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Madoff’s right-hand man takes stand in NYC trial

NEW YORK — The modest office at 110 Wall Street didn’t look special, but it was the breeding ground of Bernard Madoff’s $17 billion Ponzi scheme, says longtime employee Frank DiPascali.

Madoff “would very loudly proclaim” that he had made a killing on an investment in Europe, DiPascali once told the FBI. He later began to suspect the words were calculated to give the impression the business was “somehow backed up by his deals and investments overseas.”

Whether Madoff’s inner circle actually believed that lie has become central to a trial of five former Madoff employees in federal court in Manhattan.

Madoff Fraud Trial

In this courtroom drawing, Frank DiPascali, right, a longtime employee of Bernard Madoff, takes the stand in Manhattan Federal Court where DiPascali, who is out on bail but facing substantial prison time, is on trial in New York in connection with Madoff’s $17 billion Ponzi scheme. (AP Photo/Elizabeth Williams)

DiPascali, the government’s star witness, took the stand Monday. He had started working for Madoff in the mid-1970s, and he began his testimony, which is expected to last for days, by discussing how business was done then.

He served as a utility player in the firm, doing menial tasks like drilling holes and laying wire. Prosecutors showed grainy old photos from the small messy office, with smiling employees with bushy moustaches standing near gigantic computers and typewriters.

“Even though I got yelled at lot, I wandered into the trading room,” he said Monday. “It was virtually impossible not to know what was happening.”

DiPascali described the trading scene in the late 1970s and early 1980s — when the firm still did legitimate business — as bustling, busy and fun. But things changed when the Madoffs moved uptown to fancy new offices in a Third Avenue skyscraper known as the “lipstick building.”

When the stock market crashed in 1987, DiPascali said Madoff asked him to fabricate some trade numbers. He testified Monday that some of the employees on trial knew about it, because when trades were happening, you could hear them — they were loud transactions.

His were scratched out on paper, nothing more.

“If you want to make a trade you gotta pick up the phone,” he said.

“Was it all fake?” asked Assistant U.S. Attorney Josh Zach.

“Yes,” he replied.

Part of DiPascali’s behind-the-scenes account was previewed last year in sections of FBI reports that were turned over to the defense. The reports, based on initial interviews of DiPascali, at times appear to support the contention that the defendants were unwitting dupes led astray by a devious boss.

But the reports also suggest the five had doubts about Madoff and his investment wizardry. DiPascali says two became convinced it was all a scam — and even confronted Madoff about it — but ultimately did nothing to stop it.

Defense attorneys have already attacked DiPascali’s credibility, calling him equal partners in crime with Madoff.

“The evidence will show DiPascali is a pathological liar, and the government’s case relies on you believing DiPascali,” Andrew Frisch said in opening statements. “And now instead of Madoff, DiPascali’s bosses are the government lawyers at this table.”

Madoff, 75, admitted that accounts he had told investors were worth nearly $68 billion actually held only a few hundred million dollars. He pleaded guilty to fraud charges and was sentenced to a 150-year prison term in Butner, N.C.

DiPascali’s testimony represents a turnabout for him. He kept Madoff’s secrets for decades until he agreed to cooperate with the FBI in early 2009.

DiPascali, 57, who is out on bail but facing substantial prison time, carries his own baggage as the beneficiary of a bank account filled with investors’ money that amounted to a slush fund for Madoff’s family and top employees. Authorities say he withdrew more than $5 million from the account between 2002 and 2008 to fund personal expenses, including the purchase of a new boat.

Prosecutors have accused Madoff’s secretary, Annette Bongiorno, and JoAnn Crupi, an account manager, of using old stock tables to fabricate account statements so they would show steady returns even during economic downturns. They say Daniel Bonventre, his director for operations, cooked the books to throw off regulators.

While others kept quiet, the remaining defendants — computer programmers Jerome O’Hara and George Perez — grew increasingly restless during the mid-2000s after they were tasked with maintaining programs that helped conceal the fraud, DiPascali told the FBI.

DiPascali told the FBI that O’Hara and Perez finally demanded a meeting with Madoff. With DiPascali listening from a couch in Madoff’s office, they told their boss that his business was illegal and that he should shut it down.

Madoff at first listened politely, reminding the men that he had been a successful investor for 40 years and that they didn’t understand he was making his money overseas. Then, according to DiPascali, he blew up.