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September 26, 2013

Arrest of Madoff accountant shines new light on Ponzi maneuverings


   The FBI's arrest on Thursday, Sept. 26th of 77-year-old Paul Konigsberg, the accountant who was the only person outside Bernie Madoff's family to hold shares in Madoff Securities International Limited, peels back more layers of the biggest Ponzi scheme in U.S. history.

   "Paul Konigsberg threw aside his ethical duties as an aaccountant in favor of his role as a false bookkeeper, which included allegedly participating in a scheme of back-dating client account statements to show fictitious trades and conjuring profits and losses of millions of dollars," said U.S. Attorney Preet Bharara of the Southern District of New York.

   Konigsberg was charged with two counts of conspiracy, one count of making a false statement and with falsifying the books and records of a broker-dealer and an investment advisor. He faces up to 40 years in prison.

    Here's a snippet of the Justice Department's summary of a superseding indictment unsealed in federal court in Manhattan, describing how he allegedly compromised his role as an attorney and certified public account, the senior tax partner of Konigsberg Wolf & Co., P.C.

    "Beginning in at least the early 1990s, Madoff began to steer many of his investors towards Konigsberg’s accounting practice, particularly certain long-time investors in whose accounts Madoff executed the most glaringly fraudulent transactions.  By December 2008, when Madoff’s scheme collapsed, Konigsberg Wolf provided accounting services in connection with more than approximately 300 Madoff Securities accounts.  As their accountant, Konigsberg typically received duplicate copies of his client’s Madoff Securities account statements, and sometimes the only copy.

      "After the death of one long-time Madoff client – who had recruited investors and had been promised by Madoff corresponding annual commission payments in the form of guaranteed returns – Madoff encouraged the client’s widow to use Konigsberg as her accountant.  Konigsberg, Madoff, and Frank DiPascali, Jr. – who pleaded guilty for his role in the fraud and is cooperating with the government – agreed on an investment “strategy” for the widow’s account.  Under the “strategy,” the widow’s money would be “invested” in U.S. Treasury bonds and cash equivalents for the first 11 months of each year, and then in December, DiPascali would fabricate back-dated options trades in order to generate the promised returns.  For instance, one of the widow’s accounts was invested in Treasuries and money market funds in January through November of 2003, resulting in net equity at the end of November 2003 of approximately $860,000.  In January 2004, however, DiPascali back-dated fake options trades purportedly executed in December 2003 to generate an additional approximately $825,000, nearly doubling the value of the account.  Each December, over the course of several years, Konigsberg spoke with DiPascali to ensure that DiPascali arranged for the back-dated trades necessary to ensure the widow’s promised returns."

Now nearly five years after Madoff pleaded guilty to bilking his investment clients out of $17 billion, as well as $64 billion in paper profits, more details of the giant scam keep spilling out. Nine people have pleaded guilty to date. Prosecutors have only weeks to decide who else to charge before the statute of limitations expires.

Madoff is serving a 150-year prison term.





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"Suits & Sentences" is a legal affairs blog written by Michael Doyle, a reporter for McClatchy's Washington Bureau. He was a Knight Journalism Fellow at Yale Law School, where he earned a Master of Studies in Law; he also earned a Masters in Government from The Johns Hopkins University with a thesis on the Freedom of Information Act. He teaches journalism as an adjunct instructor at The George Washington University's School of Media and Public Affairs.

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