The Madoff Chronicles: Inside the Secret World of Bernie and Ruth (6 page)

Two longtime Madoff employees ran the seventeenth floor: Annette Bongiorno and Frank DiPascali. They both became multimillionaires in jobs that ordinarily pay no more than a few hundred thousand dollars a year.

Annette started at Bernard L. Madoff Investment Securities as a nineteen-year-old high school graduate in the late 1960s. She was employed as Bernie’s private secretary or “administrative assistant,” as she liked to be known.

Annette had a team of five or six women who were responsible for preparing the monthly statements sent to clients. Many of Madoff’s longtime clients would call Annette directly with questions about their accounts, and she later would earn commissions for steering new clients to Madoff through a company called RuAnn, short for her name and that of her husband, Rudy.

Former employees say Annette would often personally hand out the monthly statements to all those in the firm who had accounts with Madoff.

“She was always a welcome sight because she would be bringing the good news of another great month,” said one former Madoff trader. This trader, like so many of his colleagues, lost everything when the scheme collapsed.

Referred to as the “toad” by other people in the office because she was short and overweight, Annette was once an attractive blonde whose familiar relationship with Madoff fueled rumors about what happened between them after office hours.

“She was a cute little thing, blond hair,” recalled Little Rick, who said he briefly went out with her.

Madoff allowed Annette to work from her home in Florida for months at a time, and former employees said she certainly acted as if she was protected by the boss. She acted like “the queen or the she-devil,” said Little Rick, who now says she used him as a “boy toy.”

“As they made more money, they got more and more to become, you know, assholes,” he said of Annette and others on the seventeenth floor. “Come on, for God sakes, you know, I saw you naked. Give me a break.”

She became a multimillionaire, with a $2 million home on Long Island and another million-dollar house in a gated community in Boca Raton. FBI agents told employees she had more than $70 million in investments. Among her cars are two Mercedes Benzes and a Bentley, which sells new for $175,000. Her husband, Rudy, was an electrician for New York City’s Department of Transportation for more than twenty years. In 1996 he retired on medical disability and told friends he was trading in stocks.

When an ABC News reporter approached Rudy Bongiorno outside his house following Madoff’s arrest, he angrily shouted, “Don’t come on my property.”

Investigators came to believe that Annette was involved in the illegal scheme from the beginning of her employment, between 1967 and 1968. In her effort to cut a deal with the government, she reportedly said that “the same things she was doing in 2008 she was doing in her first year with Madoff.” Only Ruth and his brother, Peter, were with Madoff longer than Annette.

Annette recruited Frank DiPascali, her next-door neighbor in the Italian working-class neighborhood of Howard Beach in Queens. According to investigators, DiPascali ultimately became even more important than Annette in the day-to-day running of the Madoff scheme. Former employees said DiPascali’s ascendancy led to friction with Annette, who resented losing some of her power to Frank.

“He was a pimple-faced kid, you know?” said Little Rick, who was there when DiPascali first started working at the company in 1975, as an assistant to the managing director. “He was self-made there. He was molded there, in other words.”

DiPascali worked his way up through Research and Option Trading. Titles did not mean much at the Madoff firm because they were given out on a random basis or often self selected, but according to a résumé DiPascali submitted in 2002 to a New Jersey school system whose board he sought to join, he was promoted to chief financial officer in 1996. Investigators say that DiPascali’s salary in the final years ranged between $2,250,000 and $3,000,000.

Former employees said that when Bernie came to the seventeenth floor, he would meet with Frank in one of the rooms that had the “Do Not Enter” and “Do Not Clean” signs on the door.

Investigators say DiPascali, with a team of five others, including his brother-in-law, Robert Cardile, was in charge of producing statements reflecting thousands of trades that were supposedly being executed for Madoff’s investment clients. In reality, there were no trades.

When questions were raised by suspicious investors or government investigators, it was DiPascali who would be by Madoff’s side to offer elaborate fictions about the sophisticated “split strike conversion” trading strategy and computer systems supposedly being used on the seventeenth floor. He would not, however, offer any tours of his seventeenth-floor operation.

Customers were told that Madoff “would carefully time purchases and sales to maximize value” in a “basket of fifty stocks” chosen from the Standard & Poor’s 100 Index, a collection of the one hundred largest publicly traded companies. The story went that sometimes Madoff would get “out of the market” and put everything in cash, in U.S. securities. To guard against a downturn, Madoff would supposedly hedge his bets by buying and selling “option contracts” matching the stocks in the basket. Under this fictional strategy, if the stocks went down, the value of the options would go up. In September 2008, DiPascali reassured one major hedge fund investor by telling him that Madoff used “twenty derivatives dealers and international banks” in their option trades. It was yet another lie.

To hear Madoff and DiPascali tell it, they had found a foolproof strategy, all carried out in great secrecy on the seventeenth floor. Investors on average received between 12- and 20-percent returns, although certain Madoff clients were rewarded with much higher rates of return. One prominent investor earned as much as 950 percent one year. Madoff said he made his profit by charging $.04 per share commission on the stocks he traded and $1.00 for every option contract he purchased.

Madoff was known to become irritated if someone asked too many questions, and he refused to answer standard industry inquiries about percentages held in cash, the amount of borrowed money, or the names of the “option counter parties.”

Of course, the reason for this was that he had no good answers. The entire operation was a fabrication. No stocks were traded. No options were purchased. His profits were not coming from any $.04 stock or $1.00 option commissions.

According to the investigators, what really happened on the seventeenth floor was relatively simple. Every day, DiPascali kept track of the closing prices of the Standard & Poor’s 100. Then, on a regular basis, DiPascali and Madoff would pick the stocks that had done well and create bogus trading records for their “basket of stocks.”

They often got sloppy. Sometimes they recorded trades as if they had been made on weekend days or federal holidays, when the stock market was closed. None of the supposedly sophisticated investors or SEC regulators ever noticed.

Investigators would later find a consistent pattern in which Madoff and DiPascali made their fictional trades at the precise high or low price of a stock each month, an amazing feat that generated “too good to be true” profits.

Of course, it’s easy to master the timing and make a profit if you already know the winners—it’s like knowing which horse won the race and then placing a bet.

To help hide the fact that no trades were taking place in New York, Madoff claimed all of the trading for the investment advisory business was being done through the London office, on the European markets. Madoff regularly transferred hundreds of millions of dollars to the London office, but investigators say the London office simply wired the hundreds of millions of dollars right back to New York without buying a single share for investors. Employees in the London office later told investigators they thought their job was to buy and sell stock for Bernie’s personal account. They had no idea they were supposed to be making billions in trades for the firm’s investors.

Investigators say that, using a computer program, DiPascali and those who worked for him on the seventeenth floor would plug the fictional trades into the 4,900 accounts under their control. Sometimes clients needed losses for tax reasons, and Madoff and DiPascali could provide those just as easily.

Like his former neighbor Annette, DiPascali had very flexible work hours. He would show up at the office in the late morning, hardly dressed like the chief financial officer of an investment firm managing $65 billion.

“He looked to me like an electrician. He had gold chains on and he’s got his pack of Marlboros in his hand and he is whizzing through the office saying hi to this person or that person,” recalled the former computer tech, Bob McMahon.

“I turned to a young lady I worked with and said, ‘Who is that?’ and she said, ‘Oh, that’s Frank. He works down on seventeen. He’s one of the muckety-mucks.’”

Whenever SEC auditors or big investors were around, DiPascali would show up in a suit. People on the seventeenth floor knew “something was up” in the final few weeks before Madoff’s arrest because “Frankie was wearing a suit every single day.”

DiPascali had long since moved from his home in Queens to a $1.3 million estate in New Jersey. He drove a Mercedes and had a large fishing boat, the
Dorothy-Jo
, with its own captain at a marina in New Jersey. According to investigators, DiPascali’s boat captain, Christopher Warrin, was on the Bernard L. Madoff Investment Securities payroll, at a salary greater than many of the staff who worked in the legal area of the company.

After a long negotiation, DiPascali pleaded guilty to nine felony counts in August and agreed to “name names and tell all” to federal prosecutors in exchange for a lighter sentence.

“He has almost no choice given the e-mails and other documentary evidence we’ve found that show he was ordering up false documents on trades,” said one investigator. “But he will still face a long time in prison and there may not be a deal that he will accept.”

Former employees said DiPascali’s right hand and confidante on the seventeenth floor was his deputy, JoAnn Crupi, a former waitress whom everyone called Jodi. She was a twenty-five-year veteran of the firm and arranged for her cousin, Erin Reardon, to be hired as Frank’s assistant.

If Madoff needed money, he would ask his secretary to “tell Jodi to take it out of my special account.” Investigators say that in 2007, Madoff took cash draws of $5 million, including one withdrawal of $2 million on a single day.

Unlike Frank and Annette, Jodi continued to come into the office after Madoff’s arrest, for what some thought was “damage control.” According to Madoff’s secretary, Eleanor, Jodi urged employees on the seventeenth floor to stop cooperating with the FBI agents who were on the premises.

“She said she and Frank would help everyone get lawyers and the cost would be taken care of,” Eleanor reported.

Like Annette and Frank, Jodi had good reason to be grateful to Bernie Madoff. Investigators say that in 2006, Madoff used $2,225,000 of investors’ money to help Crupi and her partner, Judy Bowen, buy a New Jersey beach house. The money was sent to the law firm representing the women, not Crupi, and only Bowen’s name appeared on the deed to the property.

Former employees said Madoff also provided Crupi with financial support when she and Bowen adopted two children from Guatemala.

In addition to generous salaries, members of the Madoff “inner circle” also were provided with corporate platinum American Express cards for their personal use, hardly standard practice at any legitimate corporation. Annette, Frank, and Jodi all received the cards, along with a few people from the trading floor and key Madoff family members. All the Amex charges were paid out of the bank account holding investors’ money.

For example, the charge records show that DiPascali used his platinum card to buy plane tickets to the Bahamas in March 2008 for his son, Frank Jr., and four others who appeared to be his college fraternity brothers at Villanova. They may have thanked Mr. DiPascali senior for a great spring break trip, but investigators say the money really came from Madoff’s cheated investors.

“If you surround yourself with people who are beholden to you,” said former FBI agent Garrett, “and you’ve elevated them to a position they would have probably never reached on their own, then you control them.”

The corporate cards and the exorbitant salaries were kept secret from the rest of the Madoff employees. But there were always suspicions.

Computer technicians at Madoff’s office thought there was something strange on the seventeenth floor because of the continued use of an old IBM AS400 computer server, long after it was obsolete.

Nader Ibrahim used to work as a Madoff computer technician and spent a lot of time on the seventeenth floor. He remembers wondering about the outdated computer. “It’s an older system, it wouldn’t make sense to use such a system,” he said.

It made sense only if the computer had been programmed to aid in the fraud and keeping it meant there was no need to bring in someone new to program a new computer.

“The reason why Bernie couldn’t give up the AS400 is because it was his printing press, the linchpin in the whole mix,” explained Bob McMahon. “That system gets updated pricing and trading data at the end of the day. The file is created and feeds information directly for overnight processing. I was told the AS400 was the ‘books and records’ of the company.”

It was a tightly controlled operation, designed to be impenetrable from the outside.

On orders from Madoff, most of the computer terminals used on the seventeenth floor were not set up for e-mail. “After an SEC audit in 2006, he didn’t want anyone sending any e-mails,” recalled Eleanor Squillari. “A lot of people in the office had their e-mails taken away.” It was all very hush-hush.

Ironically, Madoff was well known on Wall Street for pioneering the use of computers to carry out huge trades at lightning speed. In truth, he hardly knew how to use a computer, and most of the credit for its role in the operation actually belonged to his brother, Peter. Even so, the Madoffs’ advances revolutionized stock trading and led Bernie to become the chairman of NASDAQ.