criminal complaint against ex-madoff aide daniel bonventre

8/14/2019 Criminal Complaint Against Ex-Madoff Aide Daniel Bonventre

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Approved:MARC L I T T ~LISA A. BARONIAss i s t an t United Sta tes Attorneys

Before: HONORABLE THEODORE H. KATZUnited Sta t e s Magis t ra te JudgeSouthern Dis t r i c t of New York

-----------------------------------x SEALED COMPLAINT

UNITED STATES OF AMERICA- v . -

DANIEL BONVENTRE,Defendant.

-----------------------------------xSOUTHERN DISTRICT OF NEW YORK, s s . :

Vio la t ions of15 U.S.C. 78j (b),78q(a) , 78f f ;17 C.F.R. 240.10b-5,240 .1 7a -3 , 2 40 .1 7a -5 ;18 U.S.C. 371, 2;26 U.S.C. 7206(1)

COUNTY OF OFFENSE:NEW YORK

KEITH D. KELLY, being duly sworn, deposes and says t ha the i s a Spec ia l Agent with the Federa l Bureau of Inves t iga t ion( ~ F B I " ) , and charges as fo l lows:

COUNT ONE(Conspiracy to Commit Securi t i es Fraud, to Create False andFraudulent Books and Records o f a Broker-Dealer, and to MakeFalse Fi l ings with the SEC)

1. From a t l e a s t in o r about November 2005, up to andinc luding a t l e a s t on o r about December 11, 2008, in the SouthernDis t r i c t of New York and elsewhere , DANIEL BONVENTRE, thedefendant , and o the r s known and unknown, unlawful ly , wi l l f u l l y ,and knowingly d id combine, c on sp ire , c on fe de ra te and agreetogether and with each o the r to commit an of fense aga ins t theUnited S ta te s , to wit , s ecu r i t i e s f raud, caus ing the crea t ion off a l se books and records of a broker -dealer , and caus ing thef i l i ng of f a l se documents with the United S ta te s S e cu r it ie s andExchange Commission ( ~ S E C " ) in v io l a t i on of T i t l e 15, UnitedSta t e s Code, Sect ions 78j (b) , 78q(a) , 78ff ; T i t l e 17, Code ofFedera l Regu la ti on s, S ec ti on s 240.10b-5 , 240.17a-3, and 240.17a5 .


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Objects o f the Conspiracy2. It was a pa r t and an ob jec t of th e c on sp ir ac yt h a t DANIEL BONVENTRE, the defendant , Bernard L. Madoff

( ~ M a d o f f " ) , and othe rs known and unknown, unlawful ly , wi l l fu l l y ,and knowingly, d i r ec t ly and i nd i r ec t l y , by use of the means andi n s t rumen t a l i t i e s o f i n t e r s t a t e commerce, the m ails , and thef a c i l i t i e s of na t iona l s ecur i t i e s exchanges, would and d id useand employ manipula t ive and decept ive devices and con t r ivances inconnec t ion with the purchase and sa le of s ecur i t i e s , incon t raven t ion of Ti t l e 17, Code of Federa l Regu la tio ns , S e ct io n240.10b-5 , by: (a) employing devices, schemes, and a r t i f i c e s todef raud ; (b) making and causing Bernard L. Madoff Inves tmentSecu r i t i e s LLC, and i t s predecessor , Bernard L. Madoff InvestmentSecu r i t i e s (co l l ec t ive ly and separa te ly , ~ B L M I S " ) to make untrues ta tements of mate r i a l f ac t and omi t t ing to s t a t e ma te ria l fa ctsnecessary in order to make the sta tements made, in l i gh t of t h e .ci rcumstances under which they were made, no t misleading; and (c )engaging in ac t s , prac t i ces , and courses of business whichopera ted and would opera te as a f raud and dece i t upon persons whoinves ted in and through BLMIS, in v io la tio n of Ti t l e 15, UnitedSta t e s Code, Sect ions 78j (b) and 78ff ; Ti t l e 17, Code o f Federa lRegu la tio ns , S ec tio n 240.10b-5.

3 . I t was fu r the r a pa r t and an objec t o f theconsp i racy t ha t DANIEL BONVENTRE the defendant , Bernard L.Madoff , and others known andunknoWll, unlawful ly , wi l l f u l l y , andknowingly, did cause BLMIS, a reg i s t e red broke r -dea le r , to f a i lto make and keep such records as the SEC, by ru le , presc r ibed asnecessary and appropr ia te in th e pUblic i n t e r e s t fo r thepro tec t ion o f i nves to rs and otherwise in fu r therance of thepurposes o f the Secu r i t i e s Exchange Act of 1934, in v io la tio n ofTi t l e 15, United Sta tes Code, Sect ions 78q(a) and 78f f ; Ti t l e 17,Code of Fede ra l Regul at ion s, Sect ion 240.17a-3 .

4. I t was f u r the r a pa r t and an objec t of theconsp i racy t ha t DANIEL BONVENTRE, th e defendant , Bernard L.Madoff and others known and unknown, unlawful ly , wi l l fu l l y , andknowingly, in a pp li ca tio ns , r ep o rts , and documents requi red to bef i l ed with the SEC under the Secur i t i e s Exchange Act of 1934, andth e ru le s and regu la t ions thereunder , did make and cause to bemade s ta tements t ha t were fa l se and mi sl ea di ng w it h re spec t toma te r i a l fac ts , in v io la t io n o f Ti t l e 15, United Sta tes Code,Sect ions 78q(a) and 78ff ; Ti t l e 17, Code of Fede ra l Regu la ti on s ,Sect ions 240.17a-5.

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Means and Methods o f the Conspiracy5. Among the means and methods by which DANIELBONVENTRE, the defendant , and othe rs , known and unknown, wouldand did car ry out the conspiracy were the fo l lowing:

a . BONVENTRE s up erv is ed th e "back of f ice"opera t ions of BLMIS ( i . e . , th e post-market process ing oft r ansac t ions , inc lud ing conf irmation, payment, s e t t l i ng anda ccountin g) , p re pa re d, and s up er vis ed th e prepa ra t ion andmaintenance o f , the general l edger of BLMIS ( the "GIL") , andreconc i led BLMIS bank accounts , including accounts assoc ia tedwith BLMIS's Inves tment Advisory ("IA"), Market Making andPropr i e t a ry Trading opera t ions ;

b . BONVENTRE p repa red i nfo rma ti on to be inc ludedin Financia l and Operat ional Combined Uniform Single Reports("FOCUS Reports") f i l ed by BLMIS with the SEC, and ac ted as anauthor ized s igna to ry fo r BLMIS in i t s business re l a t ionsh ips withce r t a in banks and The Deposi tory Trust Company ("DTC,,);l

c . BLMIS f i l ed fa l se and misleading documentswith the SEC t h a t omit ted mate r i a l informat ion about i t sf i n anc i a l cond i t ion .

d. Hundreds of mil l ions of do l l a r s of IAi nves to r funds were used to suppor t BLMIS's Market Making andPropr i e t a ry Trading opera t ions , but were accounted fo r on BLMIS'sbooks and records , in clu din g th e GIL, so as to conceal the t ruesource of the funds .

e . IA c l i en t s ' req ues ts f or withdrawals fromt h e i r IA accounts were f u l f i l l e d with funds inves ted by o ther IAc l i en t s , as i s typ ica l in the opera t ion of a Ponzi scheme.

1 Among o ther th ings , DTC crea tes e f f ic ienc ies in thec lea r ing and se t t l ement of s ecur i t i e s t r ansac t ions by r e ta in ingcustody of s ecur i t i e s on behal f of f inanc ia l i n s t i t u t i ons , andrecording on its books and records changes in the ownership ofthose s e cu r i t i e s . BLMIS had an account a t DTC in which thes ecur i t i e s of th e Market Making and Propr i e t a ry Tradingbusinesses were custodied . As Bernard L. Madoff and FrankDiPasca l i , J r . have admit ted , and as th e FBI ' s ana lys i s of thebooks and record s of BLMIS h as co nfirm ed , few equ i ty s ecur i t i e swere bought o r so ld on behalf o f IA Cl ien t s , and few equi tys ecur i t i e s were held a t DTC in c on ne cti on w it h th e IA business .

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Overt Acts6. I n f u r th e r an c e of t h e conspiracy and t o e f f e c t t h ei l l e g a l o b j e c t s t h e r e o f , t h e fol lowing o v e r t a c t s , among o t h e r s ,were committed i n the Southern D i s t r i c t of New York andelsewhere :

a . On o r about November 14, 2005, DANIELBONVENTRE, t h e defendant , d i r e c t e d t h a t a l e t t e r be w r i t t e n t o abank i n which he reques ted a $95 m i l l i o n loan on b e h a l f of BLMIS.b. I n o r about January 2006, BONVENTRE c o n t a c t e d

a bank t o secure a $50 m i l l i o n loan on b e h a l f o f BLMIS.c . On o r about January 30, 2006, BONVENTRE

c r e a t e d f a l s e and f r a u d u l e n t BLMIS books and r e c o r d s .d. On o r about February 1, 2006, BONVENTRE

c r e a t e d f a l s e and f r a u d u l e n t BLMIS books and r e c o r d s .e. On o r about A p r i l 4, 2006, BONVENTRE c r e a t e df a l s e and f r a u d u l e n t BLMIS books and r e c o r d s .f . On o r about A p r i l 17, 2006, BONVENTRE c r e a t e d

f a l s e and f r a u d u l e n t BLMIS books and r e c o r d s .g. I n o r about A p r i l 2006, BONVENTRE s ignedapproximate ly 230 checks, t o t a l i n g approximate ly $10.8 m i l l i o n ,t o IA C l i e n t s .h. On o r about June 1, 2006, BONVENTRE c r e a t e df a l s e and f r a u d u l e n t BLMIS books and r e c o r d s .i . On o r about June 6, 2006, BONVENTRE c r e a t e df a l s e and f r a u d u l e n t BLMIS books and r e c o r d s .

( T i t l e 18, United S t a t e s Code, S e c t i o n 371.)COUNT TWO

(Secur i t i e s Fraud)7. From a t l e a s t i n o r about November 2005 through on

o r about December 11, 2008, i n the Southern D i s t r i c t of New Yorkand elsewhere , DANIEL BONVENTRE, t h e defendant , unlawful ly ,w i l l f u l l y , and knowingly, d i r e c t l y and i n d i r e c t l y , by th e use ofmeans and i n s t r u m e n t a l i t i e s of i n t e r s t a t e commerce, the m ails ,and the f a c i l i t i e s of n a t i o n a l s e c u r i t i e s exchanges, i nconne ctio n w ith t h e purchase and s a l e o f s e c u r i t i e s , d i d use and4


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employ manipula t ive and decept ive devices and cont r ivances , inv io l a t i on of Ti t l e 17, Code o f F ed era l R eg ula tio ns, Sect ion240.10b-5 , by: (a ) employing devices, schemes, and a r t i f i c e s todefraud; (b) making untrue sta tements of mate r i a l fac t s andomi t t ing to s t a t e mate r i a l fac t s necessary i n orde r to make th es ta tements made, in l i gh t o f th e circumstances under which theywere made, not misleading; and (c ) engaging in t ra n sa ct io n s,a cts , p ra ct ic es , and courses o f business which opera ted and wouldopera te as a f raud and dece i t upori persons.

(T i t l e 15, Uni ted-Sta tes Code, Sect ions 78j (b ) and 78ff ;Ti t l e 17, Code of Federa l Regula t ions , S ~ c t i o n 240.10b-5;Ti t l e 18, United Sta tes Code, S ec tio n 2 .)COUNT THREE

(False and FraudulentBooks and Records o f a Broker-Dealer)

8. Between in o r about November 2D05, and on o r aboutDecember 11, 2008, DANIEL BONVENTRE, the defendant , unlawful ly ,wi l l fu l l y , and knowingly, d id cause BLMIS, a reg i s t e red broker dea le r , to f a i l to make and keep such records as th e SEC, byru le , presc r ibed as necessary and appropr ia te in the publ ici n t e r e s t fo r th e pro tec t ion of i nves to rs and otherwise infur therance of th e purposes of the Secu r i t i e s Exchange Act of1934, to wit , BONVENTRE caused fa l se and f raudu len t en t r i e s to bemade on the genera l ledge r of BLMIS.

(T i t l e 15, United Sta tes Code, Sect ions 78q(a) and 78ff ;Ti t l e 17, Code o f F ed era l R eg ula tio ns, Sect ion 240.17a-3;Ti t l e 18, United Sta tes Code, S ectio n 2 .)

COUNT FOUR(False Fi l ing With the SEC)

9. On o r about May 22, 2006, in the Southern Di s t r i c to f New York and elsewhere , DANIEL BONVENTRE, th e defendant ,unlawful ly , wi l l fu l l y , and knowingly , in a pp lic at io ns , re po rts ,and documen ts req uired to be f i l ed with the SEC under theSecur i t i e s Exchange Act of 1934, and th e ru les and regu la t ionsth ere un de r, d id make and cause to be made sta tements t h a t werefa l se and misleading with re sp ec t to m ate ria l fac t s , to wit ,BONVENTRE aided and abe t ted the f i l i ng with the SEC of a f a l s eand misleading BLMIS FOCUS Repor t .

(T i t l e 15, United Sta tes Code, Sect ions 78q(a) and 78f f ;Ti t l e 17, Code of Federa l Regula t ions, Sect ions 240.17a-5;Ti t l e 18, uni ted Sta tes Code, Sect ion 2 .)5


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COUNT FIVE(Subscribing to Fals e I nd iv idual Income

Tax Return for Tax Year 2003)10. On o r about Apri l 13, 2004, in the SouthernDi s t r i c t of New York and elsewhere , DANIEL BONVENTRE, the

defendant , unlawful ly , wi l l fu l l y and knowingly did make andsubscr ibe a u . s . Ind iv idua l Income Tax Return, Form 1040, fo r thet ax year 2003, which re tu rn conta ined and was ve r i f i ed by thewri t t en dec la ra t ion of DANIEL BONVENTRE t ha t it was made underpena l t i e s of per ju ry , and which r e tu rn DANIEL BONVENTRE d id notbe lieve to be t rue and cor rec t as to every mate r i a l mat te r , int h a t DANIEL BONVENTRE, th e defendant , fa l se ly omi t t ed wage ando ther income of approximate ly $98,300, whereas , as DANIELBONVENTRE then and the re wel l knew and bel ieved, he was hoten t i t l ed to omit t h a t income from h is 2003 re tu rn .

(Ti t le 26, United Sta tes Code, sec t ion 7206(1) .)COUNT SIX

(Subscribing to False Individual IncomeTax Return for Tax Year 2004)

11. On o r about Apri l 15, 2005, in the SouthernDi s t r i c t of New York and elsewhere , DANIEL BONVENTRE, thedefendant , unlawful ly , wi l l fu l l y and knowingly did make andsubscr ibe a u .S . Ind iv idua l Income Tax Return, Form 1040, fo r thet ax year 2004, which re tu rn conta ined and was ve r i f i ed by th ewri t t en dec la ra t ion of DANIEL BONVENTRE t ha t it was made underpena l t i e s of per ju ry , and which r e tu rn DANIEL BONVENTRE did notbe l ieve to be t rue and cor rec t as to every mate r i a l mat te r , int h a t DANIEL BONVENTRE, the defendant: (a ) f a l s e ly omi t t ed wageand o ther income of approximate ly $18,420; and (b) fa l se lycharac te r ized hundreds of thousands of do l l a rs of ordinary incomeas a long-term cap i t a l gain , whereas, as DANIEL BONVENTRE thenand t he re wel l knew and bel ieved, he was not en t i t l ed to omit the$18,429 in income from h is 2004 r e tu rn , and t ha t he was noten t i t l ed on t ha t re tu rn to c ha ra cte ri ze the ord ina ry income herece ived as a long- term cap i t a l gain .

(T i t l e 26, United Sta tes Code, Sect ion 7206(1) .)

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COUNT SEVEN(Subscr ibing to F a ls e I nd iv id ua l IncomeTax Return fo r Tax Year 2006)12. On o r about Apr i l 12, 2007, in th e SouthernDis t r i c t of New York and elsewhere , DANIEL BONVENTRE, the

defendan t , unlawful ly , wi l l fu l l y and knowingly d id make andsubscr ibe a U.S. Ind iv idua l Incom e Tax Return , Form 1040, fo r th etax yea r 2006, which r e tu rn con ta ined and was ve r i f i ed by thew r it te n d e cl ar at io n of DANIEL BONVENTRE t h a t it was made underpena l t i e s o f pe r ju ry , and which r e tu rn DANIEL BONVENTRE d id notbe l i eve to be t rue and cor rec t as to every mate r i a l mat te r , int h a t DANIEL BONVENTRE, th e defendant : (a) f a l s e l y omi t tedapproximate ly $61,900 of wage and othe r income; (b ) f a l s e l yomi t ted approximate ly $166,944 of cance l la t ion-of- indebtednessincome; and (c) fa l se ly cha rac te r i zed hundreds o f thousands ofdo l l a rs o f ord inary income as a long-term cap i t a l gain , whereas,as DANIEL BONVENTRE then and t he re wel l knew and bel ieved , he wasnot en t i t l ed to omit the wage and othe r income, and cance l l a t ionof -deb t income, from h is 2006 r e tu rn , and t h a t he was noten t i t l ed on t h a t r e tu rn to cha rac te r i ze the ord inary income herece ived as a long-term cap i t a l gain .

(T i t l e 26, United s t a t e s Code, Sect ion 7206(1) . )COUNT EIGHT(Subscr ibing to F als e I nd iv id ua l Income

Tax Return fo r Tax Year 2007)13. On o r about Apr i l 11, 2008, in th e Southern

Dis t r i c t of New York and elsewhere , DANIEL BONVENTRE, th ed ef en dant , u n law ful ly , wi l l fu l l y and knowingly d id make andsubscr ibe a U.S. Ind iv idua l Income Tax Return , Form 1040, fo r th etax year 2007, which r e tu rn con ta ined and was ve r i f i ed by thewr it te n d e c la r at io n of DANIEL BONVENTRE t h a t it was made underpena l t i e s of pe r ju ry , and which r e tu rn DANIEL BONVENTRE d id notbe l i eve to be t rue and co r r e c t as to every mate r i a l mat te r , int h a t DANIEL BONVENTRE, th e defendant , fa l se ly omit ted wage andothe r income o f approximately $95,300, whereas, as DANIELBONVENTRE then and there wel l knew and bel ieved, he was noten t i t l ed to omit t h a t income from h is 2007 r e tu rn .

(T i t l e 26, United Sta tes Code, Sect ion 7206(1) . )

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The bases fo r my knowledge and th e foregoing chargesare , in p a r t , as fo l lows:

14. I have been a Specia l Agent with th e FBI fo r morethan 26 years , and I have been persona l ly involved in thei nves t iga t ion of t h i s mat te r . I have a B.B.A. in accounting fromEmory Univers i ty . From approximately 1983 un t i l 2004, I had anac t ive l i cense in the Sta te o f Georgia as a Cer t i f i ed PublicAccountant . S in ce approx ima te ly 2004, my l i cense has beeni nac t ive . P r io r to becoming a Specia l Agent with th e FBI, Iworked fo r Arthur Andersen LLP, where I pa r t i c i pa t ed in aud i t s o fpubli c c o rp o ra ti on s. Moreover, I have exper ience i nves t iga t ings ecur i t i e s f raud and o th er f in a nc ia l f raud ca se s.

15. The informat ion conta ined in th i s Complaint i sbased upon my persona l knowledge, as well as i nf o rma t ion ob ta in edfrom o the r s ou rc es , in clu din g: (a) s ta tements made o r repor ted byvar ious witnesses with knowledge of r e levan t f a c t s ; (b) documentsand data found a t BLMISi (c) info+mation provided byr ep resen ta t ives of th e SECi and (d) informat ion provided bySpec ia l Agents o f the FBI and In te rna l Revenue Serv ice ("IRS U )who are in vo lv ed w ith th i s inves t iga t ion . Because t h i s Complainti s being submit ted fo r the l imi ted purpose of es tab l i sh ingprobable cause, it does n ot inc lu de every f a c t t ha t I havel ea rned dur ing the course of the i nves t i ga t i on . Where thecontents of do cumen ts and the ac t ions , s ta tements andconversa t ions of o the rs are r ep o rte d h er ei n, they a re rep or te d insubstance and in pa r t , except where otherwise indicated .

Relevant Ent i t i e s and Ind iv iduals16. At a l l t imes r e levan t to t h i s Complaint , BLMIS hadi t s pr inc ipa l place of business in New York, New York, most

r ecen t ly a t 885 Third Avenue, New York, New York. BLMIS was abroke r -dea le r t h a t made markets fo r ce r t a in pub l ic ly t radeds ecur i t i e s , t raded the f i rm ' s purported cap i t a l fo r i t s ownaccount , and provided inves tment advisory se rv ices to thousandso f c l i en t s ( the "IA Cl ien t s U ) who inves ted b i l l i ons of do l l a rs inBLMIS accounts . BLMIS was reg i s t e red with the SEC as a brokerdea le r beginning in o r about 1960. On o r about August 25, 2006,BLMIS reg i s t e red with the SEC as an inves tment adv i se r .

17. Based on my conversa t ions with r ep resen ta t ives ofth e SEC and my review of ru l e s and r egu la t ions promulgated by theSEC, as a broke r -dea le r , BLMIS was req uired to keep ce r ta in booksand records in i t s ordinary course o f bus iness . Among o thert h ings , those books and records inc luded, but were not l imi tedto , th e fol lowing:

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a . Ledgers (or o ther records) r e f l ec t i ng a l la s se t s and l i a b i l i t i e s , income and expense and cap i t a l accounts jandb. Ledgers r e f l e c t i ng moneys borrowed and moneysloaned ( toge ther with a record of the co l l a t e ra l t h e re fo r and any

s ub s t i tu tio n s in such col la te ra l ) .18. Based on my conversa t ions with rep resen ta t ives of

th e SEC and my review of ru les and r egu la t ions promulgated by theSEC, as an investment advise r , BLMIS was requi red to keep cer t a inbooks and records in i t s ordinary course of bus iness . Amongo the r th ings , those books and r ec or ds in clud ed , bu t were notl imi t ed to , the fo l lowing:

a. A jo urna l o r journals , inc luding cashrece ip t s and disbursements , records , and o ther records ofor ig ina l en t ry forming the bas i s of en t r i e s in any l edger j

b. General and aux i l i a ry l edgers (o r o thercomparable records) r e f l e c t i ng asse t , l i a b i l i t y , reserve ,cap i t a l , income and expense accounts j andc. All check b oo ks , bank s ta tement s, c an c el le dchecks and cash reconc i l i a t ions of the investment adv ise r .

19. At all t imes r e levan t to th i s Complaint, MadoffSecur i t i e s In te rna t iona l Ltd. ("MSIL") was a corpora t ionincorpora t ed in the United Kingdom. MSIL was an a f f i l i a t e ofBLMIS t ha t engaged pr inc ipa l ly in propr i e t a ry t r ad ing . MSILc lea red i t s t r ansac t ions in s ecur i t i e s i s sued by U .S . com paniesthrough BLMIS.

20. Based on my i nves t iga t ion of t h i s case , my reviewo f cour t and BLMIS documents, conversa t ions with o ther FBI agentsi nves t iga t ing t h i s case , and my pa r t i c ipa t ion in in te rv iews offormer BLMIS employees and others , I have l ea rned t ha t Madoff wasth e founder of BLMIS, and served as i t s sole member andpr inc ipa l . In t h a t capac i ty , Madoff c on tr oll ed th e businessac t i v i t i e s of BLMIS. Madoff owned the m ajority of the votingshares of MSIL, and served as the Chairman of MSIL's Board ofDirec to r s .

21. Based on my i nves t iga t ion of th i s case , my reviewo f cour t and BLMIS documents, conversa t ions with o the r FBI agentsi nves t iga t ing th i s case , my pa r t i c ipa t ion in in te rv iews of formerBLMIS employees and o ther s , and i n fo rmat ion p rov ided by form erBLMIS employees, inc luding Frank DiPasca l i , J r . ("DiPasca l i " ) , I9


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have l ea rned t ha t DiPascal i 2 was employed a t BLMIS between on o rabout September I I , 1975, and on o r about December I I , 2008, theday t h a t Madoff was ar res ted .22. During h is employment a t BLMIS, DiPasca l i had a

va r i e t y of du t ies and r e spons ib i l i t i e s . By the ear ly 1990s,DiPasca l i was one of the BLMIS employees responsib le fo r managingth e ma jo rity of BLMIS's IA accounts in to and through whichthousands of BLMIS c l ien t s inves ted , and eventua l ly l o s t ,b i l l i ons of do l l a r s . Madoff, DiPasca l i , and othe r coconsp i ra to r s were responsib le for , among othe r th in gs : re ce iv in gfunds sen t to BLMIS by IA C lien ts fo r inves tment ; ca usin g th et r ans f e r o f IA Cl i en t s ' fu nd s b etween and among var ious BLMISbank a cc ount s; h andl in g reques ts fo r redemptions sen t to BLMIS byIA Cl ien t s ; answering IA Cl i en t s ' ques t ions about t h e i r purpor tedinvestments; and developing the BLMIS c ompu te r and o ther systemst h a t were used to give the f a l s e appearance to c l i en t s ,r egu la to r s and othe rs t ha t c l i en t funds were being inves ted asrepresented when, in f ac t , they were not . At a l l t imes re l evan tto t h i s Complaint , DiPasca l i was one o f the i nd iv idua l s whosupervised, managed, and /or d i rec ted th e ac t i v i t i e s of ce r t a i nBLMIS employees, including Jerome O'Hara ("O 'H ara") and GeorgePerez ("Perez") , in so fa r as t h e i r a c t i v i t i e s r e l a t ed to the IAbus iness . 3

23. According to documents found in BLMIS personne lf i l e s that: I have re viewed , O 'Hara was employed by BLMIS from ono r about June 8, 1990, through a t l e a s t on o r about December I I ,2008. According to BLMIS documents, former employees t h a t havebeen in terviewed by FBI Agents , and data found on BLMIS computersan d b ack -up t apes t h a t I have reviewed, O'Hara was responsib le

2 On August I I , 2009, DiPasca l i pleaded gu i l ty , pursuantto a coopera t ion agreement, to a t en -coun t Criminal Informat ion ,which included one count of pe r ju ry , one count of fa l s i fy ingrecords of a broker-dea le r , and one count of fa l s i fy ing recordsof an inves tment adv i se r . DiPasca l i i s awa it in g sent en c ing andi s cooperat ing in hopes o f rece iv ing a more l en i en t sentence .DiPasca l i has provided r e l i ab l e informat ion to th e FBI t h a t hasbeen cor robora ted by documentary evidence, evidence found onBLMIS computer systems and/or s torage dev ices , and informationobta ined from o the r witnesses .

O'Hara and Perez were ar res t ed on November 13, 2009, ona cr imina l complain t a l leg ing t h e i r p a rt ic ip a tio n in a conspiracyto f a l s i fy the books and records of a broke r -dea le r andinves tment adv ise r (BLMIS) and assoc ia t ed subs tant ive crimes .10


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fo r , among o th er th in gs , developing and maintain ing computerprograms fo r computers t ha t supported the business of BLMIS,inc luding i t s Market Making, Propr i e t a ry Trading , and IAope ra t ions .

24 . According to documents found in BLMIS personnelf i l e s t h a t I have reviewed, Perez was employed by BLMIS from ono r about May 6, 1991, through a t le a s t on o r about December 11,2008. According to BLMIS documents, former employees t h a t havebeen in terviewed by FBI Agents , and data found on BLMIS computersand backup t apes t h a t I have rev iew ed , Perez was r espons ib le for ,among o th er th in gs , developing and mainta in ing cqmputer programsfo r computers t h a t supported the business of BLMIS, including i t sMarket Making, Propr i e t a ry Trading, and IA ope ra t ions .

25. According to documents found in BLMIS personnelf i l e s t h a t I have reviewed, and information rece ived from formerBLMIS employees, inc lud ing DiPascal i , and o ther FBI Agentsinvolved in th i s inves t iga t ion , DANIEL BONVENTRE, th e defendant ,was employed by BLMIS from in o r about August 1968, through a tl e a s t on o r about December 11, 2008. Pr io r to h is emploYment a tBLMIS, BONVENTRE worked as an aud i to r a t a bank, while s tu dy in gfo r an Associa tes Degree in Accounting, which he even tua l lyrece ived . BONVENTRE b eg an workin g a t BLMIS as an aud i to r , andsubsequent ly was given inc reas ing respons ib i l i ty fo r superv i s ingth e back o f f i c e o pe ra tio ns o f BLMIS. BONVENTRE eventua l lyassumed the pos i t ion -o f "Di rec to r of Operations" fo r BLMISbeginning a t l e a s t as ear ly as 1978.

26. In h is capac i ty as Direc tor o f Ope ra tio ns , DANIELBONVENTRE, the defendant , was responsib le for , among othe rth ings : (a) mainta ining and superv i s ing the product ion of thep ri nc ip al i nt er n al account ing documents fo r BLMIS, including theGIL and f i n anc i a l s ta tements ; (b) mainta ining th e s to ck rec ordfo r BLMIS and resolv ing any discrepanc ies between i n t e rna l andex te rna l records ; (c ) s up er vis in g th e use and reconc i l i a t ion ofBLMIS bank a cc ou nts th ro ug h which the Market Making, Propr i e t a ryTrading , and IA bus in es s o p er at io n s were funded; (d ) superv i s ingBLMIS employees who worked in the account ing depar tment and the"cage";4 and (e ) superv i s ing O'Hara and Perez i n so f a r as t he i rwork re la ted to th e p ro du cti on of the GIL and o the r BLMISaccount ing records .

4 The "cage" was th e a rea of the o ff ic e in whichse t t l ement and c lea r ing funct ions occurred , and in which checksand wire t r an s fe r s were sen t and lo r r ec eiv ed .

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The Ponzi Scheme27. Based on my p a r t i c i p a t i o n i n t h e i n v e s t i g a t i o n t o

d a t e , i n c l u d i n g my p a r t i c i p a t i o n i n i n t e r v i e w s of former BLMISemp loyee s and o t h e r s , and my review o f , among o th e r t h in g s , t h eg u i l t y p l e a a l l o c u t i o n s o f Madoff and D i P a s c a l i , I have l e a r n e dt h e fo l lowing:

a . From a t l e a s t as e a r l y as t h e 1980s throughon o r about December 11, 2008, Madoff, D i P a s c a l i , and o t h e r co-c o n s p i r a t o r s p e r p e t r a t e d a scheme t o defraud t h e IA C l i e n t s bya c c e p t i n g b i l l i o n s of d o l l a r s of IA C l i e n t s ' funds under f a l s ep r e t e n s e s , f a i l i n g t o i n v e s t the IA C l i e n t s ' funds as promised,c r e a t i n g and d i s s e m i n a t i n g f a l s e and f r a u d u l e n t documents t o IAC l i e n t s p u r p o rt i n g t o show t h a t t h e i r funds had been i n v e s t e d ,and l y i n g t o t h e SEC and an account ing firm t o conceal t h ef r a u d u l e n t scheme.

b. To execute t h e scheme, Mado ff s o l i c i t e d , andcaused o t h e r s t o s o l i c i t , p r o s p e c t i v e c l i e n t s t o open t r a d i n ga cc ou nts w ith BLMIS, based upon, among o t h e r t h i n g s , a promise t ouse i n v e s t o r funds t o purchase s h a r e s o f common s to c k , o p t i o n s ,o t h e r s e c u r i t i e s , and f i n a n c i a l i n s t r u m e n t s , and r e p r e s e n t a t i o n &t h a t he would ac hiev e h ig h r a t e s of r e t u r n f o r c l i e n t s , withl i m i t e d r i s k . These r e p r e s e n t a t i o n s were f a l s e . Contrary t or e p r e s e n t a t i o n s made on account s t a t e m e n t s and o t h e r documentss e n t t o IA C l i e n t s , Madoff, D i P a s c a l f , and o t h e r c o - c o n s p i r a t o r sknew t h a t t h e IA C l i e n t s ' funds were not be ing i n v e s t e d i ns e c u r i t i e s as promised. Moreover, Madoff and o t h e r co-c o n s p i r a t o r s m i s a p p r o p r i a t e d IA C l i e n t s ' funds and convertedt h o s e funds t o t h e i r own use and t h e use of o t h e r s , i n c l u d i n gBLMIS.

BLMIS's FinancesA. The General Ledger

28. Based on my review of BLMIS documents, t h e GIL,documents s u p p o r t i n g e n t r i e s i n t h e GIL, and i nf o r m a ti on o b ta in e dfrom former BLMIS employees, I have l e a r n e d t h e fo l lowing aboutt h e GIL:

a . The GIL p u r p o r t e d t o r e f l e c t t h e f i n a n c i a lt r a n s a c t i o n s and f in a n c i a l p o s i ti o n s of BLMIS, i n c l u d i n g i t srevenues , expenses , a s s e t s , and l i a b i l i t i e s .b . The GIL d i d no t s e p a r a t e l y account f o r theexpenses , t r a d i n g a c t i v i t y , a s s e t s , o r l i a b i l i t i e s of t h e IA

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ope ra t ions , but r a t he r in clu de d th e expenses re l a t ed to IAopera t ions w ith those o f the Market Making and Propr ie ta ryTrading ope ra t ions . Contrary to ru le s and r egu la t ionspromulgated by th e SEC and Genera l ly Accepted AccountingPr inc ip les ("GAAP"), the GIL did no t accura te ly account fo r thea s se t s and l i a b i l i t i e s of the IA opera t ions .B. The Princ ipal Bank and Brokerage Accounts of BLMIS and MSIL

29. Based on my review of BLMIS documents, th e GIL,records of f i n anc i a l i n s t i t u t i on s found in BLMIS's of f i c e s ,records ob ta ined from f i n anc i a l i n s t i t u t i ons in th e course oft h i s i nves t i ga t i on , and information obtained from former BLMISemployees, inc lud ing DiPasca l i , I have le arn ed th e fol lowing:

a. Bi l l ions of do l l a r s of funds rece ived from IAc l i en t s fo r inves tment were pr inc ipa l ly deposi t ed i n to , and thefunds to f u l f i l l reques ts from IA c l i en t s fo r withdrawals fromt h e i r BLMIS accounts were pr inc ipa l ly obtained from, a banka c c o ~ n t most r ecen t ly mainta ined a t a bank in New York, New York("Bank N o .1 " ) (the "IA Account") and a c he ck in g a cc ountmainta ined a t Bank No. 1 t ha t was a f f i l i a t ed with the IA Account( the "IA Checking Account") . The end-of-day balances in the IAAccount, balances which gene ra l ly were in th e range of hundredso f mil l ions of do l l a rs during the 2001-2008 per iod , wererou t ine ly swept in to a va r i e t y o f overn igh t depos i t accoun ts (the"I:A Sweep Accounts") . In add i t ion , beginning in or about 2007,in ex cess o f ap pro xim ate ly $1 b i l l i on was inves ted in U.S.Treasur ies and o ther s imi la r inves tments and was cus tod ied in asepara te account held by BLMIS a t Bank NO.1 . (The abovedescr ibed BLMIS accounts held a t Bank No. 1 are re fe r red toco l l e c t i ve ly he re in as the "BLMIS IA Accounts" . ) I n t e r e s t earnedon those investments was genera l ly t r an s fe r r ed to th e IA Accounton a r egu la r bas i s .

b. BLMIS mainta ined a separa te bank account t h a twas p r i nc ipa l l y used to fund, d i r ec t ly and i nd i r ec t l y , theopera t ions of BLMIS ( the "BLMIS Operat ing Account") . At a l lt imes re lev an t to t h i s Complaint , the BLMIS Operat ing Account wascus tod ied a t a Bank in New York, New York ("Bank N o . 2 " ) . BLMISopen ed one o r more l i nes o f c red i t a t Bank No. 2 (co l l ec t ive lythe "Bank No .2 LaC").

c . BLMIS a l so mainta ined b roke ra ge a cc ount s a t ava r i e t y of f i n anc i a l i n s t i t u t i on s ( the "IA Brokerage Accounts") .Funds in the BLMIS Brokerage Accounts were gene ra l ly inves ted inU.S. Government- issued s ecur i t i e s such as U.S. Treasury b i l l ~ .

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d. MSIL mainta ined a bank account in the uni tedKingdom (the "MSIL Bank Account") .c. The Interre lat ionsh ips Among the Accounts of BLMIS and MSIL

30. Based on my review of BLMIS documents, the GIL,reco rds o f f inanc ia l i n s t i t u t i ons found in BLMIS's o f f i c e s ,records ob ta ined from f inanc ia l i n s t i t u t i on s in the course oft h i s inves t iga t ion , and in fo rmat ion obtained from former BLMISemployees i n cl udi ng D iPascal i, I have lea rned the fol lowing:

a. As s e t fo r th in g re a te r de t a i l below, betweenin o r about 1998 and in o r about December 2008, hundreds ofmil l ions of do l l a r s were t r ans fe r red from th e IA Account to theBLMIS Operat ing Account, e i the r d i r ec t l y , o r through o theraccounts .

'b . Between in o r about 1998 and 2005:i . The BLMIS IA Accounts generatedapproximate ly $179.6 mil l ion of i n t e r e s t , which was c re dite d to

th e IA Account ("IA Account In t e r e s t " ) .ii. DANIEL BONVENTRE, the defendant ,f ac i l i t a t ed the t r an s fe r of the approximately $179.6 mil l ion ofIA Account I n t e r e s t from the IA A c c o ~ n t to the BLMIS Operat ingAccount.iii. The t rans fe rs descr ibed in paragraphs30(b) (i) and ( i i ) were improper ly accoun ted fo r in th e GIL in th e

a s s e t account t i t l e d "Trading," and documents from BLMIS t h a t Ihave re viewed revea l t h a t BONVENTRE knew how those t r an s fe r sgenera l ly were booked on the GIL. Those t r an s fe r s were accountedfo r on BLMIS FOCUS Repor ts as BLMIS J;"evenue in th e form of "Gainso r losses on f irm secur i t i e s t r ad ing accounts from a l l othe rt r ad ing . "

c . Between in o r about 2000 and in o r about2005, a t o t a l of approximately $348.6 mil l ion was wired from theIA Broke rage Accoun ts to the BLMIS Operat ing Account. Documentst h a t I have reviewed show t h a t BONVENTRE caused these wiret r ans f e r s to be improper ly account ed fo r in the GIL in the as s e taccount t i t l ed "Trading." These wire t r an s fe r s were re f l ec ted onBLMIS FOCUS R eports as BLMIS revenue in the form of "Gains o rlo s ses on firm s ecur i t i e s t r ad ing accounts from a l l o the rt r ad ing ." In t ru th and in fac t , however, subs t an t i a l l y a l l ofth e IA Brokerage Accounts were funded by t r an s fe r s from th e IAAccount. Records assoc ia ted with th e IA Brokerage Accounts , and

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BLMIS i n t e rna l records re la ted to the IA Account show t ha tbetween 1997 and 2007, a net t o t a l of approximate ly $307 mil l ionwas wired from the IA Account to the IA Broke rage Accoun ts .d. Between in o r about 2002 and in o r about2008, a t o t a l o f approximately $283.4 mil l ion was t rans fe r red

from the IA Account to th e MSIL Account. Between in or about2005 and in o r about 2008, approximate ly $287.3 mil l ion wast r an s fe r r ed from the MSIL Account to th e BLMIS Operat ing Account.During f i s c a l years 2006-2008, a f t e r BLMIS had r eg i s t e r ed withth e SEC as an inves tment adviser , approximate ly $209.5 mil l ion ofth e funds t r an s fe r r ed from th e MSIL Account to th e BLMISOperat ing Account were imp roper ly a ccoun ted fo r on th e GIL asrevenue in the form o f "Commissions Revenue."s On o r aboutDecember 12, 2008, DANIEL BONVENTRE, th e defendant , spoke withr ep r e s en t a t i ve s of the cour t -appointed Receiver fo r BLMIS (the"Rece iver") . According to two indiv iduals with whom o ther FBIAgents have spoken, BONVENTRE in t roduced th e sub jec t ofcommission income, and t o ld the r ep resen ta t ives of th e Receivert h a t Bernard L. Madoff had alw ays t o ld him t ha t th e commissionincome t h a t BLMIS had rece ived from the MSIL Account was incomet ha t BLMIS had earned on t r ades completed in Europe through MSIL.I have l e a rned from former BLMIS and MSIL employees t h a tBONVENTRE knew t ha t MSIL t rades of U.S. equ i t i e s were c learedthrough BLMIS, and t ha t the BLMIS s to ck re co rd and DTC recordst ha t BONVENTRE r egu la r ly monitored r e f l e c t ed MSIL t r ades c learedthrough BLMIS. The informat ion to which BONVENTRE had accessshows t h a t MSIL did n ot execu te enough trades to genera te thehundreds of mil l ions of do l l a r s of "commission revenue" r e f l e c t edon the GIL.

e . As descr ibed fu r the r below, between in o rabout January 2006 and in o r about Apri l 2006, approximate ly fourwire t ra n sf er s to ta li ng approximate ly $262 mil l ion were made fromth e BLMIS Operat ing Account d i r ec t ly to four sepa ra t e IA Cl ien t sto s a t i s f y t h e i r reques ts fo r withdrawals from t h e i r respec t iveIA accounts ( the "Four Wire Transfers" ) . The GIL re f lec ted theFour Wire Transfe rs in a way t ha t concealed the re l a t ionsh ipbetween th e BLMIS Operat ing Account and th e IA ope ra t ions . In o rabout June 2006, approximately $261,816,950 was t rans fe r red fromthe IA Account to the BLMIS Operat ing Account.

f . In o r about December 2008, d urin g a no th erl i qu id i t y c r i s i s , approximately $181.5 mil l ion was wiret r an s fe r r ed from th e BLMIS Operat ing Account d i r ec t ly to the IA

S BLMIS operated on a f i s c a l year ending October 31.15


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Account.D. The Financial Condition of BLMIS

31. Based on my review of BLMIS documents , the GIL,records of f inanc ia l i n s t i t u t i ons found in BLMIS's of f i c e s ,records obta ined from f inanc ia l i n s t i t u t i ons in the cou rse oft h i s i nves t iga t ion , and informat ion obtained from former BLMISemployees i nc lud ing D iPa sc al i, I have l ea rned t h a t beginning a tl e a s t as ear ly as in o r about 2002, BLMIS's Market Making andPropr ie ta ry Trading opera t ions d id not genera te su f f i c i en trevenue to meet BLMIS's expenses . Indeed, t h a t revenue sho r t f a l lamounted to approximate ly $265 mil l ion over the f i s c a l yea r 2 0 0 2 ~2008 per iod .

32. Moreover, as descr ibed in fu r t he r de t a i l below,BLMIS suffered a l i qu id i t y c r i s i s between in o r about November2005 and June 2006 t ha t appears to have been caused by demandsfo r withdrawals by IA Cl ien t s t h a t exceeded the f i rm ' s ava i lab lefunds .

33. The f i r s t manifes ta t ion of th e l i qu id i t y c r i s i soccurred on o r about November 2, 2005, when BLMIS's i n t e rna lcheck " reg i s t e r" fo r the IA Account showed an end-of -d ay ba lan ceo f approximate ly $13 mil l ion - a sum t ha t was i n s u f f i c i e n t tocover the near ly approximate ly $105 mil l ion in outbound wiresscheduled in the fol lowing th ree bus iness ' days . Funds weret r an s fe r r ed from th e BLMIS Brokerage Accounts to meet the cashneeds of the IA opera t ions on November 3, 2005.

34. On o r about November 4, 2005, an IA c l i en t ("IACl ien t A") sen t approximate ly $100 mil l ion of Federa l Home LoanBank ("FHLB") bonds to BLMIS to be depos i ted in accountsa f f i l i a t ed with IA Cl ien t A. I have r ev iewed correspondencefound in the of f i c e of DANIEL BONVENTRE, th e defendant , t ha tshows t ha t BONVENTRE knew about the depos i t o f the FHLB bonds andthe f ac t t ha t they were to be depos i ted in accounts a f f i l i a t edwith IA Cl ien t A. Based on my review of o ther documents found inBONVENTRE's of f i c e , and my in te rv iew of a former BLMIS employee,I have l ea rned t h a t on or about November 14, 2005, BONVENTREd i rec ted t ha t a l e t t e r be wri t t en to Bank No. 1 in which hereques ted a $95 mil l ion loan on beha l f of BLMIS using these FHLBbonds as co l l a t e r a l .

35. I have reviewed documents found by FBI Agents a tBLMIS, inc luding documents found in the of f ice of DANIELBONVENTRE, the defendant , t h a t show t ha t on o r about January 18,2006, IA Cl ien t A sen t ano ther approximate ly $54 mi l l i on of FHLB16


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bonds to BLMIS to be deposi t ed in accounts a f f i l i a t ed with IACl i en t A. (The $154 mil l ion in FHLB bonds descr ibed in th i sparagraph and paragraph 34, above, are re fe r red to herein j o in t l yand severa l ly as the "Cl ient A Bonds".)

36. I have reviewed documents found in th e off i ce ofDANIEL BONVENTRE, the defendant , and have b een in fo rmed by othe rFBI agents involved in t h i s inves t iga t ion who have in terviewedemployees of Bank N o.1 , th a t on o r about January 23, 2006 1BONVENTRE caused BLMISto borrow another approximate ly $50mil l ion using the Cl ien t A Bonos as co l l a t e ra l . (Theapproximate ly $145 mil l ion in debt incurred by BLMIS using theCl i en t A Bonds as co l l a t e ra l i s re fe r red to he re in j o i n t l y andseve ra l l y as th e "Cl ient Col la te ra l i zed Loans" . )

37. I have reviewed documents I inc luding BLMISi n t e rna l l y -c rea t ed documents a ~ th e account s ta tements fo r theIA Account, t h a t show t ha t the p roceeds of th e Cl ien tCol la t e ra l i zed Loans were depoi?ited in the IA Account and wereused to s a t i s f y reques ts fo r withdrawals from o the r IA Cl ien t s .

38. Between in o r about January 2006 and in o r aboutApr i l 2006, IA Cl ien t s ' depos i t s in to the IA Account f a i l ed tokeep pace with IA Cl i en t s ' reques ts fo r withdrawals . During t h a tpe r iod , the Four Wire Transfers t o t a l i ng approximate ly $262mil l ion were sen t from the BLMIS Operat ing Account to foursepara te IA c l i en t s . Those t rans fe rs occurred on January 30,2006 ($28 mil l ion) , February 11 2006 ($38 mil l ion) I Apr i l 4, 2006($76 mil l ion) I and Apri l 13, 2006 ($120 mi l l i on ) .

39. I have reviewed account records found in theof f i c e o f DANIEL BONVENTRE, th e defendant I re la ted to th e BankNo. 2 LOC. Those documents show t ha t I o r about March 31 1 2006 1BLMIS drew down approximately $110 mil l ion on th e Bank No. 2 LOC.On o r about Apr i l 12, 2006 1 another approximately $160 mil l ionwas drawn on the Bank No .2 LOC. 640. Because the Four Wire Transfers came out of theBLMIS Operat ing Account (which, unl ike the IA Account, wasr e f l e c t ed on the GIL) those t r ansac t ions had to be accounted fo ron th e GIL. According to GAAP, the GILl andlor support ing books

6 I have reviewed records found in the o f f i c e ofBONVENTRE I th e defendant , re l a t ed to the Bank No. 2 LOC.records show t h a t the balance owed on the Bank No. 2 LOCa peak of approximate ly $342 mil l ion on or about May 25,and was fu l l y repa id by in o r about August 2006.

17

DANIELThosereached2006,


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and records , had to r e f l e c t accura te ly the use and/orrec ip ien t ( s ) of the Four Wire Trans fe r s . I have reviewed BLMISdocuments, t h a t appear to bear th e handwri t ing of DANIELBONVENTRE, the defendant , and which d i rec ted the inc lus ion ofen t r i e s in the G/L, an d/ or s u ppor tin g books and records , t ha td is gu is ed th e f a c t t ha t the Four Wire Transfe rs r e l a t ed to IAbusiness ope ra t ions ( including withdrawals by IA Cl i en t s ) . TheG/L en t r i e s and o the r books and records t h a t BONVENTRE caused tobe made, crea ted the appearance t h a t the Four Wire Transfe rs hadbeen used to purchase asse t s fo r BLMIS ( including the C lien t ABonds), when, in fac t , they had no t been.

41. On o r about June 1/ 2006/ th e Cl ien tCol la te ra l i zed Loan balance of approximate ly $145 mil l ion wasfu l ly re pa id u sin g funds from the IA Account .

42. On o r about June 1, 2006 and June 6/ 2006/ twowire t r an s fe r s (approximately $109/968/750 and $151,848/200,respec t ive ly) t o t a l i ng approximate ly $261.8 mil l ion were executedfrom the IA Account to the BLMIS Operat ing Account, therebyreplenishing th e BLMIS Operating Account with subs t an t i a l l y a l lof the funds it had cont r ibuted to keeping the Ponzi scheme goingthrough the Four Wire Transfe rs . Ent r ies on the G/L, and/orsupport ing books and records , fa i led accura te ly to r e f l e c t thepurpose of these two wire t r ans fe r s . On o r about June 1 and June6/ 2006/ the G/Lwas adjus ted tO r in substance, reve rse theen t r i e s t ha t had concealed th e t rue purpose of the Four WireTransfe rs . I have reviewed documents found in th e of f ice ofDANIEL BONVENTRE/the defendant , t h a t appear to bea r h ishandwri t ten ca lcu la t ions determining how to achieve t h a t goal .

43. On o r about June 1/ 2006/ the pr inc ipa l balanceof the Bank No. 2 LOC was reduced by approximate ly $103 mil l ion .On o r about June 6/ 2006/ the p r i nc ipa l balance of the Bank No. 2LOC was reduced by an add i t iona l approximate ly $167 mil l ion .

44. Following the reso lu t ion of the 2005-06 l i qu id i tyc r i s i s in o r about June 2006, subs t an t i a l l y a l l of the funds t h a twere deposi t ed in the IA Accoun t were inves to r funds , o r fundsfrom the MSIL Account ( tha t had rece ived funds from the IAAccount) , and IA Cl ien t s ' reques ts fo r withdrawals were s a t i s f i edby funds in the IA Account.Fi l ing a False and Misleading FOCUS Report With the SEC

45. I unders tand from r ep resen ta t ives of the SEC t ha tth e FOCUS Repor ts a re requi red to be f i l ed on a monthly,quar ter ly , and annual bas i s by reg i s t e red broker -dea le r s . I have

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reviewed t h e FOCUS Reports f i l e d by BLMIS i n t h e November 2005 -June 2006 p e r i o d . Based on my review, it appears t h a t t h e FOCUS.Report form r e q u e s t s b a s i c information t h a t amounts t o acondensed v e r s i o n of a b r o k e r - d e a l e r ' s g e n e r a l l e d g e r .46. Based on my review of BLMIS documents, t h e GIL,

r e c o r d s of f i n a n c i a l i n s t i t u t i o n s found i n BLMIS's o f f i c e s ,r e c o r d s o b t a i n e d from f i n a n c i a l i n s t i t u t i o n s i n t h e course oft h i s i n v e s t i g a t i o n , i n f o r m a t i o n obta ined from former BLMISemployees i nc lu d in g D i P a s c a l i, and t h e FOCUS Reports f i l e d by.BLMIS, I have l e a r n e d t h e fo l lowing:

a . DANIEL BONVENTRE, t h e defendant , wasr e s p o n s i b l e f o r m a in ta in in g t h e G/L, and s u p e r v i s e d o t h e r s whop l a y e d a r o l e i n m a i n t a i n i n g t h e GIL.

b. BONVENTRE provided i n f o r m a t i o n concerningBLMIS expenses t h a t was used i n p r e p a r a t i o n o f t h e FOCUS Reports. f i l e d by BLMIS, and s u p e r v i s e d o t h e r s who were involved i n thep r o c e s s of p r e p a r i n g t h o s e f i l i n g s . BONVENTRE t h e r e f o r e knewt h a t t h e i nf o r m a ti on c o n ta i n e d i n the BLMIS FOCUS Reportsconcerning BLMIS's a s s e t s , l i a b i l i t i e s , revenues , and expenses ,. was d e r i v e d from i n f o r m a t i o n recorded i n t h e GIL.

c . The FOCUS Reports r e q u i r e d BLMIS t o f i l e witht h e SEC b a s i c balance s h e e t information, i n c l u d i n g a summary oft h e f i r m ' s a s s e t s and l i a b i l i t i e s .

d.Contrary t o GAAP, and r u l e s and r e g u l a t i o n spromulgated by t h e SEC, t h e GIL, a n d /o r s u p p o r t i ng books andr e c o rd s, d i d not a c c u r a t e l y r e f l e c t t h e a s s e t s c o n t a i n e d i n t h eIA Account, t h e BLMIS Brokerage Accounts, and t h e o t h e r BLMIS IAAccounts, and l i k e w i s e d i d not r e f l e c t t h e l i a b i l i t y o f BLMIS t oits IA C l i e n t s t h a t a r o s e from t h e custody of IA C l i e n t funds i nt h o s e accounts . At v a r i o u s p o in t s i n t ime, t h e a s s e t s anda s s o c i a t e d l i a b i l i t i e s o f BLMIS's IA o p e r a t i o n s , which wereo m i t t e d from t h e G/L, ranged from m i l l i o n s t o b i l l i o n s ofd o l l a r s .

e . Contrary t o GAAP, and r u l e s and r e g u l a t i o n spromulgated by t h e SEC, t h e FOCUS Reports f i l e d by BLMIS with t h eSEC f a i l e d a c c u r a t e l y t o r e f l e c t t h e a s s e t s c o n t a i n e d i n t h e IAAccount, t h e BLMIS Brokerage Accoun ts a nd t h e o t h e r BLMIS IAAccounts, and l i k e w i s e d i d not r e f l e c t t h e l i a b i l i t y o f BLMIS t oi t s IA C l i e n t s t h a t a r o s e from t h e custody of IA C l i e n t funds i nt h o s e a c c o u n t s . At v a r i o u s p o i n t s i n t ime, t h e a s s e t s anda s s o c i a t e d l i a b i l i t i e s o f BLMIS's IA o p e r a t i o n s , which wereo m i t t e d from t h e FOCUS Reports f i l e d by BLMIS with t h e SECt

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ranged from m illio ns to b i l l i ons of do l l a r s .f . On o r about May 22, 2006, BLMIS f i l ed a FOCUSReport fo r the one-month per iod ending Apri l 30, 2006 ( the "Apri l2006 FOCUS Repor t " ) . The Apri l 2006 FOCUS Report included among

the f i rm ' s a s se t s the approximately $154 mil l ion of Cl ien t ABonds. The Apr i l 2006 FOCUS Report fa i l ed to d isc lo se anyl i ab i l i t y o f BLMIS to Client A, inc luding any l i ab i l i t y withre spec t to th e $154 mil l ion of Cl ien t A B o n d s ~ moreover, itfa i l ed to d isc lo se any of the l i a b i l i t y assoc ia ted with th e $145mil l ion t ha t BLMIS h ad borr owed using the Cl ien t A Bonds asco l l a t e ra l . 7 Accordingly, BLMIS's l i a b i l i t i e s were unders ta tedby a t l e a s t approximately $299 mil l ion in th e Apr i l 2006 FOCUSReport . That unders ta tement of l i a b i l i t i e s exc ludes the o therl i a b i l i t i e s to IA Clients descr ibed in paragraph 46(e ) , above,t ha t also should have been r e f l e c t ed on t h a t r epor t .

Reviews of BLMIS Between 2004 and 200847. Based on informat ion suppl ied by the SEC and theEuropean Accounting Firm, my review of documents and recordsfound a t BLMIS, and in te rv iews o f former BLMIS employees,

inc luding DiPasca l i , conducted by o ther FBI agent s , I havel ea rned the fo l lowing:

a . The opera t ions o f BLMIS were subjec ted to a tl e a s t f ive separa te reviews by th e SEC and a European account ingfirm (the "European Accounting Firm") between 2004 and 2008( co l lec t ive ly , th e "Reviews").8

b . Beginning a t l e a s t as ea r ly as in o r aboutJanuary 2004, in connect ion with th e Reviews, Bernard L. Madoff,DiPasca l i , and DANIEL BONVENTRE, the defendant , had numerousconversa t ions about how to respond to reques ts fo r informat ionabout th e IA business and what records could and should bec rea t ed to s a t i s f y those reques t s . Bernard L. Madoff 's goal s ind i rec t ing th e crea t ion of add i t iona l fa l se and f r audu l en t booksand records were, among o th er th in gs , to : (a) revea l informat ion

7 The Apr i l 2006 FOCUS Repor t d id inc lude as a l i ab i l i t yth e $277 mi l l i on BONY LOC t h a t had been used to fund th e major i tyof the Four Wire Transfe rs .

8 The European Accounting Fi rm's c l i en t was a Europeanf i n anc i a l i n s t i t u t ion t h a t served as cus todian fo r the asse t s ofan IA c l i en t ( the "European IA Client") and t h a t had a subcus todian agreement with BLMIS.

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about as few of BLMIS's IA Cl ien t s as poss ib le , therebyc on ce alin g th e sca le of the IA business ; (b ) presen t explanat ionso f BLMIS's opera t ions t ha t would make it more d i f f i c u l t fo r theSEC and o r the European Accounting Firm to a t t empt to cor robora tewi th t h i rd pa r t i e s th e in fo rma tio n provided by BLMIS; and(c) produce documents con ta in ing de ta i l ed in fo rmat ion t h a tappeared to be genuine .

c . In an e f fo r t to achieve those goals , Madoff:( i) at tempted to an t i c i pa t e the reques ts of th e SEC and EuropeanAccount ing Firm; ( i i ) l imi ted di sc losure s to the SEC and theEuropean Accounting Firm to those IA c l i en t s about which theye i t h e r a l ready were aware and /or those about which he thoughtthey might become aware; ( i i i ) d i rec ted DiPasca l i , and throughDiPasca l i , O 'H ara and Perez , to crea te , re t rospec t ive ly ,d i f f e r en t "spec ia l ff vers ions of h i s to r i c a l BLMIS books andrecords to meet the ac tu al o r a ntic ip ate d reques ts o f the SEC andth e European Accounting Firm; and (iv) d i rec ted DiPasca l i , andthrough DiPasca l i , O'Hara and Perez , to c rea te fa l se documentspurpor tedly obtained from t h i rd p ar t ie s in the ordinary course ofBLMIS's bus iness .

d. Based on th e review by o the r FBI agen tsinvolved in th i s i nves t i ga t i on o f the IBM AS/400 se rver pr imar i lydedica ted to BLIMIS's IA opera t ions ("House 17 ff ) , monthly backupt apes fo r House 17, informat ion provided by an i nd iv idua lf ami l i a r with the arch i t ec tu re , programming language, andopera t ion of IBM AS/400 se rve rs (the "AS/400 Cont rac to r ff ) ,9 andinformat ion provided by DiPasca l i and o ther witnesses , I havel ea rned t ha t , in connect ion with t h i s fu r the r decept ion, O'Haraand Perez developed and maintained spec ia l House 17 programst ha t , among o th er th in gs , r e t rospec t ive ly : ( i) crea ted new se t sof h i s t o r i ca l BLMIS books and records fo r ce r ta in subse ts of IACl ien t s (the "Special Cl ien t s ff ); ( i i ) changed informat ion aboutth e i den t i t i e s of IA Cl ien t s ; ( i i i ) added t r ad ing con t ra pa r t i e sto h i s t o r i ca l t r ansac t ions , and changed th e i d en t i t i e s of thosecon t ra pa r t i e s depending on whether the books and records werebeing prepared fo r th e SEC (in which case the co ntra pa r t i e s wererandomly se lec ted from a list of European f inanc ia l f irms) o r theEuropean Accounting Firm ( in which case the co ntra pa r t i e s wererandomly se lec ted from a list of U.S. f i n anc i a l f i rms) ; (iv)crea ted new vers ions of c l i en t account s ta tements designed tomislead the SEC a bout whe th er BLMIS had custody o f IA Cl ien t s '

9 The AS/400 Cont rac to r has been working fo r th e FBI as acon t rac to r under my superv i s ion and the supervis ion of -o ther FBIAgents , and i s being paid a t an hourly r a t e .

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a s se t s ; (v ) incorpora ted randomization algor i thms to crea te fakerecords r ef le c ti n g s ec u ri ti es t r ansac t ions t h a t appeared to ber e a l i s t i c in terms of t h e i r s i ze and t iming; and (vi) generateddocuments t h a t looked l ike the ou tpu t of r e l i ab l e t h i rd pa r t i e ssuch as DTC.

e . Based on informat ion supp l ied by DiPasca l iand one o r more othe r former BLMIS employees, and based on myreview of BLMIS documents, inc lud ing documents found inBONVENTRE's o f f i c e , I have l ea rned t h a t BONVENTRE, among othe rth ings :

i . pa r t i c i pa t ed in discuss ions with Madoffand DiPasca l i about how to respond to req uests fo r informat ionfrom the SEC and the European Accounting Firm;1 1 . reviewed ce r t a i n o f the spec ia l ly

c rea ted f a l s e and f ra ud ule nt re co rd s, in clu din g fake DTC recordst h a t were ac tua l l y c r e a ~ e d by BLMIS employees before they wereprovided to the European Accounting Firm;

1 1 1 . a s s i s t ed with the prepa ra t ion of a listo f p urp orte d European con t ra pa r t i e s fo r t r ansac t ions purpor ted lyexecuted in connect ion with the IA business ; and

iv . prepared DiPasca l i to pose f a l s e l y asBLMIS's Direc to r of Operat ions during one o r more v i s i t s by theEuropean Accounting Firm to the BLMIS o ff ic e s in orde r to be ab leto respond to i nqu i r i e s about the "back of f i ce" opera t ionsr e l a t ed to BLMIS's IA ac t i v i t i e s .

1. The 2005 Review by the European Accounting Firm48. According to DiPasca l i , in o r about 2005, DANIELBONVENTRE, th e d ef en da nt, h elp ed to p re pa re D iP a sc al i fo r the on-s i t e review of BLMIS opera t ions by r ep resen ta t ives of theEuropean Accounting Firm. BONVENTRE a t t ended meet ings withMadoff and DiPasca l i to prepare fo r t h a t v i s i t , and helped to

prepare DiPasca l i to play the ro le o f BLMIS's Direc to r ofOperat ions. Spec i f i ca l ly , BONVENTRE ta ug ht D i Pa sc al iterminology, i n s t ruc ted him about paper and informat ion f low, andprovided explana t ions about the f i rm ' s banking arrangements sot ha t he cou ld respond knowledgeably to ques t ions .

49. According to DiPasca l i , in c on ne ct io n w ith t h i sreview, because the European Account ing Firm, the EuropeanCustodian and the European Cl ien t s were a l l based in Europe,Bernard L. Madoff used a "domest ic scenar io" ( ins tead of the22


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"European s c e n a r i o " t h a t was some times employed during c e r t a i nSEC reviews) i n an e f f o r t t o make it l e s s l i k e l y t h a t t h eEuropean Accounting Firm would be a b l e t o o b t a i n i n f o r m a t i o n t h a tmight u nc ov er t h e f r a u d u l e n t scheme. As p a r t of t h i s "domest ics c e n a r i o , " Bernard L. Madoff, D i P a s c a l i , O'Hara and Perez, wi tht h e a s s i s t a n c e o f DANIEL BONVENTRE, t h e defendant , c r e a t e dc o u n t e r f e i t DTC r e p o r t s t h a t p u r p o r t e d t o show t h a t BLMIS hadcustody ( a t DTC) o f t h e s e c u r i t ie s r e f l e c te d on t h e accounts t a t e m e n t s t h a t had been s e n t t o t h e European C l i e n t s a n d / o r t h eEuropean Custodian .

50. According t o D i P a s c a l i , Bernard L. Madoff andDANIEL BONVENTRE, t h e defendant , reviewed v a r io u s v e r si o n s of t h efake DTC r e p o rt s c re a t e d by O'Hara and Perez t o ensure t h a t theyappeared t o be l e g i t i m a t e . According t o D i P a s c a l i andr e p r e s e n t a t i v e s of t h e European Accounting Firm, v e r s i o n s o ft h e s e f a l s e and f r a u d u l e n t DTC r e p o r t s were shown t or e p r e s e n t a t i v e s o f t h e European Accounting Firm who v i s i t e d BLMISduring t h e i r 2005 Review.

51. Among t h e papers found by FBI Agents , i n c l u d i n gt h e undersigned, i n t h e o f f i c e of DANIEL BONVENTRE, t h edefendant , were genuine DTC r e p o r t s r e f l e c t i n g t h e p o s i t i o n s ofBLMIS's Market Making and p r o p r i e t a r y Trading o p e r a t i o n s , andfake DTC r e p o r t s t h a t p u r p o r t e d t o r e f l e c t s e c u r i t i e s h e l d onb e h a l f o f c e r t a i n S p e c i a l C l i e n t s .

2. The 2006 SEC Review52. According t o D i P a s c a l i , i n c on ne ct io n w ith t h e2006 SEC rev iew , B ern ard L. Madoff sought t o convince t h e SECt h a t t h e t r a d e s p u r p o r t e d l y conducted by BLMIS's IA b u s i n e s s wereexecuted i n Europe b eca us e d oin g so would make it more d i f f i c u l tf o r t h e SEC t o o b t a i n i n f o r m a t i o n from t h i r d p a r t i e s t h a t would

r e v e a l t h a t , i n f a c t , no t r a d e s were b ein g exe cu te d.53. The books and records g e n e r a t e d i n t h e o r d i n a r ycourse of BLMIS's IA o p e r a t i o n s i d e n t i f i e d t h e c o n t r a p a r t y f o reach s e c u r i t i e s t r a d e as "CLEARING BANK." According t o

D i P a s c a l i , with t h e a s s i s t a n c e of DANIEL BONVENTRE, t h edefendant , Bernard L. Madoff, D i P a s c a l i , O'Hara and Perez ,c r e a t e d s p e c i a l t r a d e b l o t t e r s t h a t s u b s t i t u t e d f o r "CLEARINGBANK" a c t u a l European f i n a n c i a l i n s t i t u t i o n s as t h e c o n t r ap a r t i e s f o r p u r p o r t e d t r a d e s . According t o D i P a s c a l i , BONVENTREreviewed f o r accuracy a list o f European i n s t i t u t i o n s from whichs u b s t i t u t e c o n t r a p a r t i e s were drawn. I have reviewed an undateddocument found by FBI Agents i n BONVENTRE's o f f i c e t h a t l i s t sapproximately dozens o f f o r e i g n s e c u r i t i e s d e a l e r s .

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3. Preparat ion o f RVp!nVp Statements54. According to DiPasca l i , in c onn ec tio n w i th one o rmore SEC Reviews, Madoff at tempted to make it appear t ha t BLMIS

did no t have custody of i t s IA Cl i en t s ' asse t s because he knewt ha t were the SEC to check with DTC, it would l ea rn t h a t DTC wasnot ho lding th e s ecur i t i e s l i s t ed on the IA Cl ien t s ' accounts ta tements in a segregated account fo r BLMIS. To exp la in why DTCwould not hold these s ecur i t i e s , Madoff d i rec ted th e prepa ra t ionof documents in a "receive-versus-paYff ient" /"del ivery-versuspaYffient" ("RVP/DVP") format t ha t showed no s ecur i t i e s o r cashbalances in th e accounts o f the Spec ia l Cl ien t s . 1o To becons i s t en t with an RVP/DVP scenar io , the names o f the Specia lCl ien t s fu r t he r had to be changed to f i nanc i a l i n s t i t u t i on sholding a s se t s fo r the bene f i t o f the Spec ia l Cl ien t s becauseRVP/DVP accounts r equ i re the involvement of such a cus tod ian .For example, an account held in th e name of "ABC Fund" waschanged to "XYZ Financ ia l Ins t i t u t i on f /b /o ABC Fund."

55. I have reviewed documents found by FBI Agents ,in clu din g th e unders igned, in the off i ce of DANIEL BONVENTRE, thedefendant , inc lud ing a f i l e con ta in ing copies of accounts ta tements dated in o r about 2006 fo r cer t a in of th e subse t ofc l i en t s t ha t had been revea led to the SEC. Those accounts ta tements were both th e or ig ina l BLMIS format (which showedb i l l i on s o f do l l a rs of asse t s being held by BLMIS on beha l f ofthose c l i en t s ) and in RVP/DVP format (which showedBLMIS holdingno asse t s on beha l f of those c l i en t s ) . None of th e RVP/DVPs ta tements found in BONVENTRE's off i ce , however, purpor ted toshow a s se t s held a t a t h i rd p ar ty f in an c ia l i n s t i t u t ion fo r thebene f i t of an IA c l i en t .

10 In a RVP/DVP arrangement , paYffient fo r s ecur i t i e spurchased i s made to the s e l l i ng c us tomer 's a ge nt a nd /o r d e li ve ryo f s ecur i t i e s sold i s made to the buying customer 's agent inexchange fo r paYffient a t t ime of se t t lement , usua l ly in the formo f cash. Because t r ansac t ions in RVP/DVP accounts a re se t t l edd i rec t l y with the agen t on a t ra n s a ct io n - by -t ra n s a ct io n ba s is ,account s ta tements sen t by a broke r -dea le r l i ke BLMIS tocustomers with RVP/DVP accounts genera l ly do not r e f l e c t any cashbalance o r secur i ty pos i t ion with the broke r -dea le r a t the end ofa pe r iod . Thus, an RVP/DVP account i s incons i s ten t with anaccount as to which the broke r -dea le r holds s ecur i t i e s on behal fo f a c l i en t a t DTC in a segregated pos i t ion .

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4. O'Hara and Perez Announce Their Unwil l ingness to CreateAdditio na l F alse Documents56. According to DiPasca l i , in o r about August and/orSeptember 2006, a f t e r th e 2006 Reviews by th e SEC and th eEuropean Accounting Firm had been comp le ted, O'ljara and Perez met

with Madoff. O'Hara and Perez t o ld Madoff t h a t they would nolonger l i e fo r him. I have reviewed handwri tte n no te s found byo the r FBI agent s in O'Hara ' s desk t h a t s t a t e , among o ther th ings :" I won' t l i e any longer . Next t ime, I say ' a sk Frank. ' " Thosenotes appear on a pag e between en t r i e s dated "9-25-06" and"9/27/06." According to DiPasacal i , O'Hara and Perez to ld Madofft ha t they would no longer c re ate sp ec ia l programs to manipula teda ta and t ha t DiPasca l i would have to c rea te any such f raudulentrecords in the fu tu re .

57. According to DiPasca l i , DANIEL BONVENTRE, th edefendant , was presen t fo r one of the meetings between O 'Har a,Perez and Madoff a t which O'Hara and Perez announced t h e i runwi l l ingness to fu r the r a s s i s t with the mani pu la ti on o f da tare la ted to BLMIS's IA opera t ions .

BONVENTRE Caused False and Fraudulent Prof i table "Trades"to be Placed In His IA Account

58. Based on a review of BLMIS IA account sta tementspreserved on microf i lm, documents found in the f i l e s of a formerBLMIS employee with r e spon s ib i li ti es r el at ed to the IA opera t ions("BLMIS Employee B") , the Bonventre IA Account s ta tements foundon House 17 and i t s backup t apes , o the r BLMIS documents,documents subpoenaed from var ious f inanc ia l i n s t i t u t i ons ,informat ion obta ined from o the r FBI Agents involved in th i sinves t iga t ion , and information obta ined from the AS/400Cont rac tor , I have l ea rned t h a t DANIEL BONVENTRE, the defendant ,mainta ined a t BLMIS an IA account ( the "Bonventre IA Account")from a t le a s t as ea r ly as 1983 through ,December 2008. I havel ea rned t h a t between 2002 and 2006 BONVENTRE re ce iv ed th e bene f i to f more than $1.8 mil l ion in th re e s ep ar ate backdated,f i c t i t i ous , secu r i t i e s t r ansac t ions in the Bonventre IA Accountt h a t were not , in fa ct , a ctu al ly executed. Spec i f i ca l ly , I havel ea rned the fo l lowing:

a . The Fic t i t ious $1 M il lion Big Lots "Trade"i . On o r about November 12, 2002, BernardL. Madoff s igned a check drawn on th e IA Account made out to

BONVENTRE and h is wife in the amount of $999,375 ("Check No. I " ) .The memo l i ne on Check No. 1 re fe re nc ed th e account number of the25


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Bonventre IA Account .ii. On o r about November 13, 2002, BONVENTREcaused Check No. 1 to be deposi t ed in a j o i n t bank account held

by BONVENTRE and h is wife ( the "Bonventre Bank Account") .iii. On o r about November 20, 2002, BONVENTREcaused a check in th e amount o f $950,000 drawn on th e BonventreBank Account to be deposi t ed i n to a brokerage account con t ro l ledby BONVENTRE in which BONVENTRE subsequent ly purchased more than$950,000 of u.s. Treasury b i l l s in December 2002.iv . On o r about November 22, 2002, af i c t i t i ou s t r ade was ente red in the reco rds of th e Bonventre IAAccount mainta ined on House 17. That purported t r ade had thee f f ec t of show ing, on paper, purchases o f 40,000 shares of s tock

o f Consol idated Stores on J ~ n u a r y 31, 1990 fo r $90,000, and sa leso f 62,500 shares of s tock of Big Lots Inc . ( ad ju ste d f or a s tocks p l i t and th e change o f Conl?olidated S to re s' c orp ora te name toBig Lots I n c . ~ on September 26, 2002, fo r $1,089,375. The fa l se ,backdated tr ad e e nte re d onto House 17 conformed to i n s t ruc t ionsfound on a piece of paper contained in the Bonventre IA Accountc l i en t f i l e mainta ined a t BLMISi t h a t i s , the t r ade dates ,s et tl eme n t d a te s, number o f shares purchased, purchase pr ice pe rshare , t o t a l purchase p r i ce , number of shares sold , s e l l i ng p r i cepe r share , and t o t a l sa les p r i c e , which were en te red onto House17, matched the i n s t ruc t ions . Those i n s t ruc t ions werehandwri t ten , and appear to be cons i s ten t with o the r handwri t tennotes t h a t have been i den t i f i ed by former BLMIS employees asbe ing th e h andw ri ti ng o f BONVENTRE.

v. The Bonventre IA Account had a balanceof approximately -$90,304 in o r about January 1990.

v i . The f i r s t t ime t h a t the Bonventre IAAccount s ta tements r e f l e c t ed the purchase o f Con so lid ate d Storeso r Big Lots was on an account s ta tement fo r the per iod endingNovember 30, 2002, which was n ot p rep ared un t i l on o r a f t e rDecember 2, 2002.

Vll. House 17 records per ta in ing to theBonventre IA Account do no t r e f l e c t t h a t the account was evercharged margin i n t e re s t a t any poin t dur ing th e per iod between ino r about January 1990 and in or about December 2002. 11

11 Based on my exper ience and t ra in ing , I unders tand t h a t ,under ce r t a in ci rcumstances an inves to r may b orrow fun ds from a26


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v i i i . Following the backdated Big Lots" t rade , " the Bonventre IA Account r e f l ec t ed a balance o f$182,000.00.b . The Fi c t i t i ous $650,000 Lucent "Trade"

i . The Bonventre IA Account s ta tements fo rthe per iod March 2003 through March 2004 r e f l ec t ed no s ecu r i t i e spos i t i ons , and a cons tant c as h b ala nc e of $182,000.00.ii. The Bonventre IA Account s ta tement fo r

the per iod ending Apr i l 30, 2004 r e f lec ted a withdrawal , bycheck, of $200,000.00, r e su l t i ng in a balance o f -$ l8 ,000.00 . Acheck in th e amount of $200,000.00, drawn on the IA Account wasmade out to BONVENTRE and h is wife , and was depos i ted in th eBonventre Bank Account on o r about Apr i l 6, 2004. On o r aboutApr i l 14, 2004, BONVENTRE depos i ted i n to a b roke ra ge a cc ountcont ro l l ed by BQNVENTRE a check drawn on th e Bonventre BankAccount in the ~ m o u n t of $235,000.00.

iii. On o r about Ju ly 12, 2004, a s e r i e s offa l se , backdated t r ades were entered in th e records of theBonventre IA Account mainta ined on House 17. Those purpor tedt r ades had the e f f e c t o f showing, on paper :(1) the purchase of 90,000 shares of

s tock of Lucen t Techno log ie s Inc . ("Lucent") on March 11, 2003,fo r a t o t a l pr i ce of $144,000.00;(2) the purchase of 67,000 shares of

Lucent on March 12, 2003 fo r a t o t a l pr i ce of $102,510.00;(3 ) the sa le of 67,000 shares o f Lucenton Apr i l 19, 2004, fo r a t o t a l pr i ce o f $285,420.00; and

f i nanc i a l i n s t i t u t i on to buy s ecu r i t i e s in th e i nves to r ' saccount . That prac t i ce i s known as buying s ecu r i t i e s "onmargin," and f inanc ia l i n s t i tu t ions genera l ly charge i n t e r e s t onsuch borrow ed funds ("m argin i n t e r e s t " ) . Various ru l e s andr egu la t ions t ha t govern the s ecu r i t i e s indust ry a l so genera l lyl im i t th e por t ion of any s ecu r i t i e s purchase t ha t may be made onmargin to 50 percent o f the purchase pr i ce . Based on my t r a in ingand exper ience , it would be highly unusual fo r a fo r -p ro f i tf i nanc i a l i n s t i t u t i on to extend a $90,000 i n t e r e s t - f r ee loan fo rtwelve years to permi t the purchase of secu r i t i e s on margin.

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(4) t h e s a l e of 90,000 s h a r e s ofLucent on A p r i l 20, 2004, f o r a t o t a l p r i c e of $360,900.00.i v . The p u r p o r t e d purchases andLucent s t o c k r e su lt e d i n n e t p r o f i t s of $399,810.00.fol lowing t h e Lucent " t r a n s a c t i o n , " t h e Bonventre IA

r e f l e c t e d a balance of $381,000.00.

s a l e s o fImmediatelyAccount

v. I have reviewed a h a n d w r i t t e n note foundi n t h e f i l e s o f a BLMIS Employee B t h a t s t a t e d , "Dan had me p u tt h r u a p r o f i t t r a d e f o r 399810.00, t h e n add t h a t f i g u r e t o capa d d i t i o n s ! " Another handwri t ten note found i n t h e f i l e s o f BLMISEmployee B s t a t e d , "LU Trade DanBon $400,000 L t . " Based on myi n v e s t i g a t i o n , and i n f o r m a t i o n provided by o t h e r FBI a g e n t sinvolved in. t h i s i n v e s t i g a t i o n , I unders tand t h i s note t o r e f e rt o a long- term ( i . e . , more than one y e a r between purchase ands a l e ) t r a n s a c t i o n i n v o l v i n g t h e s t o c k of Lucent t h a t wouldg e n e r a t e a p r o f i t o f a pp ro xima te ly $400,000.

v i . On o r about May 25, 2005, a check i n t h eamount of $400,000.00 ("Check NO.2") made out t o BONVENTRE andh i s wife , drawn on t h e IA Account was d e p o s i t e d i n t h e BonventreBank Account. The memo l i n e on Check N o . 2 r ef e re nc ed t h eaccount number of t h e Bonventre IA Account. Immediatelyfol lowing t h e withdrawal evidenced by Check N o . 2 , t h e BonventreIA Account r e f l e c t e d a balance of -$18,190.00. On o r about June6, 2005, Bonventre d e p o s i t e d i n a b roke rage a ccount a 'Check drawnon the Bonventre Bank Account i n t h e amount of $420,000.00.c . The Fict i t ious $1 Mill ion Apple "Trade"

i . The Bonventre IA Account s t a t e m e n t sduring t h e p e r i o d January 2005 th ro ugh F eb ru ar y 2006 r e f l e c t e d nos e c u r i t i e s p o s i t i o n s , and a c o n s t a n t cash balance o f -$18,190.00.

ii. An undated handwri t ten note found i n t h ef i l e s of BLMIS Employee B s t a t e d ,

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Hi [BLMIS Employee B]As per our phone conversa t ion , Ineed a long term cap i t a l gain o f$449000 . - on an inves tment o f

$129000.- fo r a sa le proceed o f$578000 . - -

I'll be back in NY on March 30 thbut i f you need to speak to me beforethen, ca l l me on []

ThanksDanFormer BLMIS emp lo yees h av e i den t i f i ed the handwri t ing on th i snote as being t h a t of DANIEL BONVENTRE, the defendant .

iii. On o r about March 31, 2006, a s e r i e s o fpurpor ted t r ades were ente red in the records o f the Bonventre IAAccount mainta ined on House 17 . Those purpor ted t r ades had th ee f f e c t o f showing, on paper :(1)

s tock of Apple Computer Inc .t o t a l pr i ce of $577,760 .00 ;th e purchase of 8,000 shares of("Apple") on January 25, 2005, fo r a

(2) th e sa le of 16,000 shares o f Appleon March 9, 2006, fo r a t o t a l pr i ce of $1,056,960.00;12(3) a long-term ga in from the purpor tedpurchase and sa l e of Apple s tock of $479,200 .00 .

iv . As o f March 31, 2006, the Bonventre IAAccount r e f l ec t ed a balance o f $461,010 .00 . Records per ta in ingto the Bonventre IA Account do no t r e f l e c t t h a t any margini n t e r e s t was pa id to BLMIS between January 2005 and March 2006,n ot w it hs ta nd in g t he f a c t t h a t th e Bonventre IA Account d id nothave su f f i c i en t cash to purchase Apple s ecu r i t i e s valued a t$577,760 .00 a t th e t ime of the purported t r ansac t ion .

12 The add i t iona l 8,000 shares were c red i t ed to theBonventre IA Account as a consequence of a two-for-one Apples tock s p l i t on March 2, 2005.

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59.c losed t h e i ri n s t ruc t ionso f thousands

d. BONVENTRE Empties His IA AccountOn o r about Apri l 6, 2006, O 'H ara and PerezBLMIS IA accounts through i den t i c a l typewri t ten

t h a t I have reviewed, with each wi thdr awing hundred sof do l l a rs .60. On o r about Apr i l 6, 2006, DANIEL BONVENTRE, thedefendant , caused a check drawn on the IA Account in the amount

of $577,954.81 ("Check No. 3") to be made out to BONVENTRE andh is wife. On o r about Apr i l 7, 2006, BONVENTRE caused Check No.3 to be depos i ted in the Bonventre Bank Account. On o r aboutApri l 24, 2006, BONVENTRE caused a check in the amount of$500,000.00, drawn on the Bonventre Bank Account, to be deposi t edin a brokerage account con t ro l led by BONVENTRE.

61. Following th e depos i t o f Check No . 3 , theBonventre IA Account re f lec ted a balance of -$116,944.81. TheBonventre IA Account s ta tement r e f l e c t i ng ac t i v i t y through June30, 2006 shows a j ou rna l en t ry in th e amount o f $116,944.81,which brought th e balance in the account to $0. Thei nves t iga t ion to date revea l s no fu r the r ac t iv i ty in theBonventre IA Account fol lowing t h i s ad jus t ing j ou rna l en t ry , andrevea l s no paYment by BONVENTRE to BLMIS to zero out t ha tn eg ativ e b ala nc e.

62. On o r about December 12, 2008, DANIEL BONVENTRE,th e defendant , spoke with r ep resen ta t ives of th e Receiver .According to two ind iv idua l s who were presen t fo r one o r more ofth e meet ings between BONVENTRE and r ep resen ta t ives of theReceiver , BONVENTRE s t a t ed , in substance, t h a t he had c losed h isIA account in 2006 because he had got t en a "bad" o r "queasy"f ee l ing about th e c o n si st en t r et ur ns t ha t the account hadproduced.

BONVENTRE Failed To ReportFunds Taken From a BLMIS Bank AccountAs Income on His Federal Tax Returns

63. Based on my review of bank records and BLMISdocuments, I have l ea rned t ha t DANIEL BONVENTRE, the defendant ,wrote and caused checks descr ibed below to be wri t t en from aBLMIS bank. account fo r h is b en ef i t :

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Date Amount2/10/03 $33,300.0011/12/03 $65,000.0012/21/04 $18,420.241/13/06 $61,900.001/17/07 $35,000.0010/29/07 $60,000.06

64. Baseq on conversa t ions with IRS Specia l Agentsinvolved in t h i s inves t iga t ion , I have l ea rned t h a t DANIELBONVENTRE, the defendant , did not dec la re these funds, whicht o t a l ed approximately $273,620.24, on the fede ra l income taxr e t u rn assoc ia ted with th e year in which he re ce ive d the funds.I have fu r ther l ea rned t h a t BONVENTRE d id dec la re h is rece ip t of$50,000.00 from a BLMIS bank account on o r about November 5,2008, a f t e r rece iv ing a form 1099-MISC i ssued by BLMIS which, a tt h a t t ime, was under the auspices of th e T rus te e appointed underth e S ec ur i t ie s I nv e st or P r ot ec ti on Act . Pr io r to 2008, it doesno t appear t ha t BLMIS had i s sued to BONVENTRE Forms 1099-Misc inconnect ion with h is prev ious withdrawals .

65. According to a r ep resen ta t ive o f the Rece iver whopa r t i c ipa t ed in a meet ing with DANIEL BONVENTRE, the defendant ,on o r about December 12, 2008, BONVENTRE to ld t h a t i nd iv idua l , insubs tance , t h a t he had rece ived checks in to h is persona l bankaccount from a BLMIS bank account above and beyond h is sa la ry andyea r ly bonus. BONVENTRE a l so s ta te d th at he had s igna to ryau thor i ty fo r t ha t bank account .

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WHEREFORE, d e p o n e n t p r a y s t h a t a n a r r e s t warran t b ei s sued fo r th e a b o v e - n a m e d defendant , a n d t h a t h e b e i m p r i s o n e do r ba i l ed as th e case may b e .

S w o r n to be fore me t h i s2 ~ f : 1 ; Z i l O l 0H G N O ~ L E THEODORE H. KAlJ,NiTED S'J:'A'1'ES MAGISTRATsotrrHERN'DISTRICT OF N

KEITH D.Specia lFedera l

3 2

o f Inves t iga t ion