Peter Madoff Pleads Guilty, Named In SEC Suit

Peter Madoff, the younger brother of jailed Ponzi king Bernie Madoff, pleaded guilty to criminal charges on Friday. He was also named as a defendant in a fraud suit filed by the SEC. While Mr. Madoff admitted to a series of crimes, he maintains that he was surprised by the massive fraud of his brother. U.S. v. Madoff (S.D.N.Y. June 29, 2012); SEC v. Madoff (S.D.N.Y. Filed June 29, 2012).

Peter Madoff was the Senior Managing Director and Chief Compliance Officer of Bernard L. Madoff Investment Securities LLC from 1969 through the December 2008. In that capacity he was responsible for BMIS’s market-making and proprietary trading operations. A two count superseding information charged Mr. Madoff with creating a series of false documents which facilitated the cover-up of his brother’s massive fraudulent scheme. Those documents included:

• Compliance reviews of the trading in the BMIS IA business on a regular basis despite the fact that they were never performed;

• False statements to regulators, auditors and IA clients; and

• False reports with the SEC on an annual basis on Form ADV which misrepresented the number of adviser clients and the assets under management.

Mr. Madoff is also alleged to have engaged in a tax fraud which involved the transfer of family assets in a manner to avoid paying millions of dollars in required taxes. These schemes also permitted his brother to avoid paying millions of dollars in taxes.

To the end, Peter Madoff was involved in the scheme, according to the SEC’s complaint. At the time Bernie told Peter that there were insufficient funds to pay investor redemptions, he outlined a plan to distribute the remaining investor funds to family and friends. Peter Madoff helped decide how to implement the plan. Throughout the course of the scheme, Peter Madoff received tens of millions of dollars in benefits.

Mr. Madoff was charged with, and pleaded guilty to, a two count information which included a count of conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud and falsifying investment advisor records. The statutory maximum is 10 years in prison. Mr. Madoff has agreed not to seek a term of imprisonment of less than 10 years. He has also agreed to forfeit more than $143.1 billion. This arrangement includes a settlement with his family which requires the forfeiture of all of his wife and daughter’s assets and those of other family members. Under the agreement his wife will be left with $771,733. Sentencing is set for October 4, 2012.

The SEC complaint alleges violations of Exchange Act Sections 10(b), 15(b)(1), 15(c) and 17(a) and Advisers Act Sections 204, 206(1), (2), (4) and 207. The action is pending.