The director of operations for Bernard L. Madoff Investment Securities was arrested Thursday morning for his role in defrauding investors out of tens billions of dollars in wealth.
Daniel Bonventre was arrested on a criminal complaint charging him with securities fraud, falsifying books and filing false statements with the Securities and Exchange Commission and the Internal Revenue Service. The falsification of accounts was chronicled in Securities Industry News in November.
The complaint was unsealed Thursday in federal court in Manhattan and the arrest announced by Preet Bharara, the U.S. Attorney for the Southern District of New York, Joseph M. Demarest Jr., the Assistant Director-in-Charge of the FBI’s New York Field Division, and Patricia J. Haynes, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service.
The complaint that led to the arrest alleges that Bonventre, as director of operations for the broker-dealer, instructed that false entries be made in the firm’s general ledger that concealed the scope of firm’s operations and understated its liabilities by billions of dollars.
From 1997 to 2008, more than $750 million of investor funds were used to support BLMIS’s Market Making and Proprietary Trading operations, but the source of the funds was concealed, the complaint alleges, under Bonventre’s alleged direction.
Prosecutors also allege that Bonventre knew, but did not take action to show, what the true sources of funds were and that the assets and liabilities in the general ledger were accurate.
Bonventre is largely unknown. But informationt technology executive Robert McMahon worked at Madoff”s firm from February, 2007 to January, 2008 and knew Bonventre. He also is familiar with the AS/400 known as House 17, which was the computer Madoff and his lieutenants used to conduct the massive fraud.
"From the word go, I was looking for Bonventre’s name to shake out of this. He worked for Bernie for 40 years and always told me, Bernie would never get rid of the AS/400. Bernie will never fire me," McMahon said in a phone interview following Bonventre’s arrest. "He actually resembled Bernie more than Peter (Bernard Madoff’s brother) did. If you passed Bonventre in the hallway, you think it was Bernie."
According to the U.S. Justice Department, "at various points in time, the assets and associated liabilities of BLMIS’s operations, which were omitted from the general ledger, ranged from millions to billions of dollars.”
In one case, the department alleges, Bonventre requested $145 million of loans from a bank, using $154 million of a client’s bonds as collateral.
Bonventre also created false and fraudulent books and records that had the effect of disguising $262 million worth of payments to clients from the principal bank account that funded BLMIS’s operations, the department said in a statement. The payments were disguised as purchases of bonds and other debt instruments when, in fact, no such purchases had been made.
Between 2002 and 2006, Bonventre obtained more than $1.8 million in at least three fictitious backdated trades that appeared in his account, as well, allegedly.
Andrew Frisch, an attorney for Bonaventre, was not immediately available to comment
Bonventre is also charged with four counts of filing false federal tax returns related to his accounting for the three fictitious trades, and his failure to report a total of approximately $273,620.24 in income that he obtained from BLMIS bank accounts in 2003, 2004, 2006, and 2007.
Bonventre, 63, faces a statutory maximum sentence totaling 77 years in prison: five years on count one (conspiracy), 20 years on each of counts two, three and four (securities fraud, falsifying books and records of a broker-dealer, and false filings with the SEC), and 3 years on each of counts five through eight (subscribing to a false tax return), according to the Justice Department.
Bonventre began working for Madoff Securities in 1968 and became its director of operations "as early as 1978,” according to the complaint.
This story first appeared in Securities Industry News
