Madoff Employee Accused Of Making Fake Trades By SEC
The U.S. Securities and Exchange Commission (SEC) announced on Monday, November 21, 2011 that it had charged a longtime Madoff employee with fraud by creating fake trades to perpetuate the monster Ponzi scheme.
According to the release, Bernie Madoff would ask his employee, David Kugel, to create backdated arbitrage trade information that could be used to show fake trades in customer account statements. Kugel had been an employee of Bernard L. Madoff Investment Services LLC (BMIS) for almost 40 years and he was the mastermind of an elaborate façade showing that customers were engaged in active trading when there was no trading taking place. Also, the SEC’s New York office said that “Kugel withdrew millions of dollars of phony profits that he knew weren’t from actual trading activity.” The charges against Kugel follows SEC charges against two other Madoff employees, Annette Bongiorno and JoAnn Crupi, who helped to create the fake trades and subsequent phony account statements to customers.
The fake trades appeared to be extremely profitable and Kugel, who opened his own BMIS account received the fake information, as well. Notwithstanding the fact that the profits were fake, Kugel withdrew millions. On a trade in S&P index options in 2007 Kugel turned a profit of over $375,000 in a few weeks and all total he withdrew nearly $10 million from his BMIS IA accounts between 2001 and 2008.
Kugel pled guilty to parallel criminal charges and agreed to settle the SEC’s civil charges. He will be ordered to forfeit his illicit profits upon the entry of a criminal forfeiture order in the criminal proceedings.