Quotes of the Day

Frank DiPascali, the former financial chief for disgraced billionaire financier Bernie Madoff, told a federal court judge on Tuesday that he and others knew as far back as the early 1990s that no sales were taking place in Madoff's investment scam. He made the comments while pleading guilty to criminal charges as part of a government cooperation agreement for his role in Madoff's $65 billion Ponzi scheme.

"I knew and other people knew no sales were taking place," said DiPascali during the hearing. "I represented trades were taking place when they were not. Most of the time, money just went into bank accounts" that Madoff controlled, he said. He admitted he helped perpetuate the illusion that sales had taken place.

"I lied to the SEC under oath at Madoff's direction," said DiPascali. He then apologized: "I know my apology means nothing, but I hope my actions moving forward mean something and bring some measure of comfort to those I hurt."

The charges included conspiracy, securities fraud, investment-adviser fraud, falsification of books, mail fraud, wire fraud, international money-laundering, perjury and federal income tax evasion. Prosecutors are looking for $170 billion in forfeiture from Madoff's former right-hand man.

DiPascali, 52, has long been rumored to be cooperating with prosecutors in the case and was expected to implicate others. His testimony could swing open the prosecutorial floodgates, leading to many charges against others in the Madoff camp.

"He could potentially be an extremely pivotal person in this play," says David Bernfeld of Bernfeld, DeMatteo & Bernfeld LLC, who represents about a dozen Madoff victims.

Bernfeld notes that DiPascali appeared in response to a criminal-information hearing rather than to a grand-jury indictment. This usually means the person has taken a plea and is cooperating with prosecutors to get leniency in sentencing, he says. "Is he going to take down the remaining house of cards? I can't say that, but I would think he could be a significant player in the mosaic," says Bernfeld.

Until now, Madoff, who was sentenced to 150 years in prison, has steadfastly insisted he acted alone in the scheme and refused to point the finger of blame at anyone else. Madoff's brother and sons, who worked under the same roof, as well as his wife Ruth, have come under intense scrutiny during the probe but have not been charged with any wrongdoing. Madoff's outside accountant, David Friehling, is the only other person to be formally charged in the seven-month investigation until now. He pleaded not guilty to fraud charges.

However, DiPascali is viewed as a major linchpin in the case, having worked alongside Madoff for 33 years, where he supervised the taking and tracking of client orders. He described himself as director of options-trading, even though no actual trading took place during the Ponzi scheme. Some experts speculate that DiPascali is cooperating in exchange for leniency.

"Madoff himself pleaded guilty but didn't rat anybody else out," says David Evans, an economist, financial-regulation expert and editor of FinReg21.com, who wasn't surprised that DiPascali was cooperating. "So they went down the list ... and [looked] for people who don't have the incentive of protecting family as Madoff did, and [then they did] deals that would get someone to turn and implicate other people in the scheme."

Madoff had no incentive to cooperate, says Howard Elisofon, a partner at Herrick Feinstein LLP and a former SEC enforcement attorney. "The fraud was of such an enormous magnitude that even if he had offered a high level of cooperation, he still would have been in jail for the rest of his life," he says. But others in the investment scam may be able to benefit from leniency if they implicate others. "As a general rule, someone who wants to receive leniency will want to cooperate."

Bernfeld speculates that DiPascali could assist prosecutors with information on people who worked with him on the same floor producing statements and dealing with investors, as well as Madoff family members: "I would assume he will be pressed very hard by the government in terms of family members and those with special relations with Madoff who were responsible for bringing in significant dollars to Madoff — some of whom are the subject of civil lawsuits already."

Elisofon says charges against others are likely in the works. "For a fraud of this magnitude and this duration, Mr. Madoff could not possibly have acted alone, and it seems fairly clear that he must have had various accomplices over time. This may be the first of several of many other individuals who will be charged," he says. Elisofon, who represents some of Madoff's victims, says he's hoping that others who are implicated may have a lead on where some of Madoff's hidden assets are located. "Whether or not he had any accomplices in scurrying assets away in foreign places is something that's not known," he says.

Judge Richard Sullivan remanded DiPascali into custody, rejecting the government's recommendation that he be released on a bail bond of $2.5 million, which was to have been signed by three "financially responsible" people and secured by $400,000 in equity in the house belonging to DiPascali's sister. In rejecting the bail recommendation, the judge said the size of the bail bond was symbolic and not sufficiently "onerous" to keep DiPascali from fleeing.

The 10 charges, as listed in a letter from the U.S. Attorney's Office, carry a maximum sentence of up to 125 years. Sentencing is set for May 2010.

Rebekah Carmichael, a spokeswoman for the assistant U.S. Attorney, declined to say if charges are pending against others at this point. "The investigation is ongoing," she said.

• Janet Morrissey
• Frank DiPascali, a top executive at Bernard Madoff's firm, pleaded guilty on Tuesday to 10 charges