Peter Madoff pleads guilty in Ponzi scheme

Peter Madoff outside courtroom Friday, June 28, 2012.
John Minchillo

Updated at 3:45 p.m. ET

(CBS/AP) NEW YORK - The younger brother and business partner of disgraced financier Bernard Madoff pleaded guilty Friday to charges he doctored documents, but insisted he knew nothing about his brother's historic Ponzi scheme and was "in total shock" when he found out about it.

An emotional Peter Madoff, 66, entered the plea in a deal that permits him to remain free on $5 million bail pending his Oct. 4 sentencing. He agreed not to contest a 10-year prison sentence.

"My family was torn apart as a result of my brother's atrocious conduct," he said. "I was reviled by strangers as well as friends who assumed that I knew about the Ponzi scheme."

The plea to charges of conspiracy and falsifying records came in the same Manhattan courthouse where Bernard Madoff was led away in handcuffs in 2009 to serve a 150-year sentence.

Peter Madoff told the judge he was "deeply ashamed and terribly sorry" but that he didn't know about the scam until his brother revealed it in December 2008.

"I was in total shock," he said, adding he had persuaded his wife, daughter, granddaughter and sister to invest millions of dollars that they lost in the fraud. "My world was destroyed. I lost everything I worked for."

Beyond his salary managing the firm's legitimate market-making business -- he was never a partner or part owner -- Madoff admitted to receiving cash, cars, country club memberships, life insurance policies and meals from his brother as well as an apartment for his late son who died of cancer.

Assistant U.S. Attorney Lisa A. Baroni portrayed the younger Madoff as a criminally incompetent chief compliance officer who purposefully deceived the Securities and Exchange Commission.

"He even signed many weeks of compliance reports in one sitting, intentionally changing pens and ink colors to disguise the fact that he had done them at once," she told U.S. District Judge Laura Taylor Swain.

Only accompanied by his three attorneys, Madoff wore a charcoal suit and tie, telling in response to a question from Swain that he was undergoing medical treatment for stress and anxiety and had been taking Xanax. She deemed him competent to enter his pleas.

Madoff became choked up near the end of his statement after he described how he and his brother decided which favored friends, clients and family members should receive the $300 million that remained in the investment company's accounts.

Only weeks before, the clients had been told their roughly $20 billion investment had grown to more than $65 billion.

He said he was "shocked and devastated" by his brother's admission that it was all a fraud, "but nevertheless I did as my brother had said, as I had consistently done for decades. I knew that the conduct was wrong and I am deeply ashamed." The checks never went out.

The plea was consistent with Bernard Madoff's own claims that his brother and two sons were in the dark about his misdeeds.

The FBI nevertheless had been suspicious from the start about the role of Peter Madoff, who had worked side by side with his scheming brother for more than 40 years.

FBI Assistant Director Janice K. Fedarcyk said Peter Madoff played an "essential enabling role" in the scam by certifying fabricated investment results.

"The Madoff investment empire, built on a foundation of deceit, was a house of cards that grew to skyscraper proportions," she said. "As Peter Madoff has admitted today, he was one of the chief architects."

Peter Madoff was released on $5 million bail, secured by $1 million in cash or property, pending sentencing. Prosecutors said Peter Madoff agreed to surrender all his assets.

"Peter Madoff enabled the largest fraud in human history. He will now be jailed well into old age, and he will forfeit virtually every penny he has," U.S. Attorney Preet Bharara said. "We are not yet finished calling to account everyone responsible for the epic fraud of Bernard Madoff and the epic pain of his many victims."

Peter Madoff said he joined his brother's firm after graduating from Fordham Law School in 1970. He was credited with creating a computer trading system for the firm in the late 1970s and early 1980s that was considered groundbreaking at the time.

"I loved my job," he said, adding that his respect and admiration for his brother only grew in subsequent decades as Bernard Madoff became important on Wall Street, eventually becoming chairman of Nasdaq.

A complaint filed in bankruptcy court alleged that the Madoff investment business had transferred more than $77 million to Peter Madoff.

Peter Madoff admitted Friday that he tried to hide millions of dollars from the Internal Revenue Service.

Baroni said he had engaged in "an enormous tax fraud conspiracy," enabling tens of millions of dollars to be transferred among members of the Madoff family to dodge millions of dollars in taxes, and he arranged for his wife to take a no-show job at the investment firm.