Bernard L. Madoff's right-hand man pleaded guilty Tuesday and is cooperating in the government's investigation into the largest Ponzi scheme in history.
Frank DiPascali Jr. waived indictment and entered guilty pleas to 10 counts in a criminal information before Southern District of New York Judge Richard J. Sullivan. DiPascali admitted he was part of a scheme that cost institutions, individual investors and charities billions of dollars.
In spite of his cooperation with the government and over the objections of both his defense counsel and the prosecution, Sullivan ordered DiPascali to jail immediately.
DiPascali, who began working for Madoff in 1975 and who was described as the company's chief financial officer, said the conspiracy dated back to the early 1980s and that he followed Madoff's lead from the outset.
"I was loyal to him and I ended up being loyal to a terrible, terrible fault," he told the court.
Under the conspiracy, Bernard L. Madoff Investment Securities represented to customers that it invested their money in a basket of stocks and then hedged those bets with options.
But DiPascali said that "Bernie Madoff knew, and I knew, that what you never tell the clients or the SEC [is that] no trade or investments were ever made. It was all fake. It was all fictitious."
DiPascali, 52, pleaded guilty to conspiracy, securities fraud, investment adviser fraud, falsifying books and records of a broker-dealer, falsifying books and records of an investment adviser, mail fraud, wire fraud, international money laundering to promote specified unlawful activity, perjury and federal tax evasion.
The perjury count stems from a 2006 deposition before the Securities and Exchange Commission in New York.
DiPascali is scheduled to be sentenced on May 10, 2010, but prosecutor Marc Litt, who is handling the case along with Assistant U.S. Attorney Lisa A. Baroni, told the judge sentencing could be pushed even further out because Litt expects DiPascali's cooperation to continue at least that long.
Taken together, the maximum potential sentence for DiPascali's crimes is 125 years in prison, but he can be expected to serve only a fraction of that time in return for his cooperation with the government.
DiPascali was represented in plea negotiations and at Tuesday's hearing by Marc. L. Mukasey of Bracewell & Giuliani.
LACK OF TRUST
Despite DiPascali's admissions, Mukasey said during a bail argument that his client long believed there would be a "soft landing" for most investors and was unaware of the full scope of Madoff's crimes.
Despite the protestations of both the prosecution and the defense, Sullivan took the unusual step of ordering the white-collar cooperator be jailed immediately.
Mukasey argued that DiPascali had emerged from an "alternative reality" when the Madoff fraud was exposed and was now in a "new reality" where he knows he "has to tell the truth."
He said DiPascali is cooperating in "eight-hour, 10-hour sessions" and is pledged to help the SEC, the Internal Revenue Service and other agencies and is expected to be a "very valuable witness" at other trials.