Longtime Madoff Employee Charged with Falsifying Documents
The Securities and Exchange Commission has charged a longtime Bernie Madoff employee with falsifying books and records in order to hide Madoff’s fraudulent investment advisory operations from regulators.
The SEC’s investigation was conducted by Aaron P. Arnzen and Kristine M. Zaleskas of the New York Regional Office, with the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.
The SEC alleges that Enrica Cotellessa-Pitz, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations.
Cotellessa-Pitz also falsified financial statements filed with the SEC and other regulators as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.
The SEC previously charged BMIS’s Director of Operations David Bonventre with falsifying books and records to hide and obfuscate Madoff’s advisory operations.
According to the SEC’s complaint against Cotellessa-Pitz filed in U.S. District Court for the Southern District of New York, she played a central role in falsifying these records as directed by Madoff and Bonventre. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.
The SEC alleges that Madoff instructed employees to transfer hundreds of millions of dollars from bank accounts holding investor funds to the firm’s operating bank accounts.
“Madoff’s goal was as simple as it was misleading – to use stolen investor funds to hide the significant losses incurred by BMIS’s market-making and proprietary trading operations,” the SEC said.
Cotellessa-Pitz joined this effort after she was promoted to controller at the firm in 1998, when Madoff and Bonventre instructed her to falsely account for these transfers of investor funds as adjustments to certain securities positions on BMIS’s stock record.
According to the SEC’s complaint, Cotellessa-Pitz then used these figures to calculate and overstate the trading income purportedly generated by Madoff’s market-making and proprietary trading operations.
Cotellessa-Pitz included these bogus figures on BMIS financial statements, which she then filed with the SEC and other regulators. Cotellessa-Pitz and other BMIS personnel then falsified documents provided to regulators to obscure the firm’s advisory operations and the transfer of investor funds to the operating bank accounts.
The U.S. Attorney’s Office for the Southern District of New York announced parallel criminal charges against Cotellessa-Pitz, who has pled guilty and also consented to the entry of a partial judgment in the SEC’s civil case against her.
Subject to court approval, the proposed partial judgment will impose a permanent injunction against Cotellessa-Pitz and require her to disgorge ill-gotten gains and pay a fine in amounts to be determined by the court at a later date.
The SEC’s investigation is continuing.