The Madoff Prison Squeeze
Frank DiPascali Jr., Bernie Madoff’s former CFO, thought he’d escape immediate imprisonment by pleading guilty to 10 felony counts. Instead, he was sent straight to jail. Will he still help the Feds put Madoff’s family behind bars?
Will the canary still sing in prison?
Frank DiPascali Jr., the man who has promised prosecutors he can perhaps provide enough evidence to put Bernie Madoff’s entire family and closest associates behind bars, was sent right to jail Tuesday afternoon by an untrusting federal judge.
The judge remained unswayed by Mukasey’s argument that DiPascali is now in “an alternate universe” where his new “full-time job” is to help prosecutors.
When the hearing began, two hours and eight minutes earlier, DiPascali, the former chief financial officer for Bernard L. Madoff Investment Securities, had walked into Courtroom 15A jauntily, smiling, acting like a man thrilled by his sweetheart deal to plead guilty while escaping immediate imprisonment.
The deal was to confess to being a major participant in the greatest Ponzi scheme ever, yet be allowed by prosecutors to walk out of court on $2.5 million bail.
Instead, DiPascali was handcuffed by federal marshals on the order of U.S. District Judge Richard Sullivan and marched to jail. After accepting DiPascali’s plea to 10 felony counts carrying as much as 125 years in prison, the judge said: “I frankly am reluctant to put my trust in Mr. DiPascali.”
DiPascali’s newfound willingness to help the government was weighed by the judge against the former CFO’s acknowledgement that during more than two decades of fraud: “I knew everything I did was wrong and it was criminal. I did it knowingly and willfully.”
“I have not heard how remand would affect his ability to cooperate,” said Sullivan as he rejected the bail package defense attorney Marc Mukasey negotiated with the U.S. attorney’s office.
At this, DiPascali—the first major witness to help the government—slumped over at the defendants’ table, hiding his face. He had rushed to prosecutors Dec. 11, 2008, within hours of Madoff’s arrest, and began cooperating in January.
Because the judge already had agreed to delay sentencing until at least next May to assess DiPascali’s “substantial assistance” to prosecutors, DiPascali appeared confident he would be spending the next year with his family in their five-bedroom mansion on 7 acres in Bridgewater, New Jersey.
Now, whether Madoff’s former CFO reacts badly to confinement at Manhattan's Metropolitan Correctional Center will be critical to the investigation. The judge said that because DiPascali is not doing any undercover work, his ability to cooperate should not be impeded by being behind bars.
Sullivan said that no matter how fine a cooperating witness DiPascali is, he faces life imprisonment and thus remains “a clear flight risk” who might rethink his vow of cooperation and fail to appear for sentencing next year if allowed out on $2.5 million bail.
The bail proposal was based on having guarantees from three people, including $400,000 in home equity from one of DiPascali's sisters, but the judge said it would be inconsequential for DiPascali to add “three more victims” to the thousands he has already helped defraud of billions of dollars.
The judge remained unswayed by Mukasey’s argument that DiPascali is now in “an alternate universe” where his new “full-time job” is to help prosecutors. And Mukasey’s last-minute suggestion that DiPascali could wear an electronic ankle bracelet also was rejected.
The flabbergasted prosecutor, Assistant U.S. Attorney Marc Litt, told the judge it would be easier for investigators to have DiPascali guide them through 6,000 boxes of documents, half a floor of records, and a decrepit computer system if he were allowed to remain free. Mukasey added DiPascali was “completely unprepared” to go to jail.
As the man who ran the investment-advisory service for Madoff, DiPascali and Madoff worked side by side. DiPascali, a 33-year veteran of the Madoff firm, read a prepared statement admitting he knew he was committing crimes by lying for at least two decades to thousands of Madoff investors about stock trades that were never made and falsifying millions of documents. He also confessed to money-laundering at least $250 million and lying to investigators during a 2006 Securities & Exchange Commission investigation of Bernard L. Madoff Investment Securities.
The Archbishop Mulloy High School graduate from Queens started as a clerk in 1975 and rose to earn millions a year as Madoff’s right-hand man, in charge of fabricating the documentary support for all the misinformation Bernie Madoff was relaying to investors. As an executive who worked closely with Madoff on the 17th floor of the Lipstick Building on Third Avenue in New York City, DiPascali said he knew everything he was doing was criminal.
“It was all fake,” DiPascali said. “It was all fictitious. I knew no trades were happening.”
Now he is the government’s best hope to prove that Madoff’s sons, Marc and Andrew, his brother, Peter, and maybe even his wife, Ruth, were involved. And as the man who handled accounts for institutional investors, whose ranks filled 61 single-spaced pages filed with the court, he also could be the one to point the finger at the so-called feeder-fund operators who steered investors to Madoff and big investors such as Jeffry Picower, who claim to be victims.
Before Judge Sullivan left the bench, he said he would entertain another motion for a bail package, a statement that caused the defense and prosecution teams to reconvene at the U.S. attorney’s office to come up with a deal to satisfy the judge.
Allan Dodds Frank is a business investigative correspondent who specializes in white-collar crime. He also is president of the Overseas Press Club of America.