed each Ru nn Accounti nve s to r ' s i n t e r e s t in the consol ida ted Ru nn Account.

138. ANNETTE BONGIORNO the defendant , opened a bankaccount in the name of the Ru nn Family Plan a t ano ther f inanc ia li n s t i t u t ion . This bank account was used to channel funds betweenRu nn Account inves to r s and the IA Bank Account. In o r about1993, most o r a l l of the Ru nn Account i nves to rs ' inves tments inthe Ru nn Account were t r a n s fe r r e d to ind iv idua l Spl i t St r ike IA

accounts managed by DiPasca l i . BONGIORNO did not c lose the Ru nnAccount a t BLMIS a f t e r 1993, but ins tead , as discussed below,used it as one of her own accounts t

Madoff Indictment1118

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