Posts Tagged ‘Bernard Madoff’
Thursday, February 25th, 2010

Bernard Madoff’s former director of operations was charged with conspiracy, securities fraud and tax crimes in the Southern District of New York, the Justice Department announced Thursday.

Daniel Bonventre, who began working at Bernard L. Madoff Investment Securities, LLC in 1968, was arrested Thursday morning, the latest in the fallout from the Madoff Ponzi scheme. Thus far Madoff and two others have pleaded guilty in the case, while two computer programmers who worked for Madoff have been arrested and charged. The ongoing case has kept Manhattan U.S. Attorney Preet Bharara a busy man.

Here is the DOJ news release:

MANHATTAN U.S. ATTORNEY CHARGES DANIEL BONVENTRE, FORMER DIRECTOR OF OPERATIONS FOR BERNARD L. MADOFF INVESTMENT SECURITIES, LLC, WITH

CONSPIRACY, SECURITIES FRAUD, AND TAX CRIMES

NEW YORK – Preet Bharara, the U.S. Attorney for the Southern District of New York, Joseph M. Demarest Jr., the Assistant Director-in-Charge of the FBI’s New York Field Division, and Patricia J. Haynes, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service (IRS), announced today that Daniel Bonventre, the former Director of Operations for Bernard L. Madoff Investment Securities, LLC (BLMIS), was arrested this morning on a criminal Complaint charging him with conspiracy; securities fraud; falsifying books and records of a broker-dealer; false filings with the U.S. Securities and Exchange Commission (SEC); and filing false federal tax returns.

As alleged in the complaint unsealed today in Manhattan federal court:

For decades, Bernard L. Madoff purported to provide investment advisory (IA) services through BLMIS. In fact, Madoff defrauded thousands of IA clients out of billions of dollars through an elaborate Ponzi scheme.

In 1968, Bonventre was employed at BLMIS and served as its Director of Operations beginning at least as early as 1978. In that capacity, Bonventre was responsible for, among other things: (a) maintaining and supervising the production of the principal internal accounting documents for BLMIS, including its general ledger (the G/L) and financial statements; (b) maintaining the stock record for BLMIS and resolving any discrepancies between internal and external records; (c) supervising the use and reconciliation of BLMIS bank accounts through which the Market Making, Proprietary Trading, and IA business operations were funded; and (d) supervising BLMIS employees who were responsible for accounting and other “back office” functions, including settlement and clearing of trades executed by the Market Making and Proprietary Trading operations.

As Director of Operations, Bonventre directed that false entries be made in the G/L that concealed the scope of the IA operations and understated BLMIS’s liabilities by billions of dollars. From 1997 to 2008, more than $750 million of IA investor funds were used to support BLMIS’s Market Making and Proprietary Trading operations, but were accounted for on BLMIS’s books and records, including the G/L, so as to conceal the true source of the funds. Moreover, as Bonventre knew, the G/L did not accurately reflect the assets contained in the bank and brokerage accounts into which IA investor funds were deposited, and likewise did not reflect the liability of BLMIS to its IA clients that arose from the custody of IA client funds in those accounts. At various points in time, the assets and associated liabilities of BLMIS’s IA operations, which were omitted from the G/L, ranged from millions to billions of dollars.

Between November 2005 and June 2006, BLMIS experienced a liquidity crisis caused by IA clients’ demands for withdrawals that exceeded cash on hand. Rather than sell securities to meet those demands – which could not be done because BLMIS had not actually purchased any such securities on behalf of those Clients – Bonventre requested $145 million of loans from a bank, using $154 million of an IA client’s bonds as collateral, to meet obligations to other IA clients. During the same period, Bonventre monitored lines of credit, which BLMIS drew down by more than $340 million and used to meet IA clients’ withdrawal requests. Bonventre also created false and fraudulent books and records that had the effect of disguising $262 million worth of payments to IA clients from the principal bank account that funded BLMIS’s operations as purchases of bonds and other debt instruments when, in fact, no such purchases had been made.

During the liquidity crisis, BLMIS was required to file Financial and Operational Combined Uniform Single Reports (FOCUS Reports) with the SEC. Those FOCUS Reports require the production of basic information that amounts to a condensed version of a broker-dealer’s general ledger. Because the G/L was inaccurate, as Bonventre well knew, the FOCUS Reports were likewise false because they failed accurately to reflect BLMIS’s assets and liabilities. For example, one such report, for the month of April 2006, in the midst of the above-described liquidity crisis, failed to reflect at least $299 million in BLMIS liabilities related to $154 million of an IA client’s bonds and the $145 million that BLMIS had borrowed using those bonds as collateral.

In as early as 1983, Bonventre also had his own IA account at BLMIS. Between 2002 and 2006, Bonventre obtained more than $1.8 million in at least three fictitious backdated trades that appeared in his account. For example, one purported trade, which appeared in Bonventre’s IA account in 2002, included a purchase that was backdated twelve years, to 1990, and generated purported long-term capital gains of nearly $1 million. Bonventre is also charged with four counts of filing false federal tax returns related to his accounting for the three fictitious trades, and his failure to report a total of approximately $273,620.24 in income that he obtained from BLMIS bank accounts in 2003, 2004, 2006, and 2007.

Bonventre, 63, faces a statutory maximum sentence totaling 77 years in prison: five years on count one (conspiracy), 20 years on each of counts two, three and four (securities fraud, falsifying books and records of a broker-dealer, and false filings with the SEC), and 3 years on each of counts five through eight (subscribing to a false tax return).

Bonventre will be presented later today before U.S. Magistrate Judge Theodore H. Katz in Manhattan federal court.

U.S. Attorney Preet Bharara stated: “As Bernard Madoff’s Director of Operations, Daniel Bonventre allegedly authored the fraudulent books that for years effectively hid the doomed state of an investment firm founded in fraud. Today’s arrest reflects the government’s ongoing commitment to ensure that those who are criminally responsible for this massive Ponzi scheme will be held accountable. Together with our law enforcement partners at the FBI and IRS, we will continue to investigate this colossal deception.”

FBI Assistant Director-in-Charge Joseph Demarest Jr. stated: “Bonventre’s crimes consist not merely of failing to disclose material information about the Madoff investment advisory business. He affirmatively fabricated basic financial documents to conceal the dire condition of a financial empire that was really a house of cards. Bonventre’s is just the latest in a succession of arrests that put to lie Madoff’s original contention that he alone was responsible for this debacle. The FBI will continue to ensure that everyone criminally culpable in the Madoff fraud is brought to justice.”

IRS Special Agent-in-Charge Patricia J. Haynes stated: “The public relies on people who oversee the accounting function of a firm. They are expected to be trustworthy, dependable, and reliable to help make sense out of complicated financial information so the public can make sound fiscal decisions. Compliance of the tax laws and filing accurate tax returns are not only symbolic of the trust the public has come to rely on, but it’s the law. IRS Special Agents will continue to devote resources to investigate allegations of breaches of trust and violations of the tax law.”

Assistant U.S. Attorneys Marc Litt, Lisa A. Baroni and Barbara A. Ward are in charge of the prosecution.

The charges and allegations contained in the complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.

Wednesday, January 13th, 2010

Barbara and Jeffry Picower. (Getty Images)

Investor and philanthropist Jeffry Picower, who was reportedly under criminal investigation in connection with the Bernard Madoff Ponzi scheme before his death in October, drowned accidentally, a final autopsy report has concluded, according to The Palm Beach Daily News.

Picower was found dead at the bottom of his pool at his mansion in Palm Beach, Fla., on Oct. 25. The Palm Beach County Medical Examiner’s office initially ruled that Picower had drowned after suffering a massive heart attack.

Newly released results of toxicology reports confirmed the initial finding, according to The Daily News.  The reports found caffeine and a sleep aid in Picower’s body at the time of his death, The Daily News said. The autopsy report said Picower had no substance abuse issues and that he had been “upbeat and exhibited no signs of depression or changes in sleeping, eating, or drinking patterns.”

The Palm Beach billionaire had a history of heart disease, the autopsy report said, according to The Daily News. A spokesperson for the medical examiner’s office told Main Justice the autopsy report is “complete” but would not discuss its details.

Picower was alleged to have taken more than $7 billion from the Madoff scheme, according to a civil lawsuit filed by Irving Picard, the court-appointed bankruptcy trustee seeking to recover assets for the Madoff victims. The lawsuit says Picower was the “biggest beneficiary of Madoff’s scheme.” The Wall Street Journal reported in May that Picower was under criminal investigation in the matter in the Southern District of New York.

In October, the SDNY’s criminal chief, Richard Zabel, recused himself from the Madoff investigation because his father, New York estate lawyer William D. Zabel, was Picower’s long-time attorney and close advisor. Read our previous report here.

Friday, January 8th, 2010

Attorney General Eric Holder today told the wealthy Florida community where Bernard Madoff’s Ponzi scheme hit hard that financial fraud is among the “greatest and most glaring threats” to the U.S. economy.

Eric Holder (DOJ)

Palm Beach was “ground zero” for Madoff’s $65 billion scam,  Holder said in a speech at the Forum Club of the Palm Beaches in West Palm Beach. The Madoff scheme is the biggest investor fraud in U.S. history.

“The simple truth is that financial crimes have become all too common,” Holder said in prepared remarks. “And the consequences of these schemes and scams are real, as this community knows all too well. ”

Late last year, President Barack Obama signed an executive order that created an interagency task force to fight financial crime. The Attorney General said the Financial Fraud Enforcement Task Force is the “cornerstone” of the Justice Department’s efforts to combat mortgage fraud, securities fraud, financial discrimination and Recovery Act and rescue fraud.

“To those who see victimization of others as an avenue to wealth, take notice: If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail,” Holder said.

The fiscal year 2010 DOJ budget signed into law last month includes funds for 43 positions in U.S. Attorney’s offices to help combat financial fraud. Congress set aside $7.5 million in the budget for U.S. Attorney’s offices to pursue bankruptcy, mortgage fraud, affirmative civil enforcement and other white collar crimes.

The U.S. Attorney’s offices received $2.4 million through the fiscal year 2009 omnibus budget to fight economic crimes, according to a DOJ spokesperson. Congress allocated an additional $10 million to the U.S. Attorney’s offices in the fiscal year 2009 supplemental budget to fight financial fraud, the spokesperson said. The supplemental funding does not expire until fiscal year 2011. DOJ was able to hire 76 new Assistant U.S. Attorneys to handle financial fraud cases with the fiscal year 2009 funds, according to the spokesperson.

The budget also includes money for 50 new FBI agents to fight mortgage fraud and work on economic recovery investigations. The FBI received almost $75.2 million from Congress to combat white collar crime, an increase of about $25.5 million.

“This budget represents the largest-ever, single-year enhancement to support and expand the Justice Department’s financial fraud programs,” Holder said. “This will allow for additional FBI agents, prosecutors and support staff to aggressively pursue mortgage fraud, corporate fraud and other economic crimes.”

This post was updated from an earlier version.

The simple truth is that financial crimes have become all too common.  And the consequences of these schemes and scams are real, as this community knows all too well.
Thursday, December 3rd, 2009

Carmen Ortiz (Adelphi Univ.)

Carmen Ortiz (Adelphi Univ.)

Carmen Ortiz, the new U.S. Attorney for Massachusetts, on Wednesday said she will step up efforts to prosecute financial fraud, the Associated Press reports.

The 53-year-old Ortiz was confirmed by the Senate Nov. 5 and sworn in three weeks ago. She replaced Michael J. Sullivan, who resigned April 19 to join the Ashcroft Group after eight years in the U.S. Attorney’s post.

Ortiz  had worked as an assistant U.S. attorney in Boston for the last 12 years, mainly prosecuting economic crimes, including embezzlement, tax evasion, investment fraud and telemarketing schemes.

During a meeting with reporters, Ortiz said her efforts to root out financial fraud — in part by reaching out to government agencies and business — will help prevent another financial situation like the one caused by Bernie Madoff’s Ponzi scheme, according to the AP. “What happened with Bernie Madoff, we should make every single effort to prevent that from happening again,” Ortiz told reporters, adding, “Victims should know that we’re open for business.”

She said another priority will be catching long-sought fugitive James “Whitey” Bulger, who is the alleged leader of the Winter Hill Gang, a crime family in Boston, The AP reports. He has been charged in connection with 19 murders and is on the FBI’s “Ten Most Wanted” list.

Ortiz said she plans to meet with the FBI and other law enforcement agencies and hopes to come up with “creative ways” to generate publicity and aid the search for Bulger, now 80.

“If he is present in people’s minds, then perhaps it could be that one tip that … could lead to his capture,” she said.

The Worcester Telegram and Gazette reports that Ortiz also told reporters she plans to expand the U.S. Attorney’s office’s presence in Worcester, increasing the number of assistant U.S. Attorneys in the office from two to four. “There is a lot of business” in Central Massachusetts, Ortiz told reporters

The Worcester newspaper also reported that Ortiz did not back off the office’s commitment to continue prosecuting gun and gang violence cases even though they could also be prosecuted in state courts, where sentences are usually less severe. “Not all of those cases belong in federal court,” but “we do have an impact on the communities that are suffering due to gun and gang violence,” she said.  “We make a real effort to select the cases that belong in federal court,” she said. However, with some people disagreeing, she said, the policy will be reviewed.

Monday, November 30th, 2009

Forbes magazine last week released its list of the top 10 CEOs who “showed enough greed, hubris and chutzpah” to give confessed Ponzi schemer Bernard Madoff “a run for his (stolen) money.”

We’ve added some information that Forbes left off its list — the top federal prosecutors who get to go after these alleged financial fraudsters, even though some of the investigations began before their time.

Preet Bharara in his first major news conference Nov. 5.  The Manhattan U.S. Attorney announced the arrests of 14 people in an alleged insider trading ring around hedge fund billionaire Raj Rajaratnam. (Getty Images)

Preet Bharara in his first major news conference Nov. 5. The Manhattan U.S. Attorney announced the arrests of 14 people in an alleged insider trading ring around hedge fund billionaire Raj Rajaratnam. (Getty Images)

Winning a conviction in a high-profile financial case adds a notch to a U.S. Attorney’s belt. A prosecutor might even get to step out at a news conference or two, as Southern District of New York U.S. Attorney Preet Bharara did on Nov. 5 when announcing insider trading arrests related to the Galleon hedge fund run by billionaire Raj Rajaratnam.

To be sure, not everyone on the Forbes list is accused of an actual crime. With that caveat, we present Forbes’s “Biggest CEO Outrages of 2009″ list:

1. Lloyd Blankfein. The chairman and CEO made $73 million in 2007 and $25 million in 2008, as the economy entered a deep recession. Although his salary is not a legal offense, Forbes deemed it practically criminal.

2. John Thain. The former CEO of Merrill Lynch approved $3.62 billion in bonuses for his executives last December as the company was being taken over by Bank of America and reporting a fourth-quarter loss of $15.3 billion.

3. Raj Rajaratnam. The founder of the hedge fund Galleon Group was charged with insider trading which allegedly helped him earn more than $33 million in illicit profits. He is being prosecuted in Manhattan by Bharara’s office.

4. Byrraju Ramalinga Raju. The founder of the Indian outsourcing company Satyam Computer Services in January confessed to overstating the company’s profits and fabricating its cash balance of more than $1 billion. He hasn’t been charged.

5. Thomas Petters. The former CEO and chairman of Petters Group Worldwide was charged with orchestrating a $3.5 billion pyramid scheme fraud. He is being prosecuted by the office of Minnesota U.S. Attorney B. Todd Jones.

6. Edward M. Liddy. The former CEO of American International Group (AIG) faced criticism this year for high salaries and bonuses in addition to expensive retreats the company funded after receiving a considerable sum as part of the bank bailout of 2008.

7. Danny Pang. The founder of Private Equity Management Group was accused of running a Ponzi scheme that defrauded his investors of hundreds of millions of dollars. Pangdied of an apparent suicide in September at age 42. Had he lived, he would have been prosecuted by the U.S. Attorney’s office in Los Angeles, currently headed by acting U.S. Attorney George S. Cardona.

8. R. Allen Stanford. The Texas financier allegedly sold $7 billion worth of certificates of deposit through his Stanford International Bank and misappropriated most of the money. He is being prosecuted by the U.S. Attorney’s Office for the Southern District of Texas, currently headed by interim U.S. Attorney Tim Johnson. UPDATE: Stanford also is being prosecuted by the fraud section of DOJ’s criminal division.

9. David Rubin. The head of CDR Financial Products was indicted in October on charges of conspiracy and fraud related to rigging auctions to help determine which banks would assist governments in raising money. He will be prosecuted by Bharara’s office in Manhattan.

10. Robert Moran. The CEO of Moran Yacht & Ship pleaded guilty to tax fraud to avoid indictment. He also promised to pay back taxes and penalties and cooperate with the Internal Revenue Service. He was prosecuted by the office of  R. Alexander Acosta, then-U.S. Attorney for the Southern District of Florida.

the Criminal Division’s Fraud Section.
Monday, November 9th, 2009

Lev Dassin (DOJ)
Lev Dassin (DOJ)

Lev Dassin, the former acting U.S. Attorney for the Southern District of New York, is going into private practice. The career prosecutor will join Cleary Gottlieb Steen & Hamilton LLP as a partner, the law firm announced today.

Dassin was deputy to former U.S. Attorney Michael Garcia, an appointee of President George W. Bush who stepped down in December. Dassin served as acting U.S. Attorney from January until August, when new U.S. Attorney Preet Bharara was confirmed.

Dassin ran the Manhattan office during the most intense period of the financial industry crisis, overseeing fraud cases against Bernie Madoff and Marc Dreier and federal interests before the Chrysler and General Motors bankruptcy proceedings.

Dassin served as Deputy U.S. Attorney in 2008 and chief of the criminal division from  September 2005 to January 2008. He was an Assistant U.S. Attorney in SDNY from 1992 to 1998, leading the prosecution of Ramzi Yousef, who was convicted in connection with the 1993 World Trade Center bombing.

Monday, October 26th, 2009

Two weeks ago Richard Zabel, the new criminal chief of the Southern District of New York U.S. Attorney’s office, recused himself from the Bernard Madoff investigation because his father represented an investor accused of being the biggest beneficiary of the $65 billion fraud.

Richard B. Zabel (Akin Gump)

Richard B. Zabel (Akin Gump)

On Sunday, William D. Zabel’s client was found dead at the bottom of his pool at his mansion in Palm Beach, Fla. Investor Jeffry Picower, who was 67, drowned after suffering a massive heart attack, the Florida medical examiner who conducted the autopsy said. Dr. Michael Bell told ABC News he is still awaiting the results of a toxicology report, which is expected to take 10 weeks.

Barbara and Jeffry Picower (Getty Images)

Barbara and Jeffry Picower (Getty Images)

The sudden death of this alleged key figure in the Madoff scheme underscores some potentially thorny management issues for the new U.S. Attorney in Manhattan, Preet Bharara. Bharara named Zabel his criminal chief on Oct. 6, calling the former Akin Gump criminal defense attorney a “legal All-Star.” Zabel also served eight years as an SDNY prosecutor in the 1990s.

Although Bharara’s pick for criminal chief quickly recused himself from all Madoff-related matters, line prosecutors now may have little choice but to attempt to seek information from his father, insofar as attorney-client privilege allows.

That’s because the elder Zabel wasn’t just Picower’s representative in the Madoff matter. An estate attorney and name partner in the New York firm Schulte, Roth & Zabel, William Zabel helped set up and oversee the Picower Foundation, a closely held charity accused in a civil complaint of reporting tens of millions of dollars in fabricated and backdated gains from its Madoff accounts.

The complaint, filed by Irving Picard of Baker & Hostetler, the court-appointed bankruptcy trustee seeking to recover money for the victims, said that Picower “knew, or should have known,” his gains in his Madoff-managed accounts were fraudulent. The Wall Street Journal reported in May that Picower was under criminal investigation by the SDNY in the Madoff scheme.

William Zabel is also listed in Securities and Exchange Commission records as the administrative contact for a Picower business accused in the fraud. And he served alongside Picower and Madoff on the board of the now-defunct Picower Institute for Medical Research, another charity accused in the civil lawsuit of having benefited from the Ponzi scheme.

In an interview before Picower’s death, Zabel told Main Justice he wasn’t aware of any fraud involving his client. “I had no knowledge of any of the allegations until after” the trustee’s complaint was filed, Zabel said.

Picower controlled businesses, trusts and charities that received $7.2 billion from the Madoff Ponzi scheme, according to the bankruptcy trustee’s complaint.

Through William Zabel, Picower issued statements and court filings denying the allegations.

“Rather than recognizing Mr. Picower and the other Defendants as victims of Madoff’s fraud, the Trustee instead casts them as villains in history’s largest Ponzi scheme,” a July court filing by Zabel said. Madoff had “callously betrayed” Picower’s trust, the filing said.

“Nothing could be further from the truth,” the Baker & Hostetler lawyers countered in a Sept. 30 court filing. “Many investors were damaged by the [Madoff] fraud, but Picower was not one of them. Based upon the Trustee’s investigation to date, Picower was instead the biggest beneficiary of Madoff’s scheme.”

“We will pursue the litigation with the same vigor irrespective of Mr. Picower’s passing,” David Sheehan, a Baker & Hostetler attorney working with Picard, said in a statement to the Wall Street Journal on Sunday. Jerry Reisman, an attorney representing about 26 victims, told The Associated Press that Picower’s death means, “We won’t be able to hear from his own words whether he was complicit.”

Rich Zabel did not return a phone call placed two weeks ago seeking comment. A spokeswoman for the SDNY, Rebekah Carmichael, said two weeks ago the office would have no comment. William Zabel is not accused of any wrongdoing, and the elder Zabel said in an interview before Picower’s death that he had no knowledge of any alleged fraud.

‘They’re in a mess’

On Dec. 1, 2008, shortly after Democrat Barack Obama was elected president, Republican-appointee Michael Garcia resigned as the U.S. Attorney in Manhattan. On Dec. 11, Madoff was arrested and charged in a giant Ponzi scheme that collapsed as clients panicked by the financial industry meltdown tried to pull their money out, exposing the $65 billion fraud.

The Madoff case mesmerized the public and came to symbolize, in some part, the idea that rampant greed and fraud on Wall Street had risked plunging the economy into depression.

But for the first nine months of the probe, there was no Senate-confirmed U.S. Attorney in Manhattan to oversee it. (Bharara was confirmed on Aug. 7). And in that time period — during which Madoff pleaded guilty, claiming to have acted alone — the Madoff prosecution seemed, outwardly at least, to be in some disarray.

The signs:

  • The government initially negotiated a bail package, allowing Madoff to remain under house arrest in his luxurious Manhattan apartment. The fact that Madoff wasn’t immediately thrown in the slammer outraged victims.
  • Then, Madoff on Christmas Eve mailed $1 million worth of jewelry to his sons in what victim’s lawyers said was evidence he was trying to distribute frozen assets to his family. The revelation sparked more public outrage, and the government went to court to try to revoke Madoff’s bail, but couldn’t convince the Magistrate Judge Richard Ellis he was a flight risk.
  • On Aug. 10, Madoff accountant Frank DiPascali pleaded guilty to 10 felony counts, including conspiracy and tax evasion. He’s apparently a cooperating witness now, and prosecutors pushed hard for his release on bail – but U.S. District Judge Richard J. Sullivan refused the government request.
  • On Aug. 16, Lucinda Franks in The Daily Beast reported that more indictments, possibly of Madoff family members, were expected soon after Labor Day. But Labor Day passed with no indictments. “They’re in a mess over there. They really don’t know what they’re doing,” Franks quoted an “FBI source” about the SDNY prosecutors.

It’s logical that Zabel’s marching orders included getting a handle on the Madoff investigation and fixing the reported “mess.” But a week later, Zabel recused himself from all matters related to the Madoff investigation.

In Madoff’s orbit

While the SDNY won’t discuss Zabel’s recusal, public records show his father had deep ties to Picower and other charities caught up in the Madoff fraud.

In 1989, William Zabel submitted to the Internal Revenue Service the application for tax exemption for the Picower Foundation. View the document here and here. Then, he served for the next 20 years as a trustee of the Picower Foundation while it allegedly reported phantom gains from the Madoff scheme.

The Picower Foundation board was a friends and family affair. There were usually not more than six trustees reported on the foundation’s tax returns – including both Jeffry Picower and his wife, Barbara, who was president of the foundation.

Zabel is also listed in Securities and Exchange Commission records as an administrative contact for Picower’s main investment vehicle, a company called Decisions Incorporated. The SEC records also list a Picower employee named April Freilich as president of Decisions Incorporated.

And Freilich, according to the bankruptcy trustee, worked closely with Bernard L. Madoff Investment Securities to falsify and back-date trading records that reported phantom gains for Picower. (Freilich was not named as a defendant in the civil suit, possibly suggesting that she is a cooperating witness).

The civil complaint describes Freilich’s participation in one alleged fraud involving Picower Foundation accounts:

On May 18, 2007, Freilich indicated the Foundation needed “$20 mil in gains” for January and February and “want[ed] 18% for year[] 07 appreciation,” but that she had to check the numbers “with Jeff.” On information and belief, “Jeff” is Defendant Jeffry Picower. Five days later, on May 23, Freilich told BLMIS that the numbers she had provided earlier were wrong, and the Foundation “needs only $12.3 mil [in gains] for” January and February 2007

Accordingly, the Picower Foundation’s May 2007 statement reflected millions of dollars in securities transactions for the months of January and February 2007 that collectively resulted in a purported gain to the account of $12.6 million.

But those transactions had never appeared on the foundation’s January or February 2007 statements, the complaint says. The result was an apparent $54.6 million increase in Picower Foundation assets, to $765.9 million in May 2007 “because the May 2007 statement was (and subsequent statements were) based on an entirely different account history: one in which various trades had taken place more than 15 months earlier, resulting in entirely different positions and values,” the complaint says.

(Click here to see an example of one of the allegedly fradulent “portfolio appraisals” the Picower Foundation filed to the IRS with its tax return).

The complaint adds:

The mysterious appearance of securities transactions months after the purported trades settled … was not credible and would have raised questions by an account holder who was not complicit in the manipulation.

Zabel said in an interview he did not set up Decisions Incorporated. He said he is likely listed in SEC records as the company’s administrative contact because he was Picower’s “personal lawyer.” But he said Picower had other lawyers who handled his corporate matters.

“I am his personal lawyer for his personal matters and foundations matters,” Zabel said, speaking before Picower’s death.

But Zabel, through his work for Picower, was in Madoff’s close orbit. The trustee’s complaint said “Picower has been closely associated with Madoff on both a business and social level for the last 30 years.”

Zabel, Madoff and Picower served together on the board of the Picower Institute for Medical Research, which closed in 2002 after I published this story in the St. Petersburg Times questioning whether money from Picower’s charitable entities had been used to help him gain personal control of a pharmaceutical company. See a copy of the Picower Institute board membership here.

(Zabel said the IRS investigated and cleared the Picower Foundation in the matter.)

‘In Pursuit of Justice’

William Zabel is the trustee and legal advisor for another charity caught up in the Madoff fraud. Last Dec. 15, the JEHT Foundation – a major funder of liberal causes, especially involving reform of the juvenile justice system and human rights — announced it would close its doors. Its founders’ money had been managed by Madoff, and they had lost everything.

William Zabel (left) and his son, Richard Zabel, at Human Rights First's 30th anniversary dinner last year. (Human Rights First)

William Zabel (left) and his son, Richard Zabel, at Human Rights First's 30th anniversary dinner last year. (Human Rights First)

The JEHT Foundation was run by Jeanne Levy-Church, whose father – a New York real estate magnate named Norman Levy – had been Madoff’s close friend. Norman Levy died in 2005, and Madoff became the executor of his estate, according to Vanity Fair magazine.

Public records show that after Levy’s death, $217 million from a Levy trust was donated to The Betty and Norman F. Levy Foundation, whose money was managed by Madoff. The Levy Foundation, in turn, donated heavily to the JEHT Foundation, for which Zabel served as a trustee.

The JEHT Foundation is not accused of any fraud. But it – along with the Picower Foundation – made contributions that totaled about 10 percent of the annual budget of an advocacy group called Human Rights First, whose board director is William Zabel.

Human Rights First also published a report last year co-authored by Rich Zabel called “In Pursuit of Justice, Prosecuting Terrorism Cases in the Federal Courts.”

The report, widely cited by news organizations and other non-profit groups, helped burnish Rich Zabel’s national security credentials after a decade in private practice.

In May 2008, Rich Zabel and his co-author held a news conference at the National Press Club in Washington to discuss the report’s findings. And last November, William and Rich Zabel appeared on stage at Human Rights First’s 30th anniversary celebration in New York to discuss the report. The gala dinner was hosted by actress Sigourney Weaver and featured entertainment from country-folk star Mary Chapin Carpenter.