Two computer programmers who worked for Bernard L Madoff Investment Securities were arrested on Friday and charged in connection with the multibillion dollar Ponzi scheme run by their former boss.
Jerome O'Hara and George Perez were arrested in their homes and charged with conspiracy, falsifying books and records of a broker-dealer, and falsifying books and records of an investment dealer, the US Department of Justice said.
O'Hara and Perez were employed as computer programmers at Madoff's business (BLMIS) beginning in 1990 and 1991, respectively, the DoJ said in a complaint unsealed on Friday in the US District Court for the Southern District of New York. They primarily were responsible for developing and maintaining computer programs that supported the operation of Madoff's investment account business, the DoJ said.
Madoff pleaded guilty to 11 felonies in March. His investment scheme began in the early 1990s, and losses to investors has been estimated at more than US$21 billion.
"Jerome O'Hara and George Perez allegedly helped construct Bernie Madoff's house of cards," Preet Bharara, US attorney for the Southern District of New York, said in a statement. "The computer codes and random algorithms they allegedly designed served to deceive investors and regulators and concealed Madoff's crimes. Today they have been charged for their roles in Madoff's epic fraud."
As a broker-dealer and investment adviser, BLMIS was required, under the federal securities laws and regulations, to keep certain books and records in the ordinary course of its business, including: trade blotters containing an itemised daily record of details about all of BLMIS's purchases and sales of securities; documents reflecting each order underlying the purchases and sales of securities and the times at which the orders were received and executed; and the name and address of the beneficial owner of each account held at BLMIS.
Between 2004 and 2008, BLMIS was subject to at least five reviews by the US Securities and Exchange Commission and a European accounting firm. As part of a concerted effort overseen by Madoff and his then employee, Frank DiPascali Jr, to deceive the SEC and the European accounting firm, O'Hara and Perez developed and maintained computer programs that generated numerous false and fraudulent books and records, the DoJ said.
According to the DoJ, O'Hara and Perez created special computer programs that:
-- Created books and records for a small subset of BLMIS investment account clients to help hide the scope and nature of the business;
-- Altered details about the number of shares, execution times, and transaction numbers for trades reported on BLMIS trade blotters, by employing random algorithms that produced false and random results;
-- And created false and fraudulent order entry and execution reports that included fictitious times at which orders for equities transactions purportedly were placed.
The programmers also allowed DiPascali and other BLMIS employees to alter computer programs necessary to create additional false and fraudulent books and records to respond to the European accounting firm's requests for information in 2008.
O'Hara and Perez allegedly knew that the special programs they developed contained fraudulent information and that they were used in connection with the SEC and European accounting firm reviews, the DoJ said. In April 2006, one of the two attempted to delete 218 of 225 special programs from a server and also closed their own BLMIS accounts, withdrawing hundreds of thousands of dollars each.
In August or September 2006, O'Hara and Perez met with Madoff and told him that they would no longer lie about the Ponzi scheme for him, the DoJ said. Handwritten notes found by the FBI in O'Hara's desk stated, among other things: "I won't lie any longer. Next time, I say 'ask Frank.'"
After Madoff directed DiPascali to pay O'Hara and Perez off, O'Hara and Perez each received pay increases of about 25 percent and net bonuses of approximately US$60,000, the DoJ said.
O'Hara, 46, of Malverne, New York, and Perez, 43, of East Brunswick, New Jersey, each face a maximum sentence totalling 30 years in prison, plus fines of more than $5 million.