Madoff’s Partner in Ponzi Scheme Busted

Jack Humphrey, Regulatory journalist
June 06, 2011 /

A longtime employee at Bernard L. Madoff Investment Securities LLC (BMIS) has today consented to the settlements of the Securities and Exchange Commission for helping Bernard Madoff and his firm deceive and defraud investors and regulators about the massive Ponzi scheme.

According to George Canellos, Director of the SEC’s New York Regional Office, Madoff’s fraud went successful due in part to Eric Lipkin’s contribution to the Ponzi scheme which included detailed and “entirely phony trading and business records.”

An investigation conducted by Kristine Zaleskas and Aaron Arnzen of the New York Regional Office showed that Lipkin Lipkin violated Section 17(a) of the Securities Act of 1933; violated and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder.

In a complaint filed before the U.S. District Court for the Southern District of New York, the SEC alleged that Lipkin and Madoff collaborated in defrauding investors and misleading auditors and regulators about the multi-billion dollar Ponzi scheme.

The longtime Madoff employee allegedly “processed payroll records for “no-show” employees, falsified records of investors’ account holdings, and played a role in executing the entirely fictitious investment strategy that Madoff and BMIS claimed to be pursuing on behalf of its clients.”

Using investors’ fund, Madoff enriched himself, his family, and his associates. He also paid off other investors as how Ponzi scheme operates.

Lipkin prepared a false Depository Trust Clearing Corporation (DTCC) reports showing the sham investments for clients, thereby helping Madoff elude regulatory measures.

Lipkin allegedly got paid by the firm for his work on misleading auditors and examiners. The “bonuses” were paid annually, with another $720,000 from Madoff paid to him to buy a house, an amount he never paid back.

Lipkin did not deny or admit the allegations of SEC, but consented to a proposed partial judgment. If entered by the court, the settlement will impose a permanent injunction against Lipkin and require him to disgorge ill-gotten gains and pay a fine in an amount to be determined by the court at a later time.

The investigation is continuing.

Meanwhile, UBS AG, which faced a lawsuit last year filed by Madoff liquidating trustee Irving Picard for assisting in the Ponzi scheme, had its ties to Madoff hidden in a 2008 report by Ernst & Young LLP submitted to the Luxembourg’s regulator.

UBS Luxembourg SA and Madoff’s firm had an agreement authorizing Madoff to be sub-custodian for LuxAlpha Sicav-American Selection, according to Jean Guill, the Luxembourg finance regulator’s director general.

 

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