11316
0001 1 UNITED STATES SECURITIES AND In the Matter
number
60
061009
EXCHANGE of:
COMMISSION
GIG-509
WITNESS: 7 PAGES:
NUMBER 1 39
60
9
10
PLACE:
Ascendant
140 west
compliance
57th street
Management
11
12
New York,
DATE: lune
The
New York
2009
matter came on
13
14 15
10,
above-entitled
16
17 18 19 20 21 22 23 24 25 0002 1
for
hearing
at
11:20
a.m.
APPEARANCES:
3
4
on behalf
Commission
of the
securities
and Exchange
6 7 8
H. DAVID KoTZ, ESQ. NoELLE FRANGIPANE, ESQ. united states
9
10
securities
100 F Street
and
NE
Exchange
Commission
11
12 13
14
washington,
DC 20549
15 16 17 18 19 20 21 22 23 24
25
0003 1 Z PROCEEDINGS MR. KOTZ: We
are
on
the
record
at
3
4
11:20
~ohn
a.m.
Gentile.
on
7une
10,
2009
at
the
offices
of
5 6
Q. Inspector
My name is David Kotz. I'm General of the united states Page 1
MADOFF
EXHIBITS-02755
11316
number
60
061009
7 8
9
securities and Exchange commission. with me my colleague from the office
Inspector General, General case Noelle Frangipane.
I have of
This is
10
11 12
an investigation
by the
office
of the
you can. certain Please
Inspector
Number OIG-509. I'm going to ask answers as you
13 14
15
questions. Even though you're giving an oath, please try to
and nod truthful of the
not going to be provide as full question,
response
16
17
provide
a verbal
head
answer
or
to
the
as a
won't
a non-verbal
18 19 20 21
22
be picked up by the court Reporter. Please let me finish my~guestion before you provide your response. I'11 try to let you finish your response before I ask the next question so the
record will be clear.
23
24 25
0004
It's
important
that
you understand
If
the questions and give accurate answers. there's anything you don't understand or
1 2
3
4
anything you do not please let me know.
that
claims
know or not sure about, otherwise I will assume
understood the
are and
you
heard law
the
and
This is in matter
question.
u.s.
an this at
official case hand
5
6
Government
enforcement
investigation.
serious are
The
ones.
asserted
7
8
It
is
very
about
important forthcoming
Do you Yes, what I do.
you tell
understand
me everything
those
you
know
9
10
11
completely
instructions?
and truthful.
12
A.
13
14 15
q.
background. with college?
Let me just
was
start
your
with
education
some initial
beginning
16
17 18 19 20 21 22 23 Central and an degrees?
A.
I have a bachelors
degree
from
~n finance
connect~cutState Un~vers~ty MBA from Fordham university. q. what years did you get
those 1986. your Paine sec?
A. approximately, Q·
Central Connecticut 1983, and Fordham approximately what did you do after you
got from
24
25
0005 1
degrees
A.
weber I
in terms
went to
of jobs?
at
SEC.
I worked
the
Paine start were
weber, with you at
2
Q.
when
did
you
the
3
4 5
6
A.
weber, Q· just
A.
I believe
so how long for a year?
A year or
it
so.
was May of
1987.
Paine
7 8
9 10 11 legal
q. A.
what did you do at paine weber? I was a damaged analys in their
stuff did allesed do?
lost
department. q. what kind of A. If a customer
or sue us. I
12
13
money and they were going to bring
arbitration would take
it~to
statements
14
15
16
and deduce fend itsel·:
some of the against
damage, the
loss
break Paine Page Z even
calculations, ints, thinss
turnover calculations, like that, to help
17
webercase.
MADOFF
EXHIBITS-02756
11316
number
60
061009
18 19
the
Q· SEC in
what was your May of 1987? How long did
first
position
with
20
21 examiner.
A.
Q·
I was a securities
you
compliance
serve in that
22
23
24 25
0006
position?
A. q. A.
branch chief.
Approximately so somewhere Yes. I think
four-years. around 1991? '92 I was promoted to
1
2
3
4
7 8
Q·
securities and
with staff.
what were
compliance
broker
your
duties
as a
5
A.
To conduct
dealer
examiner7
audits
and
of broker
enforcement
dealers
6 9 10 12 13
14
occasionally
the
we worked Did
on investigations
the
q. period relating A. Q·
you do anything to Ponzi schemes
in that time when you did
11
audits or investigations?
Ponzi schemes?
I don t recall Any particular
specifically. matters involving
15 16 17 18
I can't say I recall specific Ponzi schemes that I worked on as an examiner. I may have, but I don't have a specific recollection. Q· so, 1992 you became a branch chief.
A.
19
20
what
chief?
were
your
responsibilities
as a branch
21 22 23 24 25
0007 1 2
A. I supervised the staff of examiners, securities compliance examiners. There were perhaps between five and seven examiners per branch chief. Q· And that was also doing broker
dealer
3 4
before, and worked on some investigations with the enforcement staff, ED enforcement staff.
A.
exams:he thing same as
what division
5
6 time?
q.
A. we went over '90s, on or Q· OCIE; isn't A.
were
you in
at
that
7 8 9 10 11 12
We were part of market reg and then to OCIE some point in the mid about. In that period 1992 there was no that right? I believe you're correct. I think
13
14 15 16 17
18
ocIE
came later.
we worked,
I'm
of of five
pretty
market the
At
sure
broker
that
at
that point it was the division regulations. Q· vou were the chief dealer inspection program?
A. I was a branch chief.
time
19
there of
must q. November A.
have Prior 1992,
been
four
or
of an
us,
20
21
22 23 24
approximately.
to conducting ou heard have
Madoff Bernar securities?
examination
Bernie Madoff
Madoff or Investment
the name or Bernard
25
0008
I have
heard
on
of
the
that
name,
yes.
case
1
Z
q.
A.
How did
I worked
you hear
about
enforcement
that?
Page 3
MADOFF
EXHIBITS-02757
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number
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061009
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4
involving
sienes.
two
CPAs by the
name had
of
Avellino heard
and
5
6
7
q.
Avellino
name
I'm
and No,
saying
I don't
prior
believe to had
dates
to working
you so.
on the
the
sienes
Madoff?
matter,
Bernard
8
A.
9
10 for?
q.
A.
How long
I was
As an
were
you a branch
an assistant
chief
11
promoted
ass~stant
12
13
director
Q·
maybe 1996, approximately.
duties you?
A. Yes.
directoru
had
14 15
16
17
similar under
except
On
you
the
branch
I'm a
iefs
little
18
dh
assistant
on whether
remember.
it
was '95 or
did early you
'97.
a serve
I honestly
as an
19
20
Q· A.
How long
director?
21
Through
1999.
22
q.
securities National
where
did
you go after
1999?
23
24 25
0009 1
A.
compliance Regulatory
To a private
consulting services,
consulting
f~rm NRs for
firm,
called short.
for?
Q·
How long
2
3 4 5
6
A.
your
to
Through-May
work did.Fou 2007.
there
Q. position A.
conduct
what were your there? I was a director.
audits and risk
duties,
assessments
what
was were
of
My duties
7 8 9 10 11
12
broker dealers. we also did training and conferences. I was a speaker at our conferences. It was very similar to what I was doing at the sec without the sec's authority. Q. And then in May of 2007 you went to
where?
13
A.
IMs consulting,
which the position
a partner.
has
since hold
the
14
15 16 17
18
changed
its
name to Ascendant
And that's
correct.
Compliance
you
It's
Management. q. today?
A.
I'm
19 20
21
22
same type investment
q.
heard Avell~no the
of business, consulting advisor work, broker
50 you
name and Bernie sienes
business, aealer work.
first time you
in connection
believe
Madbff matter?
the
was
23
24
25 0010
with your work at the sec involving
A. Yes.
this
1 2
3 4
about
Q· him, A.
At that time did you hear anything I mean did you research him, were
his reputation on this matter? at all while you
you aware of were working
5
I was aware
that
his
firm
much
was very
6
7
prominent
automated
in developing
trading, that's
third
pretty
market
particular
~t. I
8 10
11 12
don't we're
recall
anything to mark ~t.
we put is the
else. well, If actually before
this this into evidence, confidentiality and
9
Q-
going
I'm going to show you a document.
that, why don't document, which
13
Nondisclosure
Agreement.
you coul~
Page
just
4
MADOFF
EXHIBITS-02758
11316
number
60
061009
14
15
take
it.
a look
at
that.
put
your
name
and
sign
16
17 to read
A.
it.
Do you mind if
Please.
I take
a few minutes
18
q.
19
20 21 after?
A.
Q.
Can I make a quick
Sure.
copy of that
22
23
Exhibit
i,
this
I'm go~ng to mark this
is the confidentiality
document as
and
24 25
0011 1
Nondisclosure Agreement. you signed today; is that
A. Yes.
This is right?
the
document
2 3
4
(whereupon, confidentiality
were marked as
the aforementioned and Nondisclosure
Exhibit 1 in evidence
Agreement
as of
5 7 8 9 10 12
13
this another
date
by the
Reporter.)
6
q.
document,
I'm going to mark as Exhibit
Former Examiner #2
wh~ch is a memorandum dated o Demetrios vasilakis and I'm going put it into 2 and ask you to take a
Z
11
14 15 16 17 18 19 20
minute or two to look at that
(whereupo,
memorandum was
as well:
aforement~oned
as Exhibit 2 in
the
marked
evidence as of this date by the Reporter.) A. okay. ' q. If you see on the second page of this document it says pursuant to an Assignment Memorandum dated November 16, 1992, you see it's date November 22, 1992 and the first page of Exhibit Z is dated November 16, 1992, do you
21
22
24 25
think that
the first we're
page of Exhibit
there
this is to these
2 is the
more to
Assignment security of 1992 you
Madoff?
Assignment
A. Memorandum compliance q.
Former Examiner #2
Memorandum or is
it
23
missing?
I bel~eve that goes
the two
0012
1 2
exam~ners. so, on November
16th
of
3
4
5 A.
o Demetrios
to do
Yes.
vasilakis
exam
and
role
Former Examiner #2
a
cause
Bernard
6
7 cause
Q·
exam?
Now, what I being reall on site
was don't or
your recall
in
that
8
9 about
A.
the
anything
audit.viously
I reviewed
conducting
it
and
10
11
signed
terms
off on it
of
and supervised I don't
it,
but in . meetiIns t,
you I to
12
13 14 15 16
17
or reviewing
records,
recal
I completely forgot about this at all until mentioned it on the phone a few weeks ago. totally forgot we did this, but it appears be a very, very brief
q. You don't think y6u went on site?
18 19 20 21
22
A. I don't recall, although it says some -- I thought I perused it and it said somewhere there was a meeting with Mr Madoff. Q· Do you remember ever meeting Bernie
Madoff?
23 24
A. 7ust I don't-actually
speaking remember
to him on the phone. meeting him, but I
Page 5
MADOFF
EXHIBITS-02759
11316
number
60 061009
25
0013
may have.
1
2 3
4
Q·
request.
what do you rememberabout speaking
to
civil.
to him on the phone? A. That he was responsive
document
5
6 7
10
11
14
s 9
maybe that will help refresh your recollection. as Exhibit 3. We're going to mark this document
q.
He was
Let me show you another document,
very
courteous,
This is a 1992 fromformer New York Attorney Enforcement Staff
13 15
16 17
19
12
the file dated 7une 24, Acting Branch chief, broker dealer enforcement to the file ~whereupon, the aforement~oned
memorandum was marked as Exhibit 1 in
g. If you~see this document talks
evidence as of this date by the Reporter.)
18
20 21
22
about Avellino and sienes, allegations that Avellino and sienes may have been selling
about the informat~on that the SECreceived unreg~stered securities
unregistered investment
and may be acting as an
company. It references
23
was set up to give the appearance
in a transaction that an investor would send money, that they would invest the money It of a demand note, they give back a letter
~nterest.
24
25 0014
giving them between 13.5 percent and 18 percent
If you
and they were
1
2
this
3 4 5
6
7
that the in recommending to the commission staff take an ~njunction I have assembled a documents group of examiners to help accumulate
document it
see on the second page of says, "in order to ass~st me
8
9
and obtain of consist
Personal Privacy
Robert DeL
them on the case,
So, ~t
ce. you,
Personal Privacy
n Knee
if you want
brief
and maybe
to
and
10
seems as though,
or two
11
12 13 14
15
you can take a
minute
16
Avellino the team
read this document, but it seems as though information was provided to the SEC relating to concerns about investments made through on
and Bienes and you were
thenut
18
19
21
17
this
the
to look cause exam.
document and see if that's
A.
into it and that had ed to take a look at If you could
the case.
20 22
23 24
Avellino
q.
Okay.
and
Information
sienes,
the
was provided by
team was assembled
and
the case exam may have been as a result
information A.
of the
this
25
0015
there was the whole Avellino and sienes
in the 3une 24 memo3 Yes, although I think after
1 2
4
3
investigation, then came the cause exam that you refer to. so, this cause exam here related to in the wouldn't have been directly
matter of King Arthur,
Q·
6
7 8
5
9
of Avellino and Bienes. connect~on with failure
really the follow-up full blown investigation
so there was a full blown investigatio~ of Avellino and sienes in
it would have been so, it's similar.
Page 6
to register,
acting
as
MADOFF
EXHIBITS-02760
11316
number
60
061009
10
11
an
investment
A.
advisor
Yes.
without
registration?
12
q.
and
Do you also
for a Ponz~
recall
scheme3
--
former New York Enforcement Staff Attorney
13
15
16
17 18
19
14
stated
sienes
to us that
they were looking but I don't
what Ponzi the
specifically?
at Avellino have a
purpose of
A.
I honestly don't rememberthat
oversaw was,
coming~up.
specitic
the exam you
It may have,
recollection. Q· Do you remember A.
Q·
20
21
Referring
Yes.
to the
scheme?
22 23
it
was
A. to
After verify
reading positions
this that
two-page report were held at
24 25
0016 1
Madoff by these Avellino and sienes customers, and according to the report the Bernard Madoff
sitions that the stock market would trace
2
ck
to
the
depository
trust
company
which
is
3 4
5
the
what
industry Q·
would
custodian. why would
be the
you go about
that of would the
doing
that,
reason?
6
A.
7ust
to
verify shares
positions
7
8
9
-I
at
so,
really
Madoff
if
I owned a hundred
a hundred
DTc. via
shares
of IBM that
do a Ponzi
had Q·
review
IBM segregated
were
10
11 scheme
And so, when you or examinationou
12 13
14
figure out that what you would
sense?
do, versus
doesn't
trading, isn that make
between
trylngtto
15
A.
There's
a difference
16
17 18
looking
or end I just
at
trading
looking
at
end of day that
and As
of month positions. read in the cause
And based upon what exam, it appears as
19
20 21
though
we were
and
looking
to verify
positions
had owned securities.
Avellino held their
Bienes' accounts
customers at Madoff
22 23
24
it says here the staff's examination was conducted to verify BLM's proper segregation
A and B's october 1992 month end securities
of
DTc. have
to
25
0017
positions q.
in
BLM's so,
segregated and
account Bienes
at would
be
1
Avellino
2
3 4
represented
and the confirm
that
they had positions
of the cause that was an
at Madoff
effort whether
exam would accurate
5
6
representation?
A. Yes. And again, that's based on
7
8
what
details.
I'm
reading,
of to
I really
don't
record
recall
positions
the
to
10
9
traced positions
q.
all
It says in here, "the staff then
BLM s Stock
11 12
13 14 16
DTCp~rticipants statementsreason November12, for to trace 1992 what would be the the
A. DTc? That confirms the book entry that they're
15
legitimate
ev~dence
of
positions,
that there
position
really
of
DTe we
is
17
18 19
that's
talked
properly
q. to
custody.
ou this, and she indicated,
Former Examiner #2
20
and I want
to get
your
perspective
on this,
Page 7
MADOFF
EXHIBITS-02761
11316
number
60
061009
21 22
23 25
2
that likely at that time the exam staff wouldn't have gone to DTe itself, but would
have received A. the DTe records likely from Madoff, be true. I agree
in time if
do
24
1
3 4 5
you know whether
no recollection
Former Examiner #2
That
that's
is
true
to
or not?
I have with
Madoff
0018
of going
so,
DTC.
had faked DTe could have been
at that tR~int records,Q·n those confirmed through
tP~ at
method?sitions
9 10
11
12
6 7 8
A. correct. apparently.
If he had faked them that's We would have relied on the fakes,
q. Have you ever done or do you know what you would go about to do a Ponzi scheme
examination,
on Ponzi
-this
~f you were ust
focused
specifically
13
schemes what I would follow
wouldA. andlookdo? t~~um~~~y
notrelated
and look at
14
15
this.for
it
is7ustthe
folow
in general,
money
to
16
representations d~sappears.
made to clients, It's just
follow
the
17
18
19 20 21
money, what happens to the money. Most cases
q. Now, if you were doing a Ponzi scheme examination and you were trying to determine whether the entity was actually
following
the chain.
22
23 24
an outs~de third-party independent confirm that the trading that the
engaged said
in trading,
would you potentially they were actually
we did. dealer I can't similar
like DTe to broker dealer think
go to
25
0019
they were doing,
A. Well, the here
doing?
1
2
3
of any other Ponzi schemes that I worked on
that ~nvolved have Qwere broker
to this
4
5 6
situation,
would Madoff
trading, A.
but if it
gone so, real,
had then very possibly
we
to DTC, reviewed if in fact there then it would
to
DTe recoras was no trad~ng have showed no
7
8
9 10
goingon
and the DTe records you looked at from
right? No. You have distinguish
11 12 13 15 16
18
14
17
19
22
between trading and positions. You could have buy or sell. At the end of the day if vou own the stock it will be evidenced on in this case
the Madoff stock record, which will show you
end of the day there's
opposed to trading
nothing
point
owning the stock, i.e., you're segregation positions at DTc.
nothing
you can buy and sell,
to
long, and so, where as
custody,
at the
end
20
21
24 25
0020 1
of day stock record,
nothing q.
to distinguish. in fact it was telling sitions
would show up on the stock would be DTc.
okay,
I Just
And so, therefore,
weren't real
record,
want to make that and
23
If the positions
was all fake and say a broker dealer the customers that he was buying for
2 3 4
5
~Of records DTC
were
that should
them but he wasn't, then a review would determine whether they actually positions or not? A. Yes, if they're valid DTe records,
definitely tell the story. Page You 8
MADOFF
EXHIBITS-02762
11316
number
60
061009
6
should
be
able
to
literally
get
them
from
order
7
8 9 10
11
ticket
confirmations,
monthly
account
statements, records, Q.
We'll mark
transaction blotters, stock DTC. There should be a flow. Let me show you another document.
the next account document as sheet Exhibit was 3.
12
13 Arthur
(whereupon,
fact
the
aforementioned
marked
King
as
14
15
Exhibit
the
3 in evidence It says on it
as of this King Arthur
date fact
by
Reporter.)
16
17 18 19
20
Q·
sheet, King Arthur account fact sheet, a two-page document. This evidently is the information that was provided to investors
we know at Avellino and sienes that led to
that
the
21 22
23 24 25
0021
investigation. thoughts on it.
13.5 percent, quarterly." percent. In your money at
I just wanted to get your It states, "what does it
is paid
hundred
pay.
the interest income And it states, no time is a tra risk. In over
"5,made putsa that
20-years there has
1
Z
5 6 7 9 10 11 12 13
14
15
never
been
a losing
transaction."
who wanted an investment be suspicious?
3 4
~nvestor was stating to individuals to invejt that they would provide vehicle with no risk, that would
generally
My first question is, ~ust if you rece~ved informat~on that
an
8
Q· And then ~f you look on page of the this documents it says, you send to Avellino and Bienes are a loan by them." would the fact that letter classified them as a loan be
as well?
A. Yes.
A.
A red flag
for sure.
the second "the funds treated as the suspicious a loan?
16 17 18
Q· A. perusing suspicious.
Can you have a guarantee of I suppose. This whole, just thi uickly, yes, it's a hundred e returns,
',fl
But
veryit's
You know,
it a loan
securities. a
20
21
22
percent
perhaps
and it
safe,
they
wouldn't
treating
thought
be
it
they as
as a loan.
could
as
call
considered
23
Q.
I mean
a factual
matter,
24 25
0022
really only the government can guarantee, guarantee a loan because they can print
right?
fully money,
1
Z
3
A.
guarantee,
Yes,
yes.
yes.
I mean
A hundred
you can
percent
have a of the creditor. now at the time suspicious
4
5 6 7
guarantee
creditor, that, Bienes, q. you
but
it's
only
as good as the
financial worthiness so, do you remember know, there was this
8
9
investment the
vehicle
do you
offered
that
by Avellino
that was
and
kind of
remember
10 11 12 13 14
15
issue that led to the investigation? A. Yes, based on a review of this, yes. Without thesedocuments I vaguely recall returns being offered in the 13 to 15 percent range, minimum risk, but this makes it clearer.
q. Avellino and Bienes would offer it
16
to their
investors
at
the
13.5
percent
Page
with
9
MADOFF
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18 19
21
25
17
20 Madoff, so they would and what
than 13.5 percent for
right?
you remember that they all of the actual invest~ng was done by sernie make money on the
spread, right, between they were giving their
would be h~gher make any money, the actual
minimal risk, but
then they would make -- do
said that essentially
22 investmentwa5and what
24
23 investors so~in effect itto them
00123
Z
3
5 the causeexam talked in fact Avellino 2,and as h,, 6 was that to determine
7
4
A. I don'thonestly recall that specifically, it but itthesounds reasonable, it like was case.
sounds
q.
And the work in you so, aboutthat Exhibit
such a great
it was
did
in
8
offer sienes were able to with such high percentages
investment vehicle
no A.
9 10
with
11
14
12
13
The cause
15
16
17
focused on, were these real Madoff was sending out positions· If Mr· you ownhalf a million said statements that x v and sitions, were of worth dollars zrea were they custody those posit~ons in factnot have looked at the would
exam
riSk:he
cause
exam,
no,
not.
accurately·
trade recall.
18
19
That may or may not have been else, but honestly I don't done somewhere
strategy
It
to
21
22 23 24 25
trading strategies,
4·
all. determ~nedwhether there were positions at and that Avellino If the sec gets information rate, right, tremendous sienes are giving this talking about in terms high returns, no risks, in positions, not that it was just fake as take athe where you would Ponz~ scheme, perhaps,
correct' money from the next investor,statement, fair
SO~ wouldn'thave you but you would
looked
at
have
nnl24 a loan,you of wanted seewhether was to there were real it
3
2 4 actually real, whether A.
5
6
10
78 that a~;ually Madoff thetrading to did why you went the and
9 investing for them, that's is that right?
sernie Madoff;
yes· That's a Ave~lino and sienes And since
said
12
14
11
13 exam that was conducted Avellino
15 16 17 18 19 20 21 22 23
looking into whether positions were real or sernie
positions
were real?
,~
A.
,,,,u
That's
correct,
yes·
know whether 1992, November
Madoff's
in
the
cause
and sienes'
you were
24 previous exhibits pointed mutualfunds unreg~stered 25 ~t was basically
A. St would have been account by prOd,,ed Madoff.sienes3 statements g. For Ave~l~noandI believe so· A. I believe so. on Avellino and q. The focus was sienes, right? I think as one of the n. Absolutely- out that we suspected
0025~L> slash investment advisor.
page 10
MADOFF
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15
QLet me Show you Page 40. 40 at the bottom on line 25.
A.
on Page
if you
what
16
17
19
q.
could move
strategy, are
The last
up
you
line?ine.
aware
Actually,
to the middle page,
of the if
you see it
that he you see
18
20 21
24
says, you actually asked, "what type of
strategy
22 23
Mr. Madoff utilizes? oh, yes. describe that to me?" And then
security that we have in the
can you
continues, "Mr. Madoff's uses the hedges basically as SEPs, he puts in calls. Every
long position
has
25
1
0028
Z 3 4
a hedge, every single one of them. we usually the call the hedge of the bu~ing and selling,
underlying
selling ot the buying of convert~ble and thesometimes done the comes on short. same two, sometimes done two days at the long
This used to be called bona
as we~l. 6sitionarbitrage. in And then input de they how to
10
11
12
8 9
7
at all? And then
that at
these strategies have an~ input "no, none at all." And the answer is, the question is, "the sole discretion of Mr. Madoff?" And the answer, "totally." recollection Does this refresh your least there were some questions the strategy that Madoff used? about
ask, "do you
13
15
14 16 17 18
A.
Yes, this does refresh
my
19
20 21
22
23
that you want wi;h me from 1962 to date,
buying and
previous statement
Q. If you look on Page 75 of this document. If you look on line 14 it says, "I can honestly say and you can check any record thousands of transactions of what I call arbitrage, which is bon-a-fide convertible
If selling."that's
a loss." Right.
recollection.
you refer
how he
back to the
described
24
25
0029
Bernie Madoff's strategy.
never been A. don't just
He says, "there is, I
has
1
2
3 4
5 6
8
7
9
flag or susp~cious the way that the strategy was described, that Avell~no and sienes were
never
know whether you remember at the time or that a red in general, would you consider
Q·
Now, I guess, my question
saying from 1962 to 1992, 30-years, there has
been
Q·
a
loss~d it's a redflag. say
nut YOU at to least were not at
10 11
12 14
15
ROeint was achieving
Madoff's
or the
in
time
look
into
the
question
anXow
one way
we
those returns
My recollection
in terms of
is no because
13
A.
strategy?
I don't
recall
specifically
16
17
18 19 20
21
22
the were so focused on identifyinq the investors, the dollars, fraud,
other.
scope
of the
where the
assets custody let's close this down and get the investors their money back. Q· Do you recall there was a receiver
appointed
A.
in this
23
Q·
Vaguely
case?
As you indicated,
the purpose of
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0030
what you and the
was to insure and the Avellino A. Q. money A.
enforcement
money of the
staff
were
doing
of
investors
1 2 3
4
sienes were paid Yes, that was our And at the end is was.
back? primary concern. it a fact that I don't recall
the
5
wasI id back?it lieve
Do you recall
that
6 7
8
specifically percent, but
successful.
if every one got a hundred I'm pretty certain we were that
the
9
10 was wasn't Ponzi
that's
q. and the
at
because
money was
there
there
a determination
11
12
investments
least
were securities,
the that any
paid
scheme, money point
back
it
that it
it a
a Ponzi
may have
13
14 15
been unregistered was our
q.
but
wasn't
scheme because A. Well, at
was returned? I believe that
16
17
thinking.
different.
Knowing today
there that there discussion
what we know,
at all them about and
18
was customers, was
19 20
21
that that
sienes'
you recall at the end after you insured the money was returned to Avellino and
a fine any against
22
23
they were told
securities,
they couldn't
investigator
recall recall
insure
sell
discussion
unregistered
24
25
0031
continuing
into Madoff
the
or an examination
any at
that
himself?
1
Z
A.
discussions.
I don't Do you
made to
such that there was
of the investors
3
4 an
q.
effort
all
5 6 9 10 11
12 13
7
Avellino recall
A.
andsienes at all where
No. I was not involved at all
-there
were paid the money
back, came
do you from?
in
it
8
that
wasn't
part
even
of the
an
that the
at
that
were
point
I guess
been
investigation. know
of the return
determined
violations.
or oversaw clients.
I don't Let me ask
It had oblems, actually
assets of
handled
the
14
Q.
you
just
generally
then.
15 16 17 18
19
If Avellino and Bienes were suspected of runn~ng a Ponzi scheme and all the decisions were made by Madoff, wouldn't it be a concern that Madoff could misappropriate other
customers' funds
and sienes?
in
order a concern back?
to
provide that
the
20
21
capital
Avellino
needed to pay back the investors
A. Was it Right. TO pay R~ht. he was
of
22
23
24 25
0032
stealing
q. A.
Q.
from somewhere else?
1
2
3
4
may have.
it's too
A.
I just
long
I
on't
don't
recall
recall
that
specif~cally,
coming up, it
ago.
5 6 7 8
q. Right. But I mean thinking of it kind of generally, if you had allegations that an entity was running a Ponzi scheme, right, and you wanted to insure that the investors got
Page 13
MADOFF
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60
061009
9
10
paid back.
decisions,
If they told
all the invest~ng
you that
was
all
actually
the
done
11 13
14
by somebody
else, you're
from
right,
wouldn't to take
of Avellino
it the
be kind
sienes'
of
12
a logical
pay back
Ponz~ scheme,
the
concern
that
going
-- as you would in a
and
money to back
how a that that.
investors
15
16
17
that
from
Ponzi
the
the
sec
was assuring
other
work? would
would
investors,
be paid
as
money
scheme
18 19
in were
A. retrospect made
Yes, I think whoever oversaw should· have been aware of
20
21
My assumption
back
here
from were
today
the the
is
that
of
the
at the
monies
Madoff,
accounts
22
23
24
perhaps
earlier
exam.
the
that
same accounts But you don't
that
we spoke
about
subject
cause
25
0033
Q·
remember
specifically
1 Z
3
looking at the issue was used to pay back
came from?
of where the money that all the investors exactly
all, and dealer
at
4 5
6
fairly
staff.
A. I don't recall that at certain it wasn't our broker
I don't believe we were
I'm
involved
7 8 9
all. don't
time?
At least the examiners, I should say, I know about the attorneys. q. And you're not aware of any other
10
11 12
examination
A.
that
NO.
was conducted
know
Avellino
during
examiners
that
13
q.
Do you
other than
if
the
and
14
15
16
attempted
discretionary
clients
to independently
brokerage I don't You don't
No
verify
account if
Madoff's
balances
sienes?
for of
17
18 that.
A. Q·
A.
recall recall back balances the
we did doing
any that?
19
20
21
Q.
Thinking
now, with Ponzi
if
the DTcand
examiners had
22
23
had checked
brokerage
all
account
of Madoff's
discretionary they
back
24
25
0034 1
gotten
uncovered
1992?
no records
potentially
If --
from DTc, couldn't
scheme
have
in
2
A.
3 4 5 6
7
Q· Madoff's balances couldn't
discovered
If the examiners had checked all of discretionary brokerage account with DTe and looked at DTe records, the ponzi scheme potentially had been
in 1992?
8 9
10 11
12
A. Potentially if those discretionary accounts were the source of the funds being
paid back. would have
those would clients have said
I think if been a flood
who would
that of
have
were the complaints
looked at
case there from
their
13
14
statements,
cash, about
assuming
what's
they're
15 16
where are discretionary
my stoc accounts
a~~ng vou're
at
me?
legitimate, on, where's
his talking broker
and my
17
dealer,
so -that.
unless
You tollow
he was able
to
completely
14
18
19
falsify
to do
everything
he wouldn't
have been able
Page
MADOFF
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21
Q·
understand
I don't.
you, so,
let's
Let me just
say Bernie
try
to
Madoff
22
23 24
25
2
needed x sum of money. The sec comes in and investors
couldn't
investigates Avellino and sienes. And they essentially say we need to make sure that the
to make sure the investors
he take that anywhere? menefrom Theoretically could, yes.
are paid back, we need x sum of money are paid back.
order to insure
0035
1
3
why
4
5 6
A.
7 8
9
his own, you know, funds, in reviewed that this thing isn't
q.
He could either
take the money from
or he can take
moneyfrom add~t~onal investors who come in, as you would normally in a Ponzi scheme?
A. 4· Absolutely could have been done,
ones from Avellino
yes.
10
11
13
12
14 15 16
17
discretionary
And so, checking all of Madoff's
DTe as opposed to only the
brokerage account balances with
and sienes would reveal that, wouldn't it? A. Only with respect to those specific accounts, yes. So, if he was stealing from
those
18
19
20
22
23
have showed cash -- it would have showed account that he controlled
dollars
not
accounts,
David,
you're
correct,
it would
positions being sold and cash out to a bank
-- you can -tie that into Avellino the millions of the and sienes'
paid back to
customers.
21
24
1
2 25
0036
where he would then
Q.
your
understanding
were
It
But at that point in time it was
that that was a task
suppose
was not
that
would report.
you
A. have
to
do~Oaon't quite recal~,
and reflected
3
6 8 9
7
honestly.
Q·
report? the
I don't believe so.
been evidence
If we did it
4 5
in the
And you didn't
see it anywhere in
10
11
12
A. That's correct. The report clearly focused on the Avellino and sienes to set the
property segregation of Madoff and tracing it
back to DTc, that's
on.
what that
report
refreshes
13 14
15
my memory
Q· There was another matter involving Telfran, do you remember anything about? Q· Anything else that you remember? vou said earlier that you remember Bernie
what document requests
A. No.
16 17
20
18 19
21
25
Madoff being cordial and responsive to the document requests, do you rememberspecifically
22
23 24 1
3
0037
great that the cEo of, vou know, a fairly
unusual. I thought he was being very
A.
No, I don't.
were made?
I thought it was
reputable large broker ~ealer was personally handling the matter. That was somewhat forthcoming and expressed some concern and he
obviously cooperated.
Z
4
time given that Bern7e Madoff at least had a
Page 15
Q·
Do you think that perhaps at the
MADOFF
EXHIBITS-02768
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number
60
061009
65ood arge
7
8 look
r~putat~on
~n
terms
of
the,
you
know,
a
you know, there wouldn't
into him further?
have been thought to
a fair statement. I
10 11
12 13
15
9
can't say that I recall a meeting where that came up, but thinking back I'm sure it did.
Q· okay. Anything else remember that we haven't covered? that
A.
I think
that's
you can
14
best
A.
I could,
No I think
~t's
that's
it.
I did the
to that
17-years.
17
18
16
19 20 21
22 23 24 25 0038
could
q.
not
talk
I appreciate
about
this
your time.
pursuant
If you
agreement.
A.
Not a problem. MR. KOTZ: Off the record. ~Time noted: 12:05 p.m.)
1
INDEX
3
EXAMINATION BY
PAGE
4
6
MR. KOTZ
EXHIBITS DESCRIPTION
3
PAGE
7 8 9
1 2 3
confidentiality Memorandum Memorandum
Agreement
5 11 13
10
11 12 13
14 15
16
4
5 6 7
King Arthur
Memorandum Complaint Transcript
account
fact
sheet
13
25 25 26
17 18 19 20 21 22 23 24 25 0039
1
CERTIFICATE
4
3
5
and within
certify:
I,
SHERRY SPALLIERO, a Notary Public
the state of New York,
do hereby
for
6
7 8 9
10
That the witness
whose examination
is
testimonIurther certify
to any of the parties
or by marriage my hand this
hereinbefore set forth was duly sworn and that such examination is a true record of the given by that witness.
that I
am not
related
11
12
13 14
to this
action
2009.
by blood
set
interested in the outcome of this matter. IN WITNESS WHEREOF, I have hereunto
and that
I am in no way
15
day of 7une,
Page
16
MADOFF
EXHIBITS-02769