Bernie Madoff and his aides secretly rifled auditors' briefcases, monitored their bathroom breaks and even considered bugging their workspace in an effort to prevent detection of his Ponzi scheme, a former top assistant testified in federal court in Manhattan Monday.
Frank DiPascali, Madoff's one-time deputy appearing as a government witness at the trial of five other former aides, also testified that Madoff in 2005 had his brother Peter and niece Shana, executives at his firm, work on a project to keep incriminating emails from the eyes of auditors.
"You morons all talk to each other by email and these SOBs just come in and request all the emails," Madoff complained, according to DiPascali. ". . . They were scrubbing the emails from the email server . . . if there were any buzzwords in the email or attachment that could be a problem."
The aides on trial, including former Madoff account manager Annette Bongiorno, 65, of Manhasset, and former computer programmer Jerome O'Hara, 50, of Malverne, are charged with helping mislead investors and fool regulators for three decades.
None of them were named as being part of the effort to sanitize emails. Peter Madoff was sentenced to 10 years in prison for conspiracy in 2012. Shana Madoff has never been charged. Her lawyer did not return a call Monday.
DiPascali, 57, provided an array of new details about how the firm coped with four examinations from 2004 until 2006 -- one by the SEC Washington staff, two by the New York SEC office and one by KPMG, a large accounting firm.
While auditors were in town, the Madoff aides working the audit stayed at a Manhattan hotel, he said. He detailed a $3,900 stay at the Plaza Athenee in 2005 that began with a toast from O'Hara during a $1,014 dinner at the Park Ave. Café.
"It was something to the effect of, 'Here's to tricking the auditors,' or 'Here's to fooling KPMG,' or something like that," DiPascali testified. He and co-defendants George Perez, a programmer, and Joann Crupi, an account manager, raised their glasses, he said.
Each audit led Madoff to demand more elaborate recooking of the books, and other moves to keep examiners in the dark, he said. When auditors from the New York SEC visited, DiPascali testified, Madoff gave them glass-walled work space so he could watch them, and told them to contact him or his secretary for an escort if they wanted a coffee or restroom break.
"He didn't want them walking around," DiPascali said.
Madoff originally thought the audit would not focus on the investment advisory part of his business where the Ponzi scheme occurred, DiPascali said, but then secretly searched an auditor's briefcase and found a magazine story about it.
"He said we had to get busy," DiPascali recalled.
DiPascali said he and Perez considered other ways of keeping ahead of examiners. "We discussed the possibility of purchasing equipment that would bug the room they were in," he said.
They never followed through, he testified.