Programmers Took Hush Money to Help Madoff Swindle

(MoneyWatch)  You probably suspected that one guy couldn't pull off a $65 billion fraud without a lot of help, and you were right. Securities regulators charged two computer programmers Friday with helping Bernard Madoff perpetrate the largest investor swindle in history.

Jerome O'Hara of Malverne, New York, and George Perez of East Brunswick created computer programs that combined actual positions from Bernard Madoff's market-making and proprietary business with the fictional balances Madoff maintained in investor accounts, the Securities and Exchange Commission said in a suit filed Friday.

"They used their special computer skills to create sophisticated, credible and entirely phony trading records that were critical to the success of Madoff's scheme for so many years," said George S. Canellos, director of the SEC's New York regional office. "Without the help of O'Hara and Perez, the Madoff fraud would not have been possible."

Madoff and his top lieutenant Frank DiPascali Jr., who pled guilty to 10 counts of conspiracy, fraud and money-laundering charges in August, regularly asked O'Hara and Perez to create fake trade blotters, Depository Trust Corporation reports and the investment statements needed to substantiate Madoff's $65 billion fraud.

A separate computer, called "House 17," was used to generate the fictional account statements and trade confirmations sent to investors, the SEC said. The two programmers knew that this computer system lacked the programs needed to record real trades. In fact, more than a year before the fraud was discovered, the pair had a "crisis of conscience," according to the SEC, and attempted to delete more than 200 of the 225 special programs entered into the House 17 computer. But they failed to delete the back-up copies.

They then cashed out hundreds of thousands of dollars "earned" in their personal accounts invested with Madoff, before telling him that they intended to come clean. Madoff and DiPascali responded by offering the duo as much hush money as they wanted to keep quiet. They accepted, taking big salary increases and $60,000 bonuses, telling DiPascali that accepting more "might appear too suspicious," according to the security agency's complaint.

The SEC suit was just the latest in a series of complaints filed by securities regulators against people who allegedly aided the fraud. It's not likely to be the last. After the programmers took their cash, DiPascali convinced them to modify computer programs so that he and other 17th floor employees could create the fake reports themselves, the SEC said. Stay tuned.

Attorneys for O'Hara and Perez had not returned phone calls at press time.