Ponzi scheme mastermind Bernie Madoff was arithmetically challenged, a former trader testified Thursday at the trial of five former Madoff aides in federal court in Manhattan.
Government witness David Kugel, who pleaded guilty to securities fraud in 2011, said that shortly after he was hired in 1970 to trade convertible bonds, Madoff asked for help figuring rates of return on similar deals he said he was doing for private clients.
"He asked me to do the math to calculate the returns," said Kugel, 68, of East Norwich, the first cooperating witness to testify against his former colleagues. ". . . He had trouble with long division."
Former Madoff secretary Annette Bongiorno, 65, of Manhasset, account manager Joann Crupi, 52, of Westfield, N.J., former operations manager Daniel Bonventre, 66, of Manhattan, and two computer programmers are charged in the case with helping Madoff pull off a scam that cost investors an estimated $19 billion. Crupi, he testified, later filled that role.
Kugel, who worked in the legitimate market-making section of Madoff's business, said he became suspicious of his boss' private investment activities in the mid-1970s when Madoff asked him to flag profitable convertible bond trading activities from the past for him.
The suspicions grew when the request became a regular, weekly routine, Kugel testified, in which Bongiorno would identify amounts and rates of return that were needed for particular clients.
Kugel said he would come up with trading opportunities from the prior month that could plausibly fit the scenario, and help with reverse engineering a trade to use on account statements.
Bongiorno, he testified, kept past issues of The Wall Street Journal available so they could look up prices and "fabricate" real-looking trades out of the "deal setups" that Kugel suggested.
Suspicions turned to certainty, he said, when trades he suggested started showing up in the investment account he and his wife opened with Madoff. But he suggested that he never knew the whole thing was a Ponzi scheme, and when he confronted Madoff he was fooled into thinking the money was secure.
"I thought Bernie Madoff was using the money to make other investments, and this was the way he would pay back clients," Kugel testified. ". . . He said he was investing in shopping centers, foreign currency and other investments he never specified. That's how he was making the money pay returns.
He admitted that he "never asked" why Madoff didn't just disclose those purported investments to clients.
"At the beginning he was my boss, and he asked me to do something," Kugel testified. "I gave it to him. I just didn't question him. I knew it was wrong, but I didn't question him."
Kugel said eventually he was allowed to put his own fake trades into his personal investment account with Madoff, which showed a 21 percent annual return and was eventually worth $25 million on paper.
Madoff's firm collapsed in 2008. He is in federal prison in North Carolina.