(Bloomberg) — David Kugel, who was hired as a trader by Bernard Madoff in 1970 and pleaded guilty to fraud two years ago, told a jury he helped create fake trades with two ex- colleagues accused of aiding Madoffs $17 billion Ponzi scheme.
Kugel, who joined Madoffs firm a year after graduating from Pace University in New York, engaged in securities fraud for three decades with two of the trials defendants, Annette Bongiorno, who ran the investment advisory unit at the center of the fraud, and Joann Crupi, who managed large accounts, he testified yesterday in federal court in Manhattan.
[Traders Commentary: Avoid the algo risk disaster of Everbright Securities.]
I gave historical information to create fake trades, fabricated trades starting in the mid 1970s, Kugel said under questioning by Assistant U.S. Attorney Matthew Schwartz. Bongiorno and Crupi used his data to create false trade confirmations and account statements for Madoffs customers, he said.
Kugel, born in Cleavland and raised in Brooklyn, agreed to cooperate with prosecutors as part of a November 2011 guilty plea, and hasnt been sentenced. Hes the first witness to testify to admit involvement in the fraud that unraveled with Madoffs arrest on Dec. 11, 2008.
The other defendants on trial, accused of conspiring to trick customers and regulators for years, are Daniel Bonventre, who oversaw the broker-dealer and proprietary trading operations where Kugel worked; and computer programmers George Perez and Jerome OHara, who allegedly automated the creation of millions of fake documents. All five have pleaded not guilty.
Mortgage Fraud
Kugel said yesterday he pleaded guilty to mortgage fraud for putting false investment information on loan paperwork. He said Madoff and Crupi were also involved in that scheme. Kugel is scheduled to continue his testimony today.
Lawyers for the former Madoff workers said in their opening statements on Oct. 17 that Kugel and other ex-employees who have pleaded guilty in the case — about half a dozen of them — are willing to lie and implicate their former colleagues to get less time behind bars when theyre sentenced.
The defense lawyers also told the jury that Madoff duped their clients, hiring them when they were young and inexperienced. Even regulators couldnt tell what Madoff was up to after numerous audits, they said.
Industry experts, fraud examiners and former administrative assistants at Madoffs company have testified until now in the trial, now in its second week. Its the first criminal trial stemming from the worlds biggest Ponzi scheme, which deprived investors of $17 billion in principal and about $47 billion in fake profit they believed to be in their accounts.
Trading Data
During his plea hearing two years ago, Kugel said Bongiorno first approached him in the early 1970s for the trading data, which he said he obtained from the Wall Street Journal and other sources to mimic real trades. In the 1990s, he supplied the same type of information for Crupi, he said.
Bongiorno, who joined Madoffs company straight out of high school and worked for him for 40 years, claims Madoff manipulated her for years and she didnt know she was part of a fraud. Crupi, who joined Madoff straight out of college in 1983, made a similar argument.
Kugels son, Craig Kugel, who worked in Madoffs human resources department, pleaded guilty in June 2012 to a tax scheme that paid salaries and benefits to people who werent employees, including Bonventres son. Craig Kugel hasnt been sentenced and is also expected to testify at the trial.
U.S. District Judge Laura Taylor Swain said the trial may last as long as five months. Madoff is serving a 150-year sentence at a federal prison in North Carolina.
The case is U.S. v. OHara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
