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Univ. of Toledo College of Law

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Thursday, February 25, 2010

SEC Charges Madoff's Operations Director with Falsifying Records

The SEC today charged Bernard Madoff's Director of Operations, Daniel Bonventre, with falsifying accounting records.  According to the SEC's complaint, filed in U.S. District Court for the Southern District of New York, Bonventre disguised Madoff's fraud and the financial losses at Madoff's firm by misusing and improperly recording investor money to create the false appearance of legitimate income.

As Madoff's Director of Operations, Bonventre ran the back office at Bernard L. Madoff Investment Securities LLC (BMIS) and oversaw the firm's accounting and securities clearing functions for at least 30 years. The SEC alleges that Bonventre knew that billions of dollars in investor funds were not being used to purchase securities on behalf of investors. The SEC further alleges that Bonventre made at least $1.9 million in illicit personal profits from the scheme through fake, backdated "trades" in his own investor account at BMIS.

According to the SEC's complaint, Bonventre was responsible for the firm's general ledger and financial statements that were materially misstated because they did not reflect the manner in which investor funds were maintained and used. Bonventure ensured that BMIS financial reports did not reflect the firm's massive liabilities to investors or the corresponding assets received from investors. To hide the fact that BMIS normally operated at a significant loss, the firm used more than $750 million in investor funds to artificially improve reported revenue and income.

The SEC alleges that Bonventre also helped Madoff, his lieutenant Frank DiPascali, Jr., and others orchestrate lies to investors and regulators when investment advisory operations at BMIS came under review. With Bonventre's assistance, they made serial misrepresentations to external reviewers by manufacturing reams of false reports and data.

The SEC further alleges that Bonventre personally siphoned $1.9 million from the scheme by directing that profits from fake, backdated trades be put into his own investor account at BMIS. One of these trades was backdated by 12 years. Bonventure instructed another fake, backdated trade in a handwritten note to a BMIS employee that read: "Hi … As per our phone conversation, I need a long term capital gain of $449000.— on an investment of $129000- for a sale proceed of $578000.— I'll be back in NY on March 30th but if you need to speak to me before then, call me…. Thanks[,] Dan."

The SEC's complaint seeks financial penalties and a court order requiring Bonventre to disgorge his ill-gotten gains.

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