Ex-Madoff staffer says he kept quiet on fraud

NEW YORK — In the years he spent as a trader at Bernard L. Madoff Investment Securities LLC, David Kugel learned that investments Madoff claimed to be making for clients were fiction.

Kugel, 68, knew because he was instrumental in concocting phony trades. But he kept his mouth shut.

Madoff ‘‘was my boss,’’ he testified at the trial of five former Madoff employees in federal court. ‘‘If he asked me to do something, I gave it to him.”


Prosecutors are seeking to use Kugel’s testimony — the first from a cooperator in the Madoff investigation — to show he and other insiders purposely stayed blindly loyal to Madoff while becoming wealthy off his fraud.

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The testimony also suggested complexities in the don’t-ask-don’t-tell environment: By Kugel’s account, there was a belief that Madoff was working his investment magic in ways he wasn’t revealing.

‘‘I always thought he invested in shopping centers, foreign currencies, and other ventures,’’ Kugel testified. ‘‘A Ponzi scheme? . . . I didn’t think he was doing that.’’

Asked where all the money was going, Kugel told jurors: ‘‘I thought it was being invested. I didn’t know in exactly what.’’

The world now knows that what Madoff was paying out as profits was actually the cash flow from new investors — the largest Ponzi scheme in history. When the fraud was revealed in 2008, he admitted the nearly $68 billion he claimed existed in accounts was only a few hundred million dollars.


The collapse of Madoff’s investment business cost clients nearly $20 billion. A trustee has recovered much of the money by forcing those who received big payouts from Madoff to return the funds.

Prosecutors have described the defendants as ‘‘necessary players’’ in Madoff’s fraud.

They allege that Annette Bongiorno and account manager JoAnn Crupi used old stock tables to fabricate account statements and other fake records intended to dupe clients by showing steady returns even during economic downturns; that computer programmers Jerome O’Hara and George Perez developed a software program that automated the scheme; and that Daniel Bonventre, director of operations for investments, kept three sets of books to fool the Securities and Exchange Commission and banks.

The defendants rewarded themselves with tens of millions of dollars in salary and bonuses from a ‘‘slush fund’’ of stolen money, including $2.5 million for a beach house for Crupi as the Ponzi scheme was falling apart, prosecutors say.

While the defendants have denied the charges, Kugel and four other former employees, including his son, have pleaded guilty and agreed to cooperate in the case.


Kugel, who worked with Madoff for 36 years, testified he spent more than an hour a week from the mid-1970s to the mid-1990s fabricating trades that he gave to Bongiorno and later Crupi.

Kugel described the firm as ‘‘a friendly place to work,’’ and prosecutors showed photos of other employees at Kugel family functions.

But at times he looked upset as he recalled assuring his family that investing with Madoff was safe. And he had trouble blaming Madoff.

‘‘I looked up to him. I admired him. He was my mentor and I believed in him. . . . I loved working there,’’ he said.