By Joseph Ax
NEW YORK (Reuters) – Four months into a criminal trial for five former employees of Bernard L. Madoff Investment Securities, witnesses have made it clear that no one but Madoff himself knew the whole truth about his massive Ponzi scheme, from his top lieutenant on down.
With prosecutors expected to wrap up their case on Monday, the defendants' lawyers will try to convince a federal jury that their clients were completely in the dark, unaware that they were propping up an unprecedented fraud.
The defense's task is twofold: to persuade jurors that cooperating witnesses are lying to secure lighter sentences, and that whatever improper acts the defendants may have committed were done unwittingly.
"In white-collar cases, the issue often is not who did what," said Robert Anello, a partner at Morvillo Abramovitz Grand Iason & Anello, who is not tied to the case. "It is often whether what you did, based on your knowledge, is a crime."
The five defendants are the firm's director of back office operations, Daniel Bonventre; portfolio managers Annette Bongiorno and Joann Crupi; and computer programmers Jerome O'Hara and George Perez.
The case in Manhattan federal court is the first criminal trial to stem from Madoff's fraud, which cost investors an estimated $17 billion in principal losses. Madoff pleaded guilty and is serving a 150-year prison sentence; he has not implicated the defendants.
In their opening statements in October, the lawyers painted Madoff as a cult-like figure whose orders the defendants followed blindly.
"They thought he was almost a god," Eric Breslin, Crupi's lawyer, told jurors at the start of the trial in October. "They did not want to question anything he did."
But prosecutors have argued that the defendants knowingly committed crimes like faking documents, deceiving regulators and filing false tax returns, even if they were not fully aware of the extent of the scheme.
"You don't have to know everything that's going on to be guilty of a conspiracy," said Michael Shapiro, a white-collar defense lawyer with Carter Ledyard & Milburn who is not involved in the case.
Prosecutors have introduced reams of documents and called approximately three dozen witnesses, including several former Madoff employees, some of whom pleaded guilty themselves and appeared as government cooperators.
Chief among the latter was Madoff's top aide, Frank DiPascali, the government's star witness, who pleaded guilty in 2009 and has not yet been sentenced. He spent about a month on the witness stand telling jurors that all five defendants were intimately involved in every aspect of the fraud.
In one instance, DiPascali claimed Crupi, O'Hara and Perez helped him print fake records for a KPMG auditor and then used a refrigerator to cool them down, reasoning that the auditor might be suspicious if the papers were still warm from the printer.
They then tossed the papers around "like a medicine ball" in order to make them appear older, he testified.
Other former Madoff employees appearing as cooperating witnesses have included trader David Kugel, who said he helped Bongiorno and Crupi to fabricate trades in client accounts; his son, Craig, who said he arranged for Bonventre's son to receive health benefits even though he did not work at the firm; and controller Enrica Cotellessa-Pitz.
Like DiPascali, they testified for the government in hopes of lessening their sentences.
Defense lawyers have sought to undermine their credibility by arguing they are willing to lie for leniency.
"Is it fair to say that you got pretty good at conning people?" Larry Krantz, Perez's lawyer, asked DiPascali, after making the point that he had spent most of his career lying to customers, regulators and fellow employees.
DiPascali appeared to change at least one part of his testimony under grilling from defense lawyers. He initially claimed he knew about the fraud since the 1970s, before saying he did not actually learn the truth until the 1990s.
Throughout the trial, it has become clear that the web of deceit girding Madoff's firm had many layers, with Madoff himself lying to his top aides and those aides, in turn, lying to their subordinates.
Even DiPascali said he did not understand the full scope of the fraud until a few days before Madoff's arrest, when the financier tearfully confessed to him that the firm was bankrupt. Until then, DiPascali said, he believed the money was safe in secret assets.
He also acknowledged under cross-examination that he fed false cover stories to Bongiorno, Perez and O'Hara at times to convince them to take actions they might not otherwise have done if they had known the full truth, a point defense lawyers will likely emphasize to the jury.
It remains unclear whether any of the defendants will take the stand, though their lawyers have indicated it is unlikely.
"In a case like Madoff, where the jurors have been reading about it for years, they are probably itching to hear from the folks who are there to explain what was going on," Anello said. "That's a tough decision."
Presentation of the defense case will likely last two or three weeks.
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Joseph Ax; Editing by Dan Grebler)