Madoff’s Finance Chief to Plead Guilty

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For those of you complaining that I’m not reporting on 3-year old Sibel Edmonds revelations, here’s some news that may offer fresh new insight into the sordid world of international crime and power.

Frank DiPascali, the finance chief at Bernard Madoff’s investment advisory business who agreed to plead guilty, could help prosecutors build criminal cases against other players in his boss’s $65 billion Ponzi scheme.

DiPascali, 52, is scheduled to enter his plea tomorrow in federal court in Manhattan, U.S. Attorney Lev Dassin told a judge in an Aug. 8 letter that didn’t specify the charges. DiPascali would waive indictment and plead guilty, which signals to lawyers that he is cooperating to lessen his prison term.

"I believe he’s cooperating," said John J. Fahy, a former federal prosecutor not involved in the case. "He would be very valuable to the government because he has been close to Madoff for so many years and had to have seen some of the fraudulent transactions that went on. From what we know of Madoff, he trusted very few people."

Madoff, of course, has gone off to prison without really telling anyone where the bodies are buried, where the money went, or even who on Wall Street knew and facilitated his scheme. 

We won’t know for some time how cooperative DiPascali will be, but if he is cooperative, and if he does know where even a few of the bodies are buried, his cooperation might free up information that is otherwise, thus far, successfully buried.

Here’s John Taplin, writing in January, about what cracking open the Madoff scandal might reveal.

The Wall Street Journal is very careful with the libel laws, but I am increasingly confident that their reporters are beginning to sense that organized crime sits somewhere in the Bernard Madoff Ponzi scheme. The tipoff come from their classic tabloid use of the “made man’s” street name in quotes (like Benjamin “Bugsy” Siegel). The main feeder fund to Madoff was Cohmad Securities.

Cohmad, a conjunction of the last names of investor Maurice “Sonny” Cohn and Mr. Madoff, carried especially tight ties. Cohmad was filled by employees with long-term or family relationships with the Madoffs, and its operations were enmeshed in the main Madoff businesses, interviews and records show.

Maurice “Sonny” Cohn and his associate Alvin “Sonny” Delaire have both been accused of playing fast and loose with securities regulations. As anyone who has watched Godfather II, Meyer Lansky’s great dream was to get “legit”–to move dirty money into clean securities.  I have already written about how no one has come forward to make a claim on much of the money the flowed to Madoff from South America. If the whole scheme was some vast money laundering operation, then the actual investment return part of it was less important to many of the customers. According to an SEC complaint, Madoff maintained two bank accounts at JPMorganChase and three at Bank of America Mellon. At the end of every reporting period, Madoff’s CFO  Frank DiPascali, reportedly converted its holdings to cash equivalents, i.e. treasury bills, to avoid SEC disclosure requirements.

Note, Taplin draws an analogy to something that others have drawn analogies to Edmonds’ own revelations: BCCI (given the timing, I’ve been wondering the same thing myself).

Just about the time that Madoff’s scheme started up, the notorious Bank of Credit and Commerce International (BCCI) went out of business.

BCCI became the focus in 1991 of one of the largest scandals in world financial history. Due to the massive fraud and corruption at the heart of the bank, it was described as a “$20-billion-plus heist”.[3] Regulators in the United States and the United Kingdom found it to be involved in money laundering, bribery, support of terrorism,[4] arms trafficking, the sale of nuclear technologies, the commission and facilitation of tax evasion, smuggling, illegal immigration, and the illicit purchases of banks and real estate. The bank was found to have at least $13 billion unaccounted for. The bank’s relationship with underworld elements led to the nickname “Bank of Crooks and Criminals International.”

With BCCI closed down, maybe Bernie and his partners saw a market opportunity.

If the Madoff Ponzi was a big money-laundering venture for Colombian and Russian mobsters, as many have suggested, and DiPascali knew it and details of the scheme, then things might get interesting.

I do hope the Feds are watching out for DiPascali’s safety…

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25 replies
  1. beguiner says:

    I truly believe that all gains are ill gotten.

    Madoff sent his investors a quarterly statement including a “balance”. Fidelity sends me quarterly statements including a “balance”.

    At a certain point, clean money and dirty money get all mixed together.

  2. bobschacht says:

    EW, how do you keep all of your leads organized?!?
    Thanks for your insight into this, and helping us to connect the dots.

    Now I’m wishing for the same due diligence from the Feds with Goldman-Sachs.

    Bob in HI

    • readerOfTeaLeaves says:

      Now I’m wishing for the same due diligence from the Feds with Goldman-Sachs.

      Oh, yeah. And they can start with TARP Genius of the 3 Page Edict to Congress, former TreasSec Hank Paulson. Number of dots between GS and AIG almost certainly =1.

      EW, didn’t mean to complain about Edmonds; just don’t know what to make of it and rely on your expertise. No doubt the kinds of things that she describes would require huge, HUGE amounts of money laundering.

      Taplin’s hunch certainly looks sound to me: if BCCI was shut down just before Bernie started up… then ‘global market opportunity’ is certainly a sanitized term for whatever was going on.

      I hope the Feds can keep DiPascali’s safe until he spills a lot of beans.

      • emptywheel says:

        I actually think Madoff may be just one location for the BCCI scheme–remember that Riggs Bank got busted for some of this stuff a while back, too. And Citi–which is owned in significant part by some of hte same crowd as owned BCCI–is probably also involved in taht crap.

        What likely happened when BCCI went under and especially later when Glass Steagall came down is that such trading went mainstream. What was true of BCCI is true of anyone who adopted those schemes, though–the front stuff, whether it be Ponzi or legalized Ponzi like the housing bubble, is still just a front.

        • readerOfTeaLeaves says:

          What likely happened when BCCI went under and especially later when Glass Steagall came down is that such trading went mainstream. What was true of BCCI is true of anyone who adopted those schemes, though–the front stuff, whether it be Ponzi or legalized Ponzi like the housing bubble, is still just a front.

          Thanks for the response.
          Agree on the ‘legalized Ponzi’ via Glass Steagall and updates to the Commodities Futures Trading Act in 1999-2000 (aided and abetted by Robert Rubin and Larry Summers).

          It’s sure looking as if the ‘black money’ and the black markets have become so vast that they threaten to choke off the ‘real economy’. If the black money Ponzi shills prevail, then I figure that we’re all fiscal serfs beholden to the criminals and drug lords and nuke sellers.

  3. Loo Hoo. says:

    According to an SEC complaint, Madoff maintained two bank accounts at JPMorganChase and three at Bank of America Mellon.

    Be interesting if B of A and Chase were somehow involved.

  5. fatster says:

    This is just one more Very Important Issue and I am as amazed as Bob is that you keep up with all this stuff, EW. I do hope investigations into Madoff, et al., will be thorough and will put the spotlight on international rip-offs at the highest levels.

    And excuse me for going so O/T with this, but I find it quite troubling.

    Governors, Pentagon joust for command of domestic military forces
    BY STEPHEN C. WEBSTER 

Published: August 10, 2009 
Updated 2 hours ago

    “The National Governors Association sent a letter Friday to the U.S. Department of Defense condemning an effort to usurp domestic control of National Guard and federal forces deployed in the event of a natural disaster or terrorist attack.

    ‘“Vermont Gov. Jim Douglas (R), chairman of the National Governors Association, and Vice Chairman Gov. Joe Manchin (D) of West Virginia penned [the] letter opposing the Pentagon proposal, which they said would hinder a state’s effort to respond to a disaster,” reported The Hill.”

    Link.

  7. JimWhite says:

    We have fallen to a truly sad state of affairs when I wonder whether there are even bigger crimes in the Goldman-Sachs–US Government dealings than in the Madoff–Columbian and Russian mob dealings. There are larger sums in the GS case and I think the intent to defraud is just as strong.

  8. bmaz says:

    But, but, but what about Sybil Edmonds? Surely she must hold the key to Madoff; I mean it all went through the line level Turkish interpreter’s cubicle right??

  9. Hmmm says:

    I certainly see a pattern in the emerging stories of the shadowy sides of so many of our major institutions, in a profusion we have never quite seen before. But which is it?: That there are simply more shadowy sides around these days to be discovered? Or just that we’re finding out about more of them now? Can’t help wondering whether we’d be learning anywhere near as much, were it not for investigative crowdsourcing and blogs. Reason enough for powerful bad actors to want to corral the 2-way net, or, failing that, to prowl it.

  10. mafr says:

    This is from Reuters

    IENNA, Jan 25 (Reuters) – The United Nations’ crime and drug watchdog has indications that money made in illicit drug trade has been used to keep banks afloat in the global financial crisis, its head was quoted as saying on Sunday.

    Vienna-based UNODC Executive Director Antonio Maria Costa said in an interview released by Austrian weekly Profil that drug money often became the only available capital when the crisis spiralled out of control last year.

    “In many instances, drug money is currently the only liquid investment capital,” Costa was quoted as saying by Profil. “In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor.”

    The United Nations Office on Drugs and Crime had found evidence that “interbank loans were funded by money that originated from drug trade

    The drug trade Money has to go somewhere, does it not?

    • fatster says:

      I don’t see any little blue letters in your comments indicating the link to the story, so I went out and looked for it.

      http://www.reuters.com/article…..9620090125

      Hope you don’t mind, and apologies if you did put the link in your comments and I just didn’t see it (those little blue letters indicating a link are sometimes a little too small for me and I read right over them).

  11. mafr says:

    I think, though, if a top level CIA agent,investigating nuclear proliferation, and Iran’s nuclear program can be exposed without legal consequence,

    laundering drug money should be a cinch.

    That is to say, I think nothing will happen here no matter how deep and vile the corruption.

    One of the things that is becoming clearer over the last few years, is the very high level of public tolerance, acceptance,and shrugging off, of high level crime and imorality.

  13. damagedone says:

    Odds are some these folks may be sleeping with the fish in the near future. So take out the insurance policies now or place your bets now if you can. Remember the dead peasant insurance policies that several companies had (Walmart, etc). Phil Gramm tried to duplicate it for Texas state workers, so maybe it is legal somewhere in the world. Republicans think this is legitimate business activity, I think is immoral. Also wonder whether some these folks might be trying to claim a tax whistleblower reward on each other.

    http://www.entrepreneur.com/tr…..11683.html

    • Gitcheegumee says:

      Those dead peasant policies sold to WalMart were issued by AIG and Hartford Insurance.

      WalMart later UNSUCCESSFULLY sued AIG in relation to these policies,which were actually used as tax write offs ,and provided collateral for loans against the value of the policies-with WalMart as beneficiary.WalMart lost a billion dollar judgment in this action.

      When the employee died,WalMart as beneficiary cashed in again,even though in MANY cases the employee had left WalMart’s employ YEARS before.,,,and in states where these policies were inherently illegal.

  14. orionATL says:

    any “relation”, i.e. connection, to “tommy the greek” of cia fame?

    or

    to jack abramoff and his dad or family?

  15. Gitcheegumee says:

    Yesterday ,on another thread, I posted about this and said that Eugene Scalia represented Di Pascali.

    As I have said many times before, the template for the looting of this country in 2008 was merely a replay of the ’80’s S&L scandals involving many of the original cast and characters of BCCI…..ergo, BCCI Deux.

    No mention is made of Merkin, Bank Leumi,or Cerberus,but they are significant parts of the puzzle.

  18. Gitcheegumee says:

    Wal-Mart Gambled, Lost $1.3B on ‘Dead Peasant’ Policies, Insurers Say
    By FRANK REYNOLDS, Andrews Publications Staff Writer

    Discount retailing giant Wal-Mart cannot sue its insurers just because it gambled and lost $1.3 billion on getting a tax break from thousands of insurance policies it took out on employees, according to a brief filed by the insurers in the Delaware Supreme Court.

    Press reports have dubbed the “corporate-owned life insurance” policies at issue in this litigation “dead-peasant insurance” because most of the policies were purchased by companies that employ large numbers of workers at the lower end of the wage scale and most of the policy benefits went to the companies rather than to families of deceased employees.

    The practice was curtailed in the mid-1990s when the federal government, which had previously called the financing scheme “tax arbitrage,” closed the tax loophole and began to pursue Wal-Mart for back taxes.

    Meanwhile, outraged employees and their relatives sued.
    After the Chancery Court dismissed the suit, Wal-Mart appealed, claiming that the lower court overlooked the duty of the insurers to deal in good faith with their client.

    “Wal-Mart’s allegations of misrepresentation fail as they concern non-actionable expressions of opinion of law or future or contingent events not representations of fact,” the insurers say.

    Wal-Mart Stores Inc. et al. v. AIG Life Insurance Co. et al., No. 172, answering brief filed (Del. Aug. 12, 2005).
    Delaware Corporate Litigation Reporter
    Volume 20, Issue 05
    09/08/2005

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