UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT of NEW YORK SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff, V. BERNARD L

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

SECURITIES INVESTOR PROTECTION CORPORATION, Adv. Pro. No. 08-01789 (SMB)

Plaintiff, SIPA Liquidation

v. (Substantively Consolidated)

BERNARD L. MADOFF INVESTMENT SECURITIES LLC,

Defendant.

In re:

BERNARD L. MADOFF,

Debtor.

IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, Adv. Pro. No. 10-05286 (SMB)

Plaintiff,

LEGACY CAPITAL LTD.,

Defendant.

REPLY DECLARATION OF OREN J. WARSHAVSKY IN SUPPORT OF THE TRUSTEE’S MOTION FOR SUMMARY JUDGMENT

I, Oren J. Warshavsky, declare pursuant to 28 U.S.C. § 1746, that the following is true:

1. I am a Partner with the law firm of Baker & Hostetler LLP and counsel to the

Trustee. I submit this reply declaration in support of the Trustee’s Motion for Summary

Judgment. 10-05286-smb Doc 202 Filed 03/22/19 Entered 03/22/19 14:16:03 Main Document Pg 2 of 3

2. Attached hereto as Exhibit 1 is a true and correct copy of the transcript of the

testimony given by Frank DiPascali from the criminal trial captioned United States v. Bonventre

et al., No. 10-cr-228 (LTS) (S.D.N.Y.), ECF No. 856 on December 4, 2013.

3. Attached hereto as Exhibit 2 is a true and correct copy of the transcript of the

testimony given by Frank DiPascali from the criminal trial captioned United States v. Bonventre

et al., No. 10-cr-228 (LTS) (S.D.N.Y.), ECF No. 858 on December 5, 2013.

4. Attached hereto as Exhibit 3 is a true and correct redacted copy of a portion of

BLMIS’s JPMorgan Chase Bank account statement for the period September 1, 2007 to

September 28, 2007 for account number 000000140081703 with the beginning Bates number

JPMSAB0003915.

5. Attached hereto as Exhibit 4 is a true and correct redacted copy of a portion of

BLMIS’s JPMorgan Chase Bank account statement for the period September 29, 2007 to

October 31, 2007 for account number 000000140081703 with the beginning Bates number

JPMSAB0003870.

6. Attached hereto as Exhibit 5 is a true and correct redacted copy of a portion of

BLMIS’s JPMorgan Chase Bank account statement for the period May 31, 2008 to June 30,

2008 for account number 000000140081703 with the beginning Bates number

JPMSAB0004257.

7. Attached hereto as Exhibit 6 is a true and correct copy of a portion of the Expert

Report of Lisa M. Collura, CPA, CFE, CFF, dated February 20, 2017 (without exhibits).

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8. I declare under penalty of perjury that the foregoing is true and correct.

Dated: March 22, 2019 /s/ Oren J. Warshavsky New York, New York Oren J. Warshavsky

10-05286-smb Doc 202-1 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 1 Pg 1 of 180

Exhibit 1 10-05286-smbDc4rbon1Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 856 Entered Filed 04/03/1403/22/19 14:16:03 Page 1 of Exhibit179 46771 Pg 2 of 180 1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 2 ------x

3 UNITED STATES OF AMERICA

4 v. 10 Cr. 228 (LTS)

5 DANIEL BONVENTRE, JEROME O'HARA, 6 GEORGE PEREZ, ANNETTE BONGIORNO, 7 JOANN CRUPI, Jury Trial 8 Defendants.

9 ------x New York, N.Y. 10 December 4, 2013 9:00 a.m. 11 Before: 12 HON. LAURA TAYLOR SWAIN 13 District Judge 14

15 APPEARANCES 16

17 PREET BHARARA United States Attorney for the 18 Southern District of New York MATTHEW L. SCHWARTZ 19 RANDALL W. JACKSON JOHN T. ZACH 20 Assistant United States Attorneys

21 GORDON MEHLER 22 SARAH LUM Attorneys for Defendant O'Hara 23

24 LARRY H. KRANTZ KIMBERLY A. YUHAS 25 Attorneys for Defendant Perez

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon1Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 856 Entered Filed 04/03/1403/22/19 14:16:03 Page 2 of Exhibit179 46781 Pg 3 of 180 1 APPEARANCES

2 ANDREW J. FRISCH 3 GARY VILLANUEVA AMANDA BASSEN 4 Attorney for Defendant Bonventre

5 ROLAND G. RIOPELLE 6 MAURICE H. SERCARZ ARIELLE PANKOWSKI 7 Attorneys for Defendant Bongiorno

8 ERIC R. BRESLIN 9 MELISSA S. GELLER Attorneys for Defendant Crupi 10

2 (Appearances taken)

3 THE COURT: Good morning. I trust you have all

4 received copies of the order that I entered this morning in

5 respect of Mr. Breslin's application on the Cohen testimony

6 issue.

7 Another housekeeping issue on my list is cross-

8 examination list for Mr. DiPascali.

9 MR. FRISCH: It is Mr. Krantz, Mr. Riopelle, Mr.

10 Mehler, Mr. Breslin, and me.

11 THE COURT: Thank you. Is there anything else that

12 you wish to take up with me this morning before we start with

13 the jury? Mr. Riopelle?

14 MR. RIOPELLE: Only that the government had produced

15 an exhibit this morning with print so small that I cannot read

16 it even with my bifocal glasses. But they have agreed to print

17 out a larger version later today, and I thank them for that,

18 your Honor.

19 THE COURT: Sounds like a good thing.

20 The last I heard, the jury were not all present yet.

21 I am going to go back in the robing room. Ms. Ng will check.

22 Once they are here, she will give us all that two-minute

23 warning, and then we will commence when everybody is ready.

24 Thank you.

25 (Recess)

2 in.

3 (Jury present)

4 FRANK DIPASCALI, JR., resumed.

5 THE COURT: Good morning, members of the jury.

6 Welcome back. Please take your seats. Please be seated,

7 everyone.

8 DIRECT EXAMINATION

9 BY MR. ZACH:

10 Q. Mr. DiPascali, when we broke on Monday, we had been talking

11 about your time at Madoff Securities in the '70s and '80s and

12 early '90s. Do you recall that?

13 A. Yes, I do.

14 Q. To refresh everyone's memory, in the 1970s were you working

15 as a clerk for Peter Madoff?

16 A. Yes, I was.

17 Q. In the 1970s and the 1980s, what was Ms. Bongiorno's role

18 at Madoff Securities?

19 A. She was in charge of Bernie's customer business.

20 Q. On Monday you described a little bit about how David Kugel

21 would prepare information for Ms. Bongiorno. Do you recall

22 that?

23 A. Yes.

24 Q. One of the things that you said is that Mr. Kugel would

25 sometimes take that work home with him at night. Do you recall

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon1Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/1403/22/19direct 14:16:03 Page 5 of Exhibit179 46811 Pg 6 of 180 1 that?

2 A. Yes.

3 Q. Would you please describe, first, what the work was that

4 Mr. Kugel was doing for Ms. Bongiorno and also what it meant to

5 take that work home at night.

6 A. She had given him an illustration of the amount of funds

7 and for who arbitrage transactions needed to be set up for.

8 Then he would take the necessary paperwork home with him:

9 Backdated copies of The Wall Street Journal, his internal notes

10 of the terms and conditions of the various arbitrages.

11 Based on the illustrations she gave him as to how much

12 funds needed to be set up and for what groups, then he would

13 use the backdated newspapers and apply the terms and conditions

14 to certain arbitrages and come back to her with this arbitrage

15 can be done for X amount of dollars, and so on and so forth.

16 Q. Did you observe Mr. Kugel taking his work home at night?

17 A. Sure.

18 Q. What did it look like when he would take it home at night?

19 A. His briefcase with a half dozen or a dozen Wall Street

20 Journal C sections. I don't remember the card box being in his

21 briefcase, but he would take home the necessary paperwork, the

22 index cards that he used from his arbitrages, which were on a

23 rack over his right shoulder sitting on an air conditioning

24 ledge.

25 We had this metal rack that was about three foot tall

2 like six of them on a central hinge. Each one of these metal

3 pages had little plastic insert envelopes like, and you could

4 stick index cards down those insert envelopes.

5 All his arbitrages, the terms of which were written on

6 these index cards. It would say, for instance, what the

7 particular preferred stock was convertible into, what the

8 dividend dates were on the stock, what the dividend dates were

9 on the common, the rates of the dividends, the pertinent

10 information one would need to set up an arbitrage.

11 Q. Can you compare briefly taking that work home at night to

12 what you observed Mr. Kugel doing when he was doing these

13 trades on his own.

14 A. Real trades in the trading room?

15 Q. Yes.

16 A. In a nutshell, entirely different. As I said the other

17 day, in order to transact business in an arbitrage, you needed

18 current quotations. We had many vendors that would supply us

19 with quotations from various market centers. Back in the day

20 we had a Quotron machine that showed all the New York Stock

21 Exchange securities, both bonds and stocks.

22 The meat and potatoes of the arbitrage business was

23 done in an over-the-counter environment where there was a

24 vendor that used to supply what they called the pink sheets or

25 the yellow sheets. These were tissue-paper-thin stacks of

2 What it was was a very rudimentary computer printout that was

3 duplicated and distributed to every dealer at like 7 o'clock in

4 the morning.

5 What the yellow sheets specifically were were an

6 alphabetized list of various securities, whether they be

7 convertible or not. All sorts of bonds that were traded over

8 the counter would be on that list. Next to each entry for a

9 particular convertible bond, for instance, there would be a

10 list of dealers that were making a market in that bond and

11 their phone number.

12 The way the business worked back in the day before the

13 electronic environment of linking all of these dealers together

14 was if you had a customer, let's say you were Merrill Lynch,

15 you had a customer that wanted to sell a particular bond. You

16 went to the yellow sheets and you looked up who the market

17 makers were in that bond. By and large, most of the time you

18 would find Madoff, because we were market makers in most things

19 back in the day.

20 Merrill Lynch's order room would call Madoff and ask

21 them to quote the bond. David would put out a two-sided

22 bid/ask quote, the bid side being what he was willing to pay

23 for that bond, the ask side what he was willing to sell that

24 bond at. Sometimes he only had a one-side market, which was

25 I'm only willing to be a buyer of that bond, and he would quote

2 You can imagine the manpower involved when trying to

3 execute an order. You would naturally, being a prudent broker

4 trying to get the best price for your customer, call five or

5 six or seven dealers to ascertain what the price is. Then you

6 would call the dealer back that had the best price and you

7 would try to execute an order. You not necessarily were going

8 to execute the entire order with that dealer. You might have

9 50 bonds for sale and the guy only bought 25. So you had to go

10 back to the second best price and make another phonecall.

11 In essence, we had 120 telephone lines in front of us.

12 There were what they call the turret system. If you look at

13 like an old black and white movie of a phone operator with all

14 the wires, it looked just like that, except the wires were all

15 in the back and we had little buttons. Lights would be above

16 every button, and the lights would be flashing and a little

17 buzzer would be going off under the desk to alert that you that

18 the light was flashing.

19 Most of the time during the trading day that buzzer

20 was going nonstop. You wore a headset and you flicked a button

21 and you spoke to a brother. You either gave out a quotation or

22 maybe you already give out a quotation or maybe you already

23 gave out a quotation and now this is the second phonecall that

24 the broker is coming back to you and literally giving you an

25 order to execute at the quotation you gave four minutes ago.

2 around. You're cognizant of what the security price is of the

3 common stock, and that constantly needs to be monitored so that

4 you could have a quotation that makes sense economically. You

5 would purchase the bond on the second or the third phonecall

6 based on that moving target price of the common.

7 Now the frantic part starts. Once you purchased that

8 bond, you've got to sell that common at that price; otherwise,

9 the numbers don't work. If it's a New York Stock Exchange

10 listed stock that you are trying to sell, you hit down one of

11 those turrets and you start pressing a button to ring it down

12 so it rings down to your broker on the floor, and you give him

13 an order. You stay on the phone while he's trying to execute

14 that order.

15 If it's an over-the-counter stock that needs to be

16 sold, that's a different market environment. There is no floor

17 in the over-the-counter NASDAQ market, there is a computer

18 terminal. When you hit up the stock on the computer terminal,

19 you see the name of the stock and you see 20 brokers. Or, if

20 it's not a NASDAQ listed stock and it's traded over the

21 counter, it's in the pink sheets. Now you have to flip through

22 that and find all the phone numbers of these brokers. It is

23 not a one-man job typically. So, there's a few people involved

24 in either looking up numbers or looking at brokers on NASDAQ.

25 In the meantime David is getting very frantic that he

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 10 of Exhibit 179 46861 Pg 11 of 180 1 is not going to be able to sell enough stock because he just

2 bought the bond. There's a lot of communications between the

3 trading room and the outside world, a lot of communication

4 internally within the traders in that trading room.

5 Q. There's a lot of activity going on?

6 A. It's cuckoo.

7 Q. Compared with Ms. Bongiorno's work, which was him going

8 home with some Wall Street Journals in his briefcase?

9 A. Correct.

10 Q. Back in the 1970s, before things became more electronic,

11 would you see runners and people coming into the office on the

12 market-making side of the business?

13 A. Outside runners typically didn't come into the office, they

14 stayed outside the window, but yes.

15 Q. What was the window?

16 A. That's where receive and delivers of securities were being

17 made. I'm not all that familiar with the process, but on

18 settlement date the brokers that you bought stock from would

19 make delivery of those shares, physical paper certificates.

20 They had these big satchels, kind of like lawyers walk around

21 with, and they made deliveries. They would come up to your

22 office and make a delivery.

23 Your receive clerk would pull the confirmation of

24 trade out of the stock of his work for the day, of things that

25 were going to settle that day, and he would tear off -- the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 11 of Exhibit 179 46871 Pg 12 of 180 1 certificate typically was attached to the confirmation that the

2 other broker presented which had his particulars as he knew it.

3 You would compare it to the particulars as you knew it. If it

4 matched off and you were expecting that delivery at that price

5 on that day for that money, you would write him a check. And

6 they would wait for their checks.

7 Q. So you would see paper coming in and out of the office on a

8 regular basis for the trading that was going on in the

9 marketplace?

10 A. Tons of paper.

11 Q. Did you observe similar amounts of paper come in and out

12 for Ms. Bongiorno's side of the business?

13 A. No.

14 Q. I would like to turn back to Avellino & Bienes, which is

15 how we wrapped up on Monday, and go over those events a little

16 bit more. On Monday you testified that Mr. Madoff was walking

17 around the area of the office between where you and Ms.

18 Bongiorno sat. Do you recall that?

19 A. Yes.

20 Q. You testified that he was discussing his concerns relating

21 to the statements for A&B being off and not reflecting the

22 trading strategy that had been being represented to A&B's

23 clients, do you recall that?

24 A. He wasn't discussing those particulars in that hallway.

25 Q. Where would he discuss those particulars?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 12 of Exhibit 179 46881 Pg 13 of 180 1 A. In Annette's office.

2 Q. Did you observe him discussing that with Ms. Bongiorno?

3 A. Yes.

4 Q. You also said that he was discussing the lack of a cushion,

5 meaning that there wasn't sufficient money reflected on the

6 statements to cover the liabilities that A&B had incurred. Do

7 you recall that?

8 A. Yes.

9 Q. Where did you observe them having those discussions?

10 A. Either in Annette's office or my office.

11 Q. We looked a document reflecting the attempt to hide other

12 Madoff clients, like A&A. Do you remember looking at those

13 documents?

14 A. Yes.

15 Q. Did Mr. Madoff discuss those with Ms. Bongiorno and others?

16 A. Yes.

17 Q. Did you observe those discussions?

18 A. Yes.

19 Q. When the redoing of the statements took place, how far back

20 did the statements have to be redone?

21 A. I think three years.

22 Q. To be clear, how often would a statement go out?

23 A. Every month.

24 Q. When you say going back three years, that would be 36

25 statements, right?

2 Q. A statement would then reflect what activity?

3 A. It's going to show the incoming cash balance, which was the

4 closing balance of the prior month. Then it's going to show,

5 in chronological settlement date order, all the activity,

6 whether that's a transaction or a dividend or a transfer or

7 some activity that's dated.

8 Each one of those lines of activity typically has a

9 money feature to it, a debit or a credit. Your opening balance

10 starts here, and then all this activity occurs, and every piece

11 of that activity has a debit or credit associated to it which

12 is changing your incoming balance. The last line on the

13 activity section of the statement is your closing cash balance.

14 Then right under that there is a listing of the security

15 positions that are residual at the end of that period.

16 Q. Now I would like to bring up, Ms. Baskin, if we can,

17 Government Exhibit 105-B57. Can we go back to the highlighted

18 part that we were looking at on Monday.

19 Remind us again, Mr. DiPascali, whose handwriting are

20 we looking at here?

21 A. Most of it is mine.

22 Q. What part of it is not?

23 A. About half of it is mine.

24 Q. What part is yours, first?

25 A. The circled information that's in yellow with the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 14 of Exhibit 179 46901 Pg 15 of 180 1 multicircles, the little B to the left of that, the little dash

2 three zero to the left of that. Then the items that are

3 crossed off in the boxes to the right of the circled yellow

4 area, 4.65, 11.18, 11.29, that's all mine. Everything else

5 that I see in that section is not mine, it's Annette's.

6 The line above that is kind of cut off on my screen is

7 also mine, where it says OEX ND, I believe.

8 Q. To the left do you see where it says "add to December '89

9 statement"?

10 A. Right.

11 Q. We looked at that on Monday, right?

12 A. Yes, we did.

13 Q. That is in Ms. Bongiorno's handwriting?

14 A. Yes, it is.

15 Q. Did you have a discussion with Ms. Bongiorno about using

16 these particular securities as part of the Avellino & Bienes

17 redo?

18 A. Yes.

19 Q. What did you discuss with Ms. Bongiorno about this?

20 A. There came a point in the redo of all that A&B work that

21 Bernie went to her and wanted to have treasury instruments

22 inserted on the statements. She came to me and said, I need a

23 treasury, because I was the guy they went to in the office when

24 treasuries were discussed. It was natural for her to come to

25 me.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 15 of Exhibit 179 46911 Pg 16 of 180 1 So, Bernie wants to put some treasuries into this

2 work. She gave me an amount and she gave me a time frame, and

3 I started researching treasuries in that time frame. I quickly

4 realized that that could be problematic because treasuries, I

5 don't remember exactly what their maturity schedule was back in

6 1992, but they are typically short-term, six months or a year.

7 Q. What is a maturity schedule?

8 A. It's when the bond pays back the holder the principal, kind

9 of like when a savings bond matures. You purchase it in

10 January and it ceases to exist, basically, in let's say June.

11 Where you're buying a bond that pays you interest or you buy it

12 at a discount to receive implied interest, when it matures is

13 when the principal is paid back to the holder.

14 A treasury bill is a government instrument that has

15 the shortest maturity of all government instruments, six

16 months. They went to a year for a while and then back to six

17 months, I'm not quite sure when exactly. Suffice it to say

18 it's less than a year, a year or less.

19 This is a project that is taking a three-year lookback

20 period, where we are doing, like you said, 36 monthly

21 statements or some number very close to that.

22 Bernie goes to Annette and says he needs treasuries,

23 Annette comes to me and says Bernie needs treasuries. I start

24 researching treasury prices and then I realize that's no good

25 because if they go back and put treasuries into this account

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 16 of Exhibit 179 46921 Pg 17 of 180 1 in, let's say, 1989, then the treasuries that I'm looking at

2 are going to mature in early '90 and we are going to have to

3 get another treasury. Then the treasuries that we buy in early

4 '90 are going to mature in mid 1990, so we are going to need

5 another treasury, and so on and so on, to complete the cycle

6 all the way to the summer of '92.

7 So, purchasing a T-bill didn't make any sense to me or

8 putting through a ticket to purchase a T-bill didn't make any

9 sense to me. I bounced it off Bernie that you really don't

10 want a T-bill, you want a treasury note, which has a longer

11 maturity, typically three, four, five years.

12 That became somewhat problematic because treasury

13 notes paid coupon interest every six months. If we are going

14 to put a trade into this account in the latter part of 1989,

15 then two times a year going forward she would have an interest

16 credit to have to put through the account. If my memory serves

17 me right, a lot of this work had already been pretty much put

18 to bed, and those interest credits were going to change all the

19 cash balances. So statements that were already kind of done

20 would have to get redone.

21 Q. Stepping back for a second, going back and doing three

22 years worth of statements -- that's what the project was,

23 right?

24 A. Mm-hm.

25 Q. All of the trading in those three years of statements is

2 A. Sure.

3 Q. Those trades are just being picked out of sort of

4 historical market data?

5 A. Correct.

6 Q. You said that the initial treasury securities you are

7 looking at matured quickly, meaning every six months or every

8 year?

9 A. Correct.

10 Q. Using what we have here, the STRIP interest, did you have

11 to go back and find more or less fake securities to put into

12 the statements?

13 A. The treasury instrument known as a U.S. Treasury note

14 stripped of interest was pretty much the perfect vehicle to

15 suit Bernie's needs because it doesn't pay a coupon every six

16 months, which was one of the problems, and it has a long-term

17 maturity. It solved the problem of once you put it into the

18 account, having to do anything else that would then for the

19 second time change all these redone statements.

20 It literally could get put into the account in the

21 December '89 time frame and just carry forward on the residual

22 section of the security positions all the way till the end of

23 '92 if you wanted to, without having to touch anything again.

24 It's a long-term treasury instrument that pays no coupon.

25 Those were the two issues that needed to be jumped over,

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 18 of Exhibit 179 46941 Pg 19 of 180 1 getting over the short-term nature of it and getting over the

2 coupon payment credit issue. This was perfect.

3 Q. It was less work for you guys to insert in these

4 statements?

5 A. Yes, it was.

6 Q. And it was easier to keep track of?

7 A. Yes.

8 Q. And it had less effect on having to change the incoming

9 balances each month?

10 MR. KRANTZ: Objection.

11 THE COURT: Please confer.

12 (Counsel conferred.)

13 Q. Because the STRIP interest didn't pay a regular coupon, how

14 did that make it easier to deal with each monthly statement?

15 A. Had a security that paid a coupon been placed instead of

16 this one, then every six months a credit for that coupon would

17 have had to be posted to the account that this was put in,

18 changing the cash balance.

19 Q. These were all things that you discussed with Ms.

20 Bongiorno?

21 A. Not in great detail.

22 Q. But you provided this information to her?

23 A. I told her this would be perfect because you don't have to

24 deal with a coupon issue and you don't have to deal with a

25 rollover issue, because things were maturing every six months,

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 19 of Exhibit 179 46951 Pg 20 of 180 1 use this instead.

2 Q. Because it would make things easier?

3 A. Yes, sir.

4 Q. Can we pull out of this document for a moment. Let's blow

5 up the right-hand side of the middle section of the document.

6 There is additional handwriting on the right-hand side. Can we

7 highlight that, Ms. Baskin.

8 Mr. DiPascali, do you recognize that handwriting?

9 A. Yes.

10 Q. Whose handwriting is it?

11 A. It's Annette's.

12 Q. Could you read it, please.

13 A. "If this trade goes through, it must be before 11/89 or

14 opening balance must change."

15 Q. What's an opening balance?

16 A. It's the number that appears as the first number on the

17 statement, which is the carryforward closing balance of the

18 prior month.

19 Q. If an opening balance changes in a given month, what effect

20 does that have on all of the statements that might have been

21 created afterward?

22 A. They would have to change. Your opening balance is your

23 starting point. You are changing the starting point. If there

24 is any activity that month, it's going to be reflected against

25 a different starting point.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 20 of Exhibit 179 46961 Pg 21 of 180 1 Q. Let's pull out of this document. I would like to go now to

2 Government Exhibit 105-B58, if we can. I would like to go to

3 page 13. Looking at page 13, Mr. DiPascali, can you tell us

4 what account this is for.

5 A. Avellino & Bienes number 5, which is A53.

6 Q. Briefly, what was the number 5 account used for as part of

7 this redo?

8 A. It was an account that was created to increase the value of

9 the A&B holdings.

10 Q. What role did that play in connection with Mr. Madoff's

11 concern about there being a sufficient cushion to display as

12 part of this SEC investigation that he anticipated?

13 A. It pretty much went exactly to that point.

14 Q. Let's look at the date of this statement. When is it

15 dated?

16 A. It's a June '92 statement.

17 Q. Can we highlight that, please. Do you see that there is a

18 series of trades on the bottom half of the document?

19 A. Yes.

20 Q. What are those trades dated?

21 A. Various dates in December. I can't tell which year,

22 because the year is not resident on this statement.

23 Q. Do you recognize the check marks on this document?

24 A. On the top or the bottom?

25 Q. Yes, on the top.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 21 of Exhibit 179 46971 Pg 22 of 180 1 A. On the top they are Annette's.

2 Q. Let's blow up the bottom half, starting at 12. Can we put

3 that in split screen. Thank you, Ms. Baskin. If we can, I

4 want to go to page 1 of the same document on the other split

5 screen. And can we blow up the trades.

6 It is a little bit small, because it is a split

7 screen. Can you see, Mr. DiPascali, what the first page of the

8 document says at the top?

9 A. A&B number 5.

10 Q. So it is the same account?

11 A. Yes, it is.

12 Q. Do you recognize the handwriting?

13 A. It's Annette's.

14 Q. What is it dated?

15 A. 12/31/91.

16 Q. Can you remind us what the handwritten versions of these

17 statements were used for.

18 A. That was the information that needed to be manually keyed

19 into the machine to create a statement.

20 Q. Now let's blow up the trades that we see there. If you

21 can, can you compare the handwritten trades to what is at the

22 top.

23 A. They look to be the same. I didn't block out every one of

24 them, but . . .

25 Q. A lot of them have the same transaction number, the same

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 22 of Exhibit 179 46981 Pg 23 of 180 1 shares, the same date?

2 A. Exactly.

3 Q. The top document is dated what?

4 A. June '92, I believe.

5 Q. What was the bottom document? What is the date on that?

6 A. December of '91, I think.

7 Q. Tell us what's happening here.

8 A. The handwritten document is the information that's going to

9 get keyed into the machine. The top document is the first

10 generation of the statement that would come off the printer

11 based on what was inputted into the machine. Since the

12 computer only knows it's June of '92, it's going to accept

13 information into itself but it is not going to be in proper

14 form.

15 If you put December '91 transactions into the system,

16 a system that recognizes the time period being we are in June

17 of '92, and then you ask it to create a statement, it's going

18 to print a June '92 statement and it's going to have December

19 of '91 transactions on it. That's what you are looking at at

20 the top. It's a first generation statement when one is redoing

21 a statement that is backdated. That would never be distributed

22 to anyone. It's an internal office document. It's a work

23 product.

24 Q. This is working toward getting to where you want to be in

25 the statement redo?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 23 of Exhibit 179 46991 Pg 24 of 180 1 A. It's not there yet.

2 Q. Let's now go look at Government Exhibit 300-2. What are we

3 looking at here? What account this, first?

4 A. Same account, A&B 5.

5 Q. What is this document dated?

6 A. December '91.

7 Q. Is this the same account that we just looked at the first

8 iterations of the redo on?

9 A. Correct.

10 Q. Looking at the trades that are on this December 1991

11 statement, how do they compare to the handwritten notes and the

12 first generation statement that we just looked at?

13 A. They appear to be the same.

14 Q. What is this document in relation to the first two drafts

15 that we saw?

16 A. This is either final or getting very close to a December

17 '91 statement.

18 Q. When were these trades actually entered?

19 A. I could tell by the other document they were entered in

20 June of '92.

21 Q. When is this statement saying that they were entered?

22 A. December of '91.

23 Q. Let's be clear, again, are any of the trades on this real?

24 A. No.

25 Q. Why is it important that these fake trades look like they

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 24 of Exhibit 179 47001 Pg 25 of 180 1 were done in December 1991 and not in June of 1992, when they

2 were actually picked?

3 A. Because when you are redoing three years worth of

4 statements, you got to get it right. Bernie wasn't about to

5 hand them one June of '92 statement and say here, this is what

6 this account looks like in June of '92. You might as well just

7 print the word "fraud" all over the damn thing.

8 Q. Thank you. Let's pull out of that document. Did there

9 come a time, Mr. DiPascali, that the fake Avellino & Bienes

10 accounts that we have been talking about and for whose

11 statements had just been done needed to be liquidated?

12 A. Yes.

13 Q. By liquidated, what does that mean?

14 A. In the real world you would do transactions with counter-

15 parties to sell the securities that you currently have in

16 position for your client. In our world we would write sale

17 tickets to things that were long. If it showed that it was in

18 inventory, then we would write a sale ticket to convert that

19 inventory to cash.

20 Q. In the real world if you are going to liquidate an account,

21 you would sell the securities the customer owned, get the money

22 for that stock, and give it back to the client?

23 A. In this case it was going to the trustee, but yes.

24 Q. There were no securities in these Avellino & Bienes

25 accounts, right?

2 Q. How was it that the money was going to be returned to

3 Avellino & Bienes?

4 A. Bernie was going to return the money from his checkbook.

5 Q. Just going to write them a check?

6 A. Or a wire.

7 Q. Why did these Avellino & Bienes accounts need to be paid

8 back by Bernie to Avellino & Bienes?

9 A. My understanding was that Frank Avellino and Mike Bienes,

10 after negotiating with the SEC, had come to some resolution

11 that they would close down the business. The SEC -- I'm not

12 very well versed in all the court proceedings and negotiations

13 that went on, but what I do know is a trustee was appointed by

14 the court or the SEC went to the court to have a trustee

15 appointed, and a fellow by the name of Lee Richards became the

16 trustee for the Avellino & Bienes affairs.

17 His job, as I know it, was to quantify who Avellino &

18 Bienes's clients were, first of all, and, second of all,

19 determine what each client was owed that was represented by the

20 promissory notes that Frank and Mike had issued these people.

21 He had a staff of people that were going through the books and

22 records of Avellino & Bienes. Whether that was at the SEC's

23 office or Avellino's office or the trustee's office, I have no

24 idea.

25 There was this sigh of relief, if you will, at the SEC

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbCaseDc4rbon1 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 03/22/19direct 14:16:03Page 26 of Exhibit 179 47021 Pg 27 of 180 1 when they found out -- when they started digging through the

2 Avellino & Bienes mess, they thought it was a Ponzi scheme.

3 They thought there were a thousand people that were going to

4 get harmed. They were very excited to hear that Bernie Madoff

5 was actually the broker that was handling Avellino's business

6 and was custodying the securities. So they appointed a

7 trustee.

8 MR. BRESLIN: Objection, your Honor. Move to strike.

9 THE COURT: Sustained. Ladies and gentlemen, you are

10 to ignore the testimony regarding what the SEC thought. Thank

11 you.

12 Q. Confining your answer to discussions you were having

13 between Mr. Madoff and yourself and other people at Madoff

14 Securities, what was your understanding based on those

15 discussions of why those accounts needed to be liquidated?

16 A. Because the trustee demanded it.

17 Q. The trustee was appointed, based on your understanding, to

18 do what?

19 A. To instruct the broker to liquidate the holdings of A&B in

20 some orderly fashion and forward the proceeds of that

21 liquidation to him as trustee, and then his office was going to

22 be responsible for cutting checks back to the promissory

23 noteholders.

24 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 27 of Exhibit 179 47031 Pg 28 of 180 1 Q. And what was your understanding of how that was going to be

2 used to resolve the situation that Avellino and Bienes had with

3 the Securities and Exchange Commission?

4 A. Can you ask me that again, please. I'm sorry.

5 Q. What was your understanding of the effect that would have

6 on dealing with the investigation by the Securities and

7 Exchange Commission?

8 A. My understanding was that if the trustee received the funds

9 from the brokerage accounts and distributed the checks, that

10 the SEC and the Avellino and Bienes firm had an agreement that

11 they would cease to conduct business in the future.

12 Q. Avellino and Bienes?

13 A. Yes. In effect, they would have been unwound by a trustee.

14 Q. And was it your understanding that that would be the end of

15 the investigation?

16 A. Yes.

17 Q. So how did the Madoff firm go about paying back Avellino

18 and Bienes?

19 A. We put through trading tickets that were on the sell side

20 to quantify the credits that would then be resident because the

21 securities that were resident on a statement would have been

22 converted to cash. We looked at the value of that number and

23 the various settlement dates that that number was going to be

24 available cash to the A and B accounts.

25 And Bernie cut checks or made wires to the trustee for

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 28 of Exhibit 179 47041 Pg 29 of 180 1 those amounts on those days and the balance in the A and B

2 accounts, after that was complete, became zero; so the accounts

3 ceased to exist on our end.

4 Q. Now, when you say the accounts, are you referring to the

5 redone statements that you've been testifying about this

6 morning and on Monday?

7 A. All the sale tickets that were generated -- were generated

8 to address the positions that were in the accounts because they

9 were redone.

10 Q. And when you say doing trade tickets and sale tickets, were

11 those to really resell securities?

12 A. No, we were just putting through paperwork.

13 Q. To make it look like they're actually sold securities?

14 A. Exactly.

15 Q. And who was involved in this process of putting through

16 these fake trade sale tickets to return money via checkbook to

17 Bernie Madoff -- to Avellino and Bienes?

18 A. Annette and I wrote a couple of tickets myself on the

19 treasuries and some of the options.

20 Q. I'd like to show you, just the witness, Judge Swain and

21 defense counsel, what's been marked as Government

22 Exhibit 105-A374.

23 Do you recognize the handwriting on this document?

24 A. Most of it is mine.

25 Q. And what does this document show?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 29 of Exhibit 179 47051 Pg 30 of 180 1 A. Looks like it was some instructions I was giving to someone

2 in our back office where we were sending back treasury notes,

3 probably, and would be receiving in return other treasury

4 notes. This document was written when we were swapping

5 positions with Hadassah, which was one of Bernie's clients.

6 MR. ZACH: I'm going to offer A374.

7 THE COURT: Is there any objection?

8 MR. MEHLER: No objection.

9 MR. FRISCH: No objection.

10 MR. RIOPELLE: No objection.

11 MR. KRANTZ: No objection.

12 THE COURT: Government Exhibit 105-A374 is admitted in

13 evidence.

14 (Government's Exhibit 105-A374 received in evidence)

15 MR. ZACH: And we don't need to publish it. We'll

16 just take it down.

17 BY MR. ZACH:

18 Q. Now, as part of -- around the time that Madoff was paying

19 back Avellino and Bienes, were you aware of other Madoff

20 customers providing securities to Madoff to be used as

21 collateral?

22 A. At the exact time he made the payments, no.

23 Q. In the general time period?

24 A. Shortly thereafter.

25 Q. And what do you recall about that?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 30 of Exhibit 179 47061 Pg 31 of 180 1 A. Bernie had arranged for one of his clients, a fellow by the

2 name of Jeffrey Picower, to send into our firm a portfolio of

3 security holdings that he had that, I believe, came in from

4 Goldman Sachs. They were large positions in very familiar

5 companies, like Hewlett Packard and American Cyanamid and

6 American Telephone, and they were deposited with Bernie. Well,

7 Goldman Sachs made a delivery based on Mr. Picower's

8 instruction, and they were delivered to our DTC account, I

9 believe, at Madoff.

10 Q. And who was Mr. Picower?

11 A. He was one of Bernie's largest clients.

12 Q. And did you, over time, gain an understanding of what those

13 securities were going to be used for?

14 A. Yes.

15 Q. What did you gain an understanding as to how they were

16 going to be used?

17 A. Well, what Bernie did was he received in securities that

18 belonged to Jeffrey Picower, and he basically did two separate

19 things with them. He -- Once those securities were received in

20 by our firm, they became part of our clearing account. He

21 instructed Annette to receive them into Mr. Picower's account

22 at Madoff, his investment advisory account, if you will.

23 So in order to do that, she would have had to write up

24 what they call a C and S sheet, which is an illustration of the

25 security description, typically CUSIP, the position and in the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 31 of Exhibit 179 47071 Pg 32 of 180 1 money box, you would put zero because they were received in for

2 free. In other words, he wasn't buying them through us. It

3 wasn't a transaction where Bernie was buying them from him.

4 It was just a delivery of shares from point A and we

5 were point B, and they needed to be reflected on Mr. Picower's

6 statement that that occurred just that way. And at the end of

7 that cycle, he had a statement that showed that now Madoff was

8 holding this stock, this stock and this stock for him at the

9 Madoff brokerage house, and he no longer was holding them at

10 Goldman.

11 The second thing that he did was they took those very

12 same securities and they opened an entry in the trading room.

13 Each trader in the trading room had his own computer account.

14 So each trader every morning would get a computer run that

15 showed all that trader's positions and any profit or loss they

16 might have had on those positions for the day, for the month,

17 for the year, so on.

18 So they opened a trading account in the trading room

19 and they, through the back office, did a similar process that

20 Annette did on the investment advisory side. They received in

21 these securities for free. So they became resident in the

22 broker's trading account and then simultaneously, or once they

23 were registered in the broker's clearance account, they pledged

24 those securities to our bank and they borrowed against them,

25 converting them to cash. And then they used that cash in that

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 32 of Exhibit 179 47081 Pg 33 of 180 1 checkbook and they paid Lee Richards, the trustee for Avellino.

2 Q. So stepping back for a moment, Mr. Picower provided

3 securities to Madoff which appeared on his statements as if

4 they were just being custodied at Madoff Securities, right?

5 A. Exactly that.

6 Q. And these were real securities, right?

7 A. Oh, yes.

8 Q. And how did these compare to all the securities we've been

9 talking about with the A and B account?

10 MR. BRESLIN: Objection, your Honor. At this point,

11 asked and answered.

12 THE COURT: Overruled. You may answer.

13 THE WITNESS: I can answer, your Honor?

14 THE COURT: Yes, you may answer.

15 A. These were real securities received in from another market

16 center, namely Goldman Sachs, and they were placed in a --

17 basically, a customer safekeeping account at Madoff for Jeffrey

18 Picower, or for one of his entities, I believe. These

19 securities actually existed when they were on deposit in our

20 DTC account. You could borrow against them, which they did.

21 There's a plethora of differences between entries that were

22 made to represent securities and a security.

23 Q. And after Mr. Picower provided these securities to Madoff,

24 Madoff then went and got a loan against them, right?

25 A. Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 33 of Exhibit 179 47091 Pg 34 of 180 1 Q. Now, to get the loan, did Mr. Madoff disclose that he

2 didn't actually own those securities, to your understanding?

3 A. No.

4 Q. Why not?

5 A. Because you can't borrow with someone else's collateral.

6 Q. And the money that was then borrowed was used to pay back

7 the trustee?

8 A. I believe it was.

9 Q. And who was involved -- Well, at the time, did you know who

10 was involved in getting these securities in?

11 A. Our back office, typically, would see -- they would be the

12 first employees at Madoff that would physically see the

13 securities coming into the DTC account.

14 Q. And who was it that participated in this process of taking

15 the securities and getting the loans?

16 A. It would have been Dan Bonventre, Tony Tiletnick and

17 various clerks.

18 Q. Now, Mr. DiPascali, did there come a time that you

19 understood that the Avellino and Bienes crisis had come to an

20 end?

21 A. Yes.

22 Q. When did that happen, approximately?

23 A. I can't put a time frame on it, but, you know, four, five,

24 six months after everything -- the dust settled, there was

25 simply no more discussion about it.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 34 of Exhibit 179 47101 Pg 35 of 180 1 Q. Around that time period, did any sort of publication come

2 out relevant to what had been going on?

3 A. The Wall Street Journal wrote an article on it.

4 Q. When did the Wall Street Journal -- Well, what was the

5 article generally about?

6 A. It was basically -- It was a dissertation as to what had

7 occurred, that the SEC was pleasantly surprised that Bernie

8 Madoff was the custodian of the assets of this entity that the

9 SEC had investigated and was concerned that they may have been

10 operating improperly, that a trustee had been appointed, that

11 there had been some negotiations between A and B and the

12 commission to close down, and that it was handled in this

13 orderly fashion with the trustee with the tremendous help of

14 Bernie Madoff.

15 There was a caricature picture of Bernie, like a

16 cartoon picture of Bernie, in the article. It was kind of like

17 one of these, the financial community dodged a bullet here.

18 Q. And the bullet being the investigation of Avellino --

19 A. Yeah, that they would clearly, at least on -- the

20 appearance was that they were not operating something

21 improperly other than the technicality of not registering

22 themselves or registering the securities they were issuing, but

23 that everything else seemed to be on the up and up.

24 Q. And did Mr. Madoff discuss this article after it came out?

25 A. Yeah.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 35 of Exhibit 179 47111 Pg 36 of 180 1 Q. What did he say about it?

2 A. Well, he was kind of like, his biggest concern was that the

3 caricature didn't look look him. It makes my cheeks look too

4 big, he said.

5 Q. What do you mean the caricature?

6 A. They had a little like three-by-three sketch of Bernie

7 Madoff, like a profile thing, in part of the article.

8 Q. Okay. He didn't like the way he looked?

9 A. He didn't like the way he looked, and he was not happy that

10 this was a -- and it was on the top part of the Wall Street

11 Journal, might have been the C section as well, might have been

12 B section, but it was a prominent article. It wasn't something

13 that most people would just flip past.

14 So he was kind of ticked off that it actually

15 happened, but he was not upset of the verbiage of where the

16 article took the reader.

17 Q. Did it suggest in any way that Mr. Madoff wasn't actually

18 holding securities?

19 A. Of course not.

20 Q. Did it in any way hint at the fraud that was going on at

21 Madoff Securities?

22 A. No.

23 Q. So it was, in general, a good thing for Madoff?

24 A. In respect that it did not disclose any of the

25 irregularities, yes, but no, no disclosure to the public about

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 36 of Exhibit 179 47121 Pg 37 of 180 1 any customer business is ever a good thing for Madoff. It was

2 just a general consensus that low key, under the radar is where

3 he wanted to operate. The C section of the Wall Street Journal

4 is not under the radar.

5 Q. And who was this article shown around to the people that

6 worked on the statement re-do's?

7 A. I came in touch with it when Peter Madoff came flying

8 through the trading room with a copy of it under his arm,

9 looking for his brother. For some reason, Peter assumed that

10 his brother had not yet seen the article, and that's how I

11 became aware of it. So it was, yes, Bernie told Peter, of

12 course I saw the article, and yeah, there was discussion about

13 the article.

14 Q. So when this was all done and over, did you feel like you

15 had dodged a bullet?

16 A. Most certainly.

17 Q. Now, as a result of what we've just been discussing, these

18 Avellino and Bienes accounts that we've been looking at were

19 closed, right?

20 A. Yes.

21 Q. And after this Avellino and Bienes crisis ended, did you

22 begin to take on a different role in the investment advisory

23 business?

24 A. Yes.

25 Q. What role did you take on?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 37 of Exhibit 179 47131 Pg 38 of 180 1 A. Almost immediately after the funds were distributed, Bernie

2 came to me and asked me if I can do business for about a

3 thousand customers, which floored me because I had been writing

4 tickets for a couple dozen customers, and even that was

5 starting to become very laborious because they were handwritten

6 tickets. They were -- each one needed to be key processed into

7 the system.

8 There was a lot of paperwork. Even though my customer

9 base of accounts that I was doing option-hedging transactions

10 for, maybe it was three dozen or four dozen people by then, and

11 he turns and says he wants to explore the possibility of taking

12 on about a thousand accounts.

13 Q. And this is in the client side of the business, right?

14 A. Yes.

15 Q. And when you had been doing that options hedging work, who

16 was running the IA business?

17 A. Annette.

18 Q. And as you began to take on -- or as you were offered new

19 responsibilities, was Ms. Bongiorno still running the IA

20 business?

21 A. Yes.

22 Q. Now, how did you respond to that request?

23 A. Told him I didn't know if I could do it. It became very

24 apparent to me very quickly that the only way you could do that

25 is to use the efficiencies of a computer. I'll speak to the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 38 of Exhibit 179 47141 Pg 39 of 180 1 computer people and see if we can do it. I don't know.

2 Q. So did you take on the task of trying to figure out a way

3 to manage a thousand client accounts?

4 A. I had some brief conversations with Liz Weintraub, who was

5 the head of IT, to get her permission to talk to computer

6 people. And she said that I should talk to Jerry about trying

7 to brainstorm with him how one would go about the processing of

8 that many accounts in that strategy that Bernie had elected to

9 use for these potential clients.

10 Q. And were you able to come up with a way to handle managing

11 a thousand customer accounts?

12 A. Eventually, sure.

13 Q. Describe what you did.

14 A. Basically, we looked at almost like creating a rubber stamp

15 or a template that you then could, through the use of the

16 computer, use as your core transaction, if you will, and then

17 apply that core transaction over and over and over and over and

18 over again to as many clients.

19 I mean, it didn't matter. Once we built it initially,

20 it could be done for two clients, eight clients or 80,000

21 clients. It's -- the computer has an infinite amount of, you

22 know, repetition-ability, if you will. So we looked at if we

23 built a core architecture that's a -- my goodness, I lost the

24 word, but if we built a template that had a group of trades

25 illustrated in the template and the share quantity of those

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 39 of Exhibit 179 47151 Pg 40 of 180 1 trades was a simplistic, round number, then we could say, okay,

2 you have a hundred shares of Microsoft, 20 shares of Cisco, 300

3 shares of IBM, that's your template.

4 Now, do five of those for this guy, and the machine

5 would look at five times a hundred and create a ticket of 500

6 and five times 200 and create a ticket of, you know, a

7 thousand, and so on and so on. And then you can say, all

8 right, now do 14 units for this guy, and it would do the math

9 again. It would say 14 times a hundred, and it would create a

10 ticket of 1,400. So if you had a template that had 20

11 purchases of various securities in a simplistic number that's

12 rounded to the nearest hundred, then you then could assign a

13 unit quantity to each and every one of your clients and the

14 machine would literally write the tickets. So the

15 labor-intensive nature of doing what he was asking me to do

16 would be done by the machine.

17 You would determine what the unit quantities were

18 going to be used for each client by running some simple math.

19 You know what the template costs. Let's say $1,000. You know

20 that John's got $500 to invest. You would simply divide a

21 thousand into the 500,000 and come up with a unit quantity,

22 five, and then do five of that template. And when the five of

23 the template was all written to tickets, if you ran the math,

24 it would be $500,000 because five -- so you simply were

25 automating it in a very mechanical fashion.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 40 of Exhibit 179 47161 Pg 41 of 180 1 And we called it batch trading. That was what we were

2 going -- because you were going to take a template and process

3 it for a batch of people or a batch of information. So we

4 eventually perfected that over the next couple of months or

5 years, even where the machine was actually reading the cash

6 credit balance of the investment advisory customers. And then

7 all I would need to do would be to give the divisor to the

8 machine, and it would divide those cash credit balances by a

9 set number.

10 It would produce a unit quantity. It would create a

11 file within itself of account number, unit quantity and then

12 you would say, okay, see this file of account number unit

13 quantity, run it against this template which we called the

14 basket. So it had a specific identifier, since every basket

15 was different, and it would then just automatically start

16 processing as many tickets as required. Sometimes we processed

17 a quarter of a million tickets in a day --

18 Q. So this was a way --

19 A. -- using that process.

20 Q. So this was a way to now have hundreds and up to thousands

21 of clients without it being a manual labor-intensive process?

22 A. Short of the mailroom facility, you could have an infinite

23 amount of clients.

24 Q. And so you were able ultimately to be able to take on this

25 thousand clients, right?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 41 of Exhibit 179 47171 Pg 42 of 180 1 A. Well, his intention was to -- was to bring back the clients

2 that had received their money from the trustee and now offer

3 those clients the opportunity, since a lot of them knew that

4 Bernie Madoff was the investment manager, that was common

5 knowledge in a lot of circles; so they had an understanding

6 through Frank and Mike that it was Bernie Madoff that was doing

7 convertible bond arbitrage for them for years and --

8 MR. BRESLIN: Objection, your Honor, and move to

9 strike.

10 A. -- I've had --

11 THE COURT: Mr. DiPascali. The application to strike

12 is granted. Again, members of the jury, ignore the testimony

13 as to what was in somebody else's mind.

14 Q. Mr. DiPascali, you need to answer questions as to what you

15 saw and heard and not what is in someone else's mind, okay?

16 A. Understood.

17 Q. Now, what was your understanding of where these thousand

18 clients were coming from?

19 A. They were coming from the people that had gotten paid off

20 on their promissory notes by Lee Richards, the trustee.

21 Q. So before you testified that Avellino and Bienes went out

22 and got a bunch of -- had their own clients, right?

23 A. Correct.

24 Q. And now the SEC and Avellino and Bienes had agreed to shut

25 down Avellino and Bienes' customer business, right?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 42 of Exhibit 179 47181 Pg 43 of 180 1 A. That's correct.

2 Q. And the money was then returned to those customers by

3 Bernie Madoff?

4 A. Correct.

5 Q. Through the trustee?

6 A. Yes.

7 Q. And these new clients were those same people but now

8 dealing directly with the Madoff firm?

9 A. Correct.

10 Q. Now, were you involved in setting up these new accounts for

11 these former clients of Avellino and Bienes?

12 A. I had a small role in it, yes.

13 Q. Who played the major role in it?

14 A. Annette's department.

15 Q. Was Ms. Bongiorno involved?

16 A. Yes.

17 Q. Was Ms. Crupi involved?

18 A. Yes.

19 Q. Now, how big of a process was this in signing up all of

20 these former Avellino and Bienes clients?

21 A. Pretty much a little ordeal that went on for a few months.

22 They came in a big wave; so account papers needed to go out to

23 these clients, account papers would come back. You'd have to

24 assign an account number to the papers, and oftentimes the

25 account papers weren't filled out properly; so phone calls had

2 Oftentimes the client, not really understanding what

3 they were doing, would call us to try to get a handle on what

4 they're going to be doing, you know. So they would say, you

5 know, I just got this --

6 MR. RIOPELLE: Objection, move to strike.

7 THE COURT: Please consult.

8 (Counsel conferring)

9 Q. Mr. DiPascali, as part of the process, did you field calls

10 from clients that wanted to reopen their accounts at Madoff?

11 A. Yes, I did.

12 Q. And who else fielded calls from clients that wanted to

13 reopen their accounts with Bernie Madoff?

14 A. Pretty much everyone in Annette's department and myself.

15 Q. And what sorts of questions did you get from the clients

16 that called?

17 A. Where do I send my check? How do I fill out these papers?

18 What type of investment strategy are you doing? I used to do

19 this, this and this through Avellino and Bienes. They tell me

20 that's what we're going to be doing going forward. It is

21 exactly that; so you had to make that differentiation to these

22 people very clear. No, ma'am, you owned the promissory note

23 that Avellino and Bienes issued you. You were getting a fixed

24 rate of interest every period. That is not this. Now you have

25 a brokerage account. You're going to get many, many, many

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 44 of Exhibit 179 47201 Pg 45 of 180 1 transactions. Most of these people that I spoke to were

2 concerned about their cash flow.

3 MR. BRESLIN: Objection, your Honor. Move to strike.

4 THE COURT: Sustained. Members of the jury, ignore

5 the testimony as to what people were concerned about in their

6 minds. You may reformulate the question.

7 Q. Sure. What did they tell you they needed from the account

8 they were getting at Madoff Securities?

9 A. They asked me to give them a better understanding about how

10 they would be receiving their quarterly checks going forward

11 because they were on a schedule when they owned their -- when

12 they owned the promissory note from A and B to receive their

13 interest quarterly.

14 So it needed to be explained that this is not

15 interest. This is a brokerage account. It's going to

16 fluctuate in value, hopefully, to the plus side, and that one

17 of the things we can do is we could issue a check for you every

18 quarter that's a fixed amount of money which, in effect, is no

19 different than you've been getting for 20 years. There is no

20 guarantee, however, that you will not be dipping into your

21 principal by taking that fixed amount of money because unless

22 this account appreciates equal to or in excess of the fixed

23 amount of money you're taking, you're going to be dipping into

24 your principal.

25 To avoid that scenario, we could calculate for you

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 45 of Exhibit 179 47211 Pg 46 of 180 1 what the net change in your account is between two points in

2 time. So we'll read your account at December 31 and we'll read

3 your account at March 31, and we will calculate the growth in

4 that account, quantify it and mail you a check for that amount

5 every quarter. Some people agreed to that. Some people wanted

6 to still stay on a fixed. Some people said no, you know what,

7 I'm just going to leave everything alone. Can I send you a

8 letter or a note or a phone call when I want a check? Yes.

9 Fax me a letter. It has to have your signature on it. It has

10 to reference your account number.

11 So there were mechanical issues that were -- these

12 were clients that a lot of them didn't have a brokerage

13 account, that their investments were with A and B and they had

14 a different, a completely different methodology from what

15 they're going to be going and get anything the future. You had

16 to explain to them they're not going to get a 1099INT at the

17 end of the year, where they're going to put one line on a tax

18 return; that they're going to need to do a Schedule D, which is

19 a very sometimes voluminous amount of entries.

20 And we were planning on trading a basket of 25 stocks

21 hedged with two options six or seven times a year; so you're

22 looking at a couple hundred security transactions. Some of

23 these people had never seen anything like that. So my advice

24 was to simply take everything we mail you and put it in a big

25 shoe box and bring it to your accountant.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 46 of Exhibit 179 47221 Pg 47 of 180 1 Q. Now, you said that you had to explain to them that they

2 were opening a brokerage account. What is a brokerage account?

3 A. It's an account that a customer has with a broker-dealer

4 where either that client gives instructions to that

5 broker-dealer to buy and sell securities for him and house it

6 in that account, or that broker-dealer has the authority to

7 purchase and sell securities on behalf of that client and

8 report same to the client and house them in that account.

9 Q. And so as these clients called you, did you tell them that

10 you would be trading stocks in these accounts?

11 A. Yes.

12 Q. And did you tell them that their statements would reflect

13 the trades of stocks?

14 A. Yes.

15 Q. And that they could expect to receive confirmation tickets

16 and that type of thing?

17 A. Yes.

18 Q. And as this process happened, did you hear Ms. Bongiorno

19 having similar conversations with clients?

20 A. Yes.

21 Q. And did you hear Ms. Crupi having similar conversations

22 with clients?

23 A. Yes.

24 Q. Did you ever tell these clients that none of the trading

25 was real?

2 Q. Were you lying to these clients?

3 A. Yes.

4 Q. Did you understand, as you spoke to these clients on the

5 phone, that you were committing a fraud?

6 A. Yes.

7 Q. Now, I'd like to show you what's already in evidence as

8 Government 3556-3, and I'd like to go to Page 26. Now, looking

9 at this account statement, I'd like to direct your attention to

10 the account number; do you see that?

11 A. I'm sorry, the?

12 Q. The account numbers?

13 A. Yes, sir.

14 Q. What type of account number is that?

15 A. That's what we call a Z account. It begins with 1ZA or 1ZB

16 or 1ZG or 1ZW. Those were the account numbers that we assigned

17 to the customers that came back to Madoff with funds that they

18 had received from the trustee when A and B was unwound; so as

19 to keep track of who these people were.

20 We had just completed a procedure that converted our

21 account number system from a strictly numeric to an

22 alphanumeric format. So it was very convenient that that

23 happened around the same time. So we decided that, okay, we'll

24 just assign account numbers beginning with 1ZA001 to the first

25 client that mails back account papers, and then 1ZA002 to the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 48 of Exhibit 179 47241 Pg 49 of 180 1 next person and 3 and so on.

2 So when they ran out of ZA numbers, they opened up a

3 ZB entity, and then the next account was 1ZB001. We further

4 defined the Z accounts by account type because some of them

5 were IRAs. So if you were a large IRA account, you received a

6 1ZR account number, and if you were a small IRA account, you

7 received a 1ZW account number.

8 Going back to the ZA, ZB people, if you were a large

9 account, you got a 1ZA or ZB number, and if you got were a

10 small account you got a 1ZG. Large and small were defined by

11 people that started with less than 40,000 were small. People

12 that were over 40,000 were large, and the reason for that was

13 because we, quite frankly, had no idea what we were going to do

14 with the people under 40,000 because, going back to my

15 explanation of the template, one unit of trading cost 40,000.

16 So if you sent in a check for 39,000 and the machine

17 ran the math, it would say you can't even do one unit. So we

18 would, at some later date, figure out something that we could

19 do for the ZG and the ZW accounts, which were the small

20 IRA's -- the small regular accounts, and the small IRA

21 accounts, which we eventually wound up just putting a trade

22 through every now and again to keep their P and L on pace with

23 people that did qualify for at least one unit of a templated

24 basket.

25 Q. And so this is a ZA account, right?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 49 of Exhibit 179 47251 Pg 50 of 180 1 A. That's correct.

2 Q. And the ZA account typically means it was an Avellino and

3 Bienes client that was now signing up directly with Madoff

4 Securities, right?

5 A. Yes. There were, however, some clients that were

6 introduced to our firm at around the same time that all of this

7 activity was happening that were mistakenly labeled ZA, and

8 they were just left that way.

9 Q. And as part of this process of bringing on this thousand

10 clients, you were receiving phone calls and letters from folks?

11 A. Yeah.

12 Q. And do you know who William Wallman is?

13 A. I don't think so.

14 Q. Let's turn to Page 8 of this same exhibit. Can we blow

15 this up. Now this is already in evidence. Can you tell us

16 what this letter is dated?

17 A. December 3rd, 1992.

18 Q. Is that around the time that we've been discussing with the

19 closing of the Avellino and Bienes accounts?

20 A. It's around the time that the accounts started to trickle

21 back in, yes.

22 Q. And can you read for us what this letter says?

23 A. As per our conversation last Friday, I previously invested

24 with Avellino and Bienes and would like to open a brokerage

25 account with you. For this purpose, I have enclosed a check

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 50 of Exhibit 179 47261 Pg 51 of 180 1 for $200,000. The title of the account will be William

2 Wallman. My Social Security number is...I thank you for your

3 attention to this matter and look forward to doing business

4 with you. Yours truly, William Wallman.

5 Q. Now, Mr. DiPascali, was this the type of correspondence

6 that was coming into the firm around this time?

7 A. When the account papers came in, they typically had a check

8 enclosed with the papers and some cover letter that was

9 similar, if not almost exactly like this one.

10 Q. And was Ms. Bongiorno dealing with these incoming clients

11 at this time?

12 A. Yes.

13 Q. What about Ms. Crupi?

14 A. Yes.

15 Q. And were you dealing with them as well?

16 A. Yes.

17 Q. You can take this down, Ms. Baskin.

18 Now, at this transition time, in late '92, early '93,

19 who was Ms. Crupi working for?

20 A. For Annette.

21 Q. And again, what was Ms. Bongiorno's position in late '92,

22 early '93?

23 A. She was the head of the department that ran Bernie's

24 customer business.

25 Q. And over time, did Ms. Crupi start doing more work with

2 A. Yes.

3 Q. And was she involved in some of the options trading that

4 you've been talking about?

5 A. Eventually, yes.

6 Q. Now, how long did you continue to do fake options type

7 trading in the IA business from this time in the early 1990s?

8 A. Until December of 2008.

9 Q. So that fake trading took all of the '90s and up through

10 2008?

11 A. Correct.

12 Q. Now, and from this time forward -- by "this time," I mean

13 the incoming thousand or so clients -- did you continue to

14 receive questions about the purported trading strategies that

15 were taking place in the investment business?

16 A. All the time.

17 Q. And who was responsible, over the years, for answering

18 those questions?

19 A. I was.

20 Q. Did other people assist in answering those questions?

21 A. Yes.

22 Q. Who? Did Ms. Crupi assist in answering the questions?

23 MR. BRESLIN: Objection, your Honor.

24 THE COURT: Sustained.

25 Q. Who helped you?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 52 of Exhibit 179 47281 Pg 53 of 180 1 A. Answer customer questions?

2 Q. Yes.

3 A. Regarding the investment strategy, is that your question?

4 Q. Yes.

5 A. Jodi, along with other members of my staff, yeah.

6 Q. And over the years, did you hear Ms. Crupi speaking on the

7 phone to clients?

8 A. Yes.

9 Q. And how -- and over those years, would you consult with her

10 about what she was saying to the clients?

11 A. Sometimes.

12 Q. What -- Would she ask you questions about how to respond to

13 client questions?

14 A. She would ask me how, should I answer this client's

15 question.

16 Q. Okay. And did you engage in an open dialogue?

17 A. Sure.

18 Q. And did you ever tell these customers that the trading was

19 not actually happening?

20 A. No.

21 Q. And over those years did you also hear -- well, let me ask

22 you this. So you sat near Ms. Crupi, right, when you moved to

23 the 17th floor?

24 A. We sat at a six-person desk.

25 Q. And where did Ms. Bongiorno sit?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 53 of Exhibit 179 47291 Pg 54 of 180 1 A. On the 17th floor?

2 Q. Mmm, hmm.

3 A. In an office on the opposite side of my facility.

4 Q. Okay. And from time to time would you be near

5 Ms. Bongiorno's office?

6 A. Sure.

7 Q. And would you overhear Ms. Bongiorno speaking on the

8 telephone?

9 A. Sure.

10 Q. Did you overhear her speaking to clients?

11 A. Yes.

12 Q. Did you ever hear Ms. Bongiorno say to a client, these

13 trades are not really happening?

14 A. No.

15 Q. Now, from time to time when a client called, would you be

16 unavailable to answer their questions?

17 A. Sure.

18 Q. And when you were not around or you didn't want to answer

19 the questions, did you ever hear an excuse given for why you

20 were not present?

21 A. Often.

22 Q. What excuse was often given?

23 A. Frank was on the trading desk.

24 Q. And was there a real trading desk that you were on?

25 A. Wasn't doing real trading. It was a real desk, but it was

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 54 of Exhibit 179 47301 Pg 55 of 180 1 not a trading desk in the classical definition of what a

2 trading desk is.

3 Q. And did you hear Ms. Crupi give that excuse?

4 A. Sure.

5 Q. Now, in addition to the Avellino and Bienes customers that

6 were coming back, those Z accounts that we just looked at, were

7 other customers coming in to be signed up directly with Madoff

8 Securities as customers?

9 A. Other customers other than the Avellino and Bienes

10 customers?

11 Q. Yes.

12 A. Yes.

13 Q. And as the '90s progressed, who were some of these clients

14 who were coming in to be signed off with Madoff Securities?

15 A. Oh, goodness. There was hundreds of them. Mostly, as we

16 got into the '90s, hedge funds, big European hedge funds, some

17 domestic, registered and unregistered, funds that were -- that

18 were structured to sell shares via prospectus or otherwise,

19 some offering circular, and then place whatever they raised in

20 terms of the capital they raised from their clients, with

21 various money managers, a fund to funds it's called. And

22 that's the bulk of the dollar amount of new money customer

23 money that was entering the firm was coming from that arena.

24 Q. Would it be fair to say -- well, let me ask you this. Was

25 the client deposits increasing or decreasing over time in the

2 A. Increasing.

3 Q. Now, are you familiar with a set of accounts known as the

4 RuAn Anne accounts?

5 A. Yes.

6 Q. What were the RuAn accounts?

7 A. Brokerage accounts that were established at the Madoff firm

8 that were controlled by Annette and her husband. I believe the

9 purpose of which was to --

10 MR. RIOPELLE: Objection.

11 THE COURT: Please consult.

12 (Counsel conferring)

13 Q. Now, who were the clients of the RuAn account?

14 A. Madoff's clients were the principals of RuAn, which were

15 Annette and Rudy Bongiorno.

16 Q. And do you have a sense of approximately how many clients

17 were in those accounts?

18 A. More than a few dozen.

19 Q. And did you -- As you worked in the office, did you gain a

20 sense of who the composition of those clients were?

21 A. Yes.

22 Q. Who were they?

23 A. They were people that I knew from the old neighborhood in

24 Howard Beach. They were Annette's relatives. They were

25 Annette's friends. They were friends of friends of friends.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 56 of Exhibit 179 47321 Pg 57 of 180 1 They were clients of Annette's that pretty much was friends and

2 family.

3 Q. And what was Ms. Bongiorno's role with these accounts?

4 A. She was the account manager of this RuAn entity, and her

5 role was to manage the assets in the RuAn account that belonged

6 to her friends and family.

7 Q. And this was an account in the investment advisory

8 business, right?

9 A. Correct.

10 Q. And as with all of the other accounts in the investment

11 advisory business, was the trading in these accounts real?

12 A. No.

13 Q. Now, I'd like to show you -- let me ask you another

14 question. Are you familiar with the name Jacques Amsellem?

15 A. Yes.

16 Q. Could you spell that?

17 A. A-m-s-e-l-l-e-m? And that's a good guess.

18 Q. Who was Mr. Amsellem?

19 A. He was a French investor and a client of Bernie's way back

20 in the day. I heard that name probably as early as the -- as

21 the early as the late '70s, and he was -- I met him once or

22 twice in the office up in New York.

23 Q. What happened in connection with his -- Well, did he have

24 an IA account with the business?

25 A. Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 57 of Exhibit 179 47331 Pg 58 of 180 1 Q. And what happened in connection with his account during the

2 1990s?

3 A. Well, he died, and the account, there was -- the lawyers

4 for the estate of Jack Amsellem requested certain documents

5 from the broker, which was us.

6 Q. And did that present -- After he died, was a review

7 conducted of his account?

8 A. Yes.

9 Q. Who was involved in doing that review?

10 A. Bernie.

11 Q. And after the review was accomplished, what conclusion was

12 reached about the state of Mr. Amsellem's account?

13 A. He died with the account too far over where Bernie wanted

14 it to be.

15 Q. What does that mean, to be too far over the point where

16 Bernie wanted it to be?

17 A. All the accounts in the managed account arena were -- the

18 growth of the account was predetermined by Bernie. So we got

19 instructions from time to time that basically said, allow this

20 account to earn X, or allow this account to earn Y.

21 So you started with this already defined objective,

22 this account has to earn 15 percent, and you put through

23 fictitious trades until you got to that point. Well, sometimes

24 you put through fictitious trades and, for whatever reason, the

25 market takes you to a different point. So maybe at the end of

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 58 of Exhibit 179 47341 Pg 59 of 180 1 a particular period, you're up 20 percent instead of 15 in that

2 account because maybe you just fell asleep at the switch and

3 didn't look at this account for a number of months and the

4 stocks you had put him into back here now have all risen; so

5 the account was up 20 percent instead of 15 percent.

6 Bernie has a set of documents that generate -- that

7 are generated to calculate exactly that, and there's a report

8 that comes out whenever Bernie wants it or regularly, monthly,

9 what have you, that illustrates the whole client base and where

10 their account is right now based on the current market

11 conditions, the mark to market of the account, and where this

12 fellow or this girl's capital should be based on a

13 predetermined rate of return.

14 So if the predetermined rate of return is 15 percent,

15 and this is a $100,000 account, it should earn $15,000 this

16 period. Well, if it earned $20,000, then it is, quote,

17 unquote, over by five. It's $5,000 over the expected rate of

18 return of 15. So because you're backdating all your trade

19 tickets, it usually isn't a problem because, as you see that

20 occurring, you put through another trade ticket to mitigate

21 that overage, to bring it back to zero so that the account at

22 any point in time is exactly where Bernie wants it to be.

23 When someone dies, that's a problem because if you

24 don't know that the guy died and you find out from his lawyers

25 60 days later, it's too late. He died, it's like musical

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 59 of Exhibit 179 47351 Pg 60 of 180 1 chairs. The music stopped, and the guy died with too much

2 money in his account or too little money in his account. It's

3 not right. So that's what happened with Jack Amsellem, he

4 died.

5 Q. Now, you said that Mr. Madoff would pick the rate of

6 return?

7 A. Most certainly.

8 Q. And then that fake trades would be made to match that rate

9 of return, right?

10 A. Yes.

11 Q. And was that process of a picked rate of return something

12 that was in Ms. Bongiorno's clients' accounts?

13 A. Yes.

14 Q. And at your time at Madoff Securities, what did

15 Ms. Bongiorno do to reach that rate of return?

16 A. She could do a number of things. She could continually

17 monitor the account to see where it is versus where it should

18 be and make adjusting entries in the form of buy or sell

19 tickets to get it closer to where it should be.

20 Q. When you say should be, you mean the predetermined rate of

21 return?

22 A. This expected rate of return we called it, yes.

23 Q. And those adjustments were done with putting through

24 fictitious trades?

25 A. Correct.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON2Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 60 of Exhibit 179 47361 Pg 61 of 180 1 Q. Now, I'd like to show you, just Judge Swain, defense

2 counsel, Government Exhibit 105-C117, and I'd like to go to

3 Page 2 of that. No, not Page 2. And can we go to Page 3.

4 Page 4, Page 5, Page 6.

5 Mr. DiPascali, do you recognize the documents that

6 have just gone across your screen?

7 A. Yes, I do.

8 Q. What are they?

9 A. This last one is the response letter to the attorney's

10 inquiry of please give us the value at the date of death or the

11 alternative date. When you're doing an estate tax return, the

12 attorney's accountants have the option of using a value exactly

13 on the date of death or six months later. I'm not sure which

14 letter this is, but it's a response to that question.

15 MR. ZACH: Your Honor, the government offers 105-C117.

16 THE COURT: Any objection?

17 MR. RIOPELLE: No objection.

18 MR. KRANTZ: No objection.

19 MR. FRISCH: No objection.

20 MR. BRESLIN: All of it, or just this page?

21 MR. ZACH: All of it.

22 THE COURT: Document Government Exhibit 105-C117 is

23 admitted in its entirety.

24 MR. ZACH: Thank you, your Honor.

25 (Government's Exhibit 105-C117 received in evidence) (Continued on next page) SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 61 of Exhibit 179 47371 Pg 62 of 180 1 BY MR. ZACH:

2 Q. Can we go to page 3. Can we show that to the jury as well.

3 What type of document are we looking at here?

4 A. It's an internal document. The sheet would typically be

5 found stapled to the inside folder of a customer maintenance

6 file. It is the particulars one needs to input into the

7 computer when a customer opens their account. They are

8 assigned an account number. You need obviously the gentleman's

9 name and address. Then there is some other notations here as

10 to whether the fellow gets a 1099. The answer here is no; the

11 little e means he is exempt from that. It's the information

12 that starts the account.

13 Q. Let's go to the next page. Do you recognize the

14 handwriting on this page?

15 A. Jodi Crupi's.

16 Q. Did Ms. Crupi play a role in addressing the problems with

17 Mr. Amsellem's account?

18 A. I believe she worked with Annette on it, yes.

19 Q. Do you see there is account numbers across the top?

20 A. Mm-hm.

21 Q. What type of accounts are those?

22 A. The FN00130 is a long position account. The next one is

23 FN00170, which is what is known as a short against the box

24 account. It is associated and linked to the FN1 entity, a

25 subsidiary account of FN1. Then there is FN230. That's a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 62 of Exhibit 179 47381 Pg 63 of 180 1 separate and distinct long position account.

2 Then there is FN270, which is again the short against

3 the box account that is linked to that second one. Then there

4 is FN3, which is again a long position account, and FN370,

5 which is the short account linked to the FN3 account. In

6 effect, this guy's got three accounts and three short against

7 the box accounts. That's what it says on top.

8 Q. Through this process did you gain an understanding of how

9 the problem was solved with respect to Mr. Amsellem's account?

10 A. Yes.

11 Q. How was the fact that he had too much money in his account

12 solved?

13 A. He created a new account that didn't exist when he was

14 alive.

15 Q. Who created the new account?

16 A. Annette.

17 Q. What took place in that new account?

18 A. They looked at the positions that were open in his regular

19 accounts that had risen too much in value when he died. So

20 they created an account, backdated, and made sale transactions

21 in that account that would, in effect, mitigate all the

22 movement in certain stocks to the up side, literally capping

23 the movement that had occurred in the primary accounts so as to

24 present the attorneys with a completely different value at the

25 date of death.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 63 of Exhibit 179 47391 Pg 64 of 180 1 Q. Was that value higher or lower than the value that was

2 present in the account at the time of death?

3 A. Lower.

4 Q. To be clear, the accounts that were open at the time of Mr.

5 Amsellem's death, was the trading in those accounts real?

6 A. No.

7 Q. When that new account that brought the value of the old

8 accounts down was created, was the trades put in that account

9 real?

10 A. No.

11 Q. Can we go to the next page. Do you recognize the

12 stationery on this page?

13 A. It's our office stationery, yes.

14 Q. If you look at the accounts on this page, account numbers

15 are they the same ones as we looked at on that spreadsheet that

16 Ms. Crupi wrote previously?

17 A. There are three on this page. They are the same as the

18 first three on the other page.

19 Q. Are these accounts winners or losers?

20 A. I'm sorry?

21 Q. Are they winners or losers, these accounts?

22 A. I can't tell by reading this whether it's a winner or a

23 loser.

24 Q. Let's turn to the next page. Looking at the account

25 numbers on this page, are these also account numbers that we

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 64 of Exhibit 179 47401 Pg 65 of 180 1 saw on that spreadsheet written by Ms. Crupi?

2 A. Yes.

3 Q. Looking at the account number FN270, do you see that?

4 A. Yes, I do.

5 Q. What does that show?

6 A. It shows that there are two short positions, one in

7 Microsoft and one in Novell, and a cash balance. The total

8 value of the account is a negative 1 million 722.

9 Q. Can we highlight that, please. When you say it is

10 negative, that means that account lost money?

11 A. It means that the current mark to market, the current value

12 of this position in this account is negative 1 million 722. In

13 order to close this account, you would need to buy back the two

14 short positions. There is not enough cash in the account to do

15 that, so you would have to put up an additional million 722.

16 Because this account is linked to the other account,

17 to the FN00230 account, you would not have to put up additional

18 funds. You would simply use the value of that other account to

19 pay down this debt or debit balance. It has a negative value

20 on its own, which is going to be offset by the positive value

21 of the core account in part.

22 Q. So it has the overall effect of bringing the value of the

23 account down if it were to be liquidated that day?

24 A. If you did not have this account, the overall package would

25 be a million 722 higher.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 65 of Exhibit 179 47411 Pg 66 of 180 1 Q. Let's go back one page. Who is the letter addressed to?

2 A. A Richard Bernstein Associates, a Ms. Schwartz.

3 Q. Do you see there is a title R-E, "re"?

4 A. Yes.

5 Q. What is this letter re?

6 A. The estate of Jacques Amsellem.

7 Q. The term "estate," what does that usually signify when

8 followed by of an individual's name?

9 A. It is the asset base of the deceased party.

10 Q. Going to the next page, if we can, who signed this letter

11 to the estate of Mr. Amsellem?

12 A. Annette Bongiorno.

13 Q. We can take that down. Did there come a time, Mr.

14 DiPascali, that you learned about efforts to make fake DTC

15 reports?

16 A. Yes.

17 Q. Let me start by asking you, what is the DTC?

18 A. It stands for Depository Trust Company, I believe. It's

19 the organization that the industry, the brokerage industry,

20 uses to act as a custodian in and a depository of securities.

21 It is in essence an electronic vault controlled by its members.

22 Q. When did you first become aware of efforts to make these

23 fake DTC reports?

24 A. In the '90s somewhere.

25 Q. Who was involved, Mr. DiPascali, in generating these

2 A. Jerry O'Hara.

3 Q. Were other people involved in consulting and working on

4 this?

5 A. Dan Bonventre.

6 Q. What was the report, the fake report, that was being

7 generated going to be used for?

8 MR. KRANTZ: Objection, your Honor.

9 THE COURT: Please consult.

10 (Counsel conferred.)

11 Q. Now I would like to show the judge, defense counsel, and

12 the witness Government Exhibit 105-D77. D as in dog. Mr.

13 DiPascali, do you recognize this fax cover page?

14 A. Yes.

15 Q. Let's go through the pages quickly. Where was this fax

16 cover page from?

17 A. It was a typical fax cover page that would be found in any

18 of the offices at Madoff.

19 Q. Do you recognize the handwriting on the document?

20 A. I do.

21 MR. ZACH: Your Honor, the government offers 105-D77.

22 THE COURT: Any objection?

23 MR. KRANTZ: Your Honor, may I consult with my

24 co-counsel for a moment?

25 THE COURT: Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 67 of Exhibit 179 47431 Pg 68 of 180 1 (Counsel conferred.)

2 THE COURT: Counsel, I think this is going to be a

3 time when we ought to start our morning break. That will also

4 let you speak more informally.

5 Members of the jury, we will begin our morning break

6 now. We will resume at 11:25. Continue to keep your thoughts

7 to yourselves. Enjoy your break.

8 Ms. Ng, would you please escort the jury out. All

9 rise. Mr. DiPascali, you may step down from the witness stand.

10 See you at 11:25. Thank you. We will reconvene at 11:25.

11 Enjoy your break.

12 (Recess)

13 THE COURT: Mr. Zach, you may proceed.

14 MR. ZACH: Thank you, your Honor.

15 BY MR. ZACH:

16 Q. Mr. DiPascali, I want to take a quick step back before we

17 get into the DTC materials and look again at Government Exhibit

18 105-C117. Can we go to page 4. You will remember right before

19 the break we looked at this chart. Do you recall that, Mr.

20 DiPascali?

21 A. I do.

22 Q. The first thing I would like to ask you is what are the

23 dates going down the left-hand side of the column? What years

24 do you see?

25 A. '94, '95, '96.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 68 of Exhibit 179 47441 Pg 69 of 180 1 Q. Now I would like to look in the middle at the FN-270

2 account, which is the middle, I guess the fourth column over.

3 Do you see that?

4 A. I do.

5 Q. Can we blow up the top part of that, Ms. Baskin.

6 Whose handwriting is this?

7 A. Jodi.

8 Q. Can you read what is written underneath the account number?

9 A. It says, "Opened 12/94 W/A W/O trades." The WAO stands for

10 with as-of trades. The balance is a million 649,375 even.

11 Q. What does "as-of trades" mean?

12 A. It means a trade that was not put through the system on the

13 dates of the statement it would first appear on, very similar

14 to the other things we looked at earlier where -- this is

15 saying the account opened with as-of trades. It started for

16 the first time in our network December of 1994 with trades that

17 had preceded that date.

18 Q. Trades that were historical or backdated?

19 A. Correct.

20 Q. Can we put this in split screen, Ms. Baskin, and blow it

21 up. Now I would like to go to page 6 of the document in the

22 bottom part of the split screen, if we can. Can we blow up the

23 top group.

24 Mr. DiPascali, can you compare the two account numbers

25 between the handwriting on the letter that was sent to the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 69 of Exhibit 179 47451 Pg 70 of 180 1 attorney's office for the state of Jacques Amsellem.

2 A. They are the same, FN270.

3 Q. Do you see the balance number that was handwritten by Ms.

4 Crupi?

5 A. Yes.

6 Q. Can you compare that to the balance on the letter next to

7 the date 5/22/95.

8 A. It is the same, a million 649,375

9 Q. Going back, when we had looked at the handwritten chart, we

10 saw the years going to '95 and '96, right?

11 A. Correct.

12 Q. On the letter at the bottom was dated July 10, 1995, do you

13 recall that?

14 A. I don't specifically recall that date on the letter.

15 Q. We can go back one page on the letter and below the top up.

16 Do you see the date?

17 A. I do.

18 Q. What is the date?

19 A. July 10, 1995.

20 Q. Going back to page 6, can we blow that up again. We see

21 the balance is the same between the handwriting and the letter,

22 right?

23 A. Correct.

24 Q. What is different about the letter that went to the lawyers

25 on this account? What new information do you see here?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 70 of Exhibit 179 47461 Pg 71 of 180 1 A. The two short positions in Microsoft and Novell.

2 Q. Instead of being positive or long around $1.6 million, what

3 do those new trades do?

4 A. They put the 70 account short 3 million and change.

5 Q. They bring the balance down to zero and then to a negative

6 1.7 million?

7 A. That is correct.

8 Q. Again, the top piece is in Ms. Crupi's handwriting?

9 A. That is correct.

10 Q. We can take that down. Now, Ms. Baskin, just showing

11 counsel, the witness, the Court what is on the screen, I want

12 to go to 105-D77.

13 Do you remember looking at this document right before

14 lunch? Not lunch. Break.

15 A. I do.

16 MR. ZACH: The government offers 105-D77.

17 THE COURT: Any objection?

18 MR. KRANTZ: No objection.

19 MR. MEHLER: No objection.

20 MR. FRISCH: No objection.

21 MR. BRESLIN: No objection, your Honor.

22 MR. RIOPELLE: No objection, your Honor.

23 THE COURT: Government Exhibit 105-D77 is admitted in

24 evidence.

25 (Government's Exhibit 105-D77 received in evidence)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 71 of Exhibit 179 47471 Pg 72 of 180 1 MR. ZACH: Your Honor, may we publish this?

2 THE COURT: Yes, you may.

3 Q. Mr. DiPascali, looking at this document, what is the cover

4 page?

5 A. I don't understand the question.

6 Q. I'm sorry. What kind of document are we looking at?

7 A. It's a fax cover page, who you are faxing it to and their

8 fax number.

9 Q. Do you recognize the handwriting on the document?

10 A. It's Jerry's.

11 Q. Jerry who?

12 A. Jerry O'Hara.

13 Q. Can we blow up the fax transmission box. Can you read who

14 the fax was sent to.

15 A. It's to I believe ICS OFCS, I'm not sure. Attention Tom

16 looks like Gearing.

17 Q. Who is it from?

18 A. Jerry O'Hara.

19 Q. In the comments section, can you read what Mr. O'Hara has

20 written.

21 A. "Please find font example you requested. Thanks."

22 Q. Can we pull out of that document, and let's go to the next

23 page. Do you recognize what type of document this is?

24 A. It's the cover page of a DTC report.

25 Q. Looking at the title, the top title block, it says "The

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 72 of Exhibit 179 47481 Pg 73 of 180 1 Depository Trust Company." Do you see that?

2 A. I do.

3 Q. Is that the DTC?

4 A. Yes, it is.

5 Q. For whose account is this?

6 A. For Bernard Madoff broker 646.

7 Q. Then you see at the bottom the document there is the 646

8 and a series of Xs?

9 A. I do.

10 Q. What does that number indicate?

11 A. It's our clearing organization number. It's what we are

12 known by numerically in the industry.

13 Q. Now can we go to the next page. First of all, do you

14 recognize any of the handwriting on this page?

15 A. I do.

16 Q. Whose handwriting do you recognize?

17 A. Jerry's.

18 Q. Where do you recognize his handwriting?

19 A. Excuse me?

20 Q. Where in the document do you recognize his handwriting?

21 A. The upper left-hand corner.

22 Q. Can we highlight that, Ms. Baskin. What did he write?

23 A. O-R-I-G.

24 Q. Looking more broadly at this document, what is this?

25 A. It's a page from the Depository Trust Company's daily

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 73 of Exhibit 179 47491 Pg 74 of 180 1 report to broker.

2 Q. What is a daily report to a broker?

3 A. A broker who is a member of the depository has his or other

4 customer positions being held in custody by DTC, by the

5 depository. This is exactly as it's headed, participant

6 position statement. We are the participant, broker 646,

7 Bernard Madoff is a participant in a clearing organization.

8 Depository Trust Company's function in that whole scenario is

9 they are the custodian of securities for many participants.

10 This is their report to Madoff of what they are holding in

11 custody for participant 646.

12 Q. Now I would like to direct your attention to the right side

13 of the document. Do you see if there is anything that is

14 circled on the right side of the document?

15 A. I do.

16 Q. What is circled?

17 A. Two little asterisks.

18 Q. Can we blow that up. Is that what you see that is circled?

19 A. Yes.

20 Q. Can we pull out. Now I would like to go back to the first

21 page of the letter. What does the comments line say again?

22 A. "Please find font example you requested."

23 Q. Do you know what the word "font" means?

24 A. I do.

25 Q. What is a font?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 74 of Exhibit 179 47501 Pg 75 of 180 1 A. It's a particular design of a character on a printed

2 document.

3 Q. Ms. Baskin, can we page forward, forward, forward, and go

4 one more page, and another page, and another page.

5 All these pages that we have been looking at, what are

6 these pages of?

7 A. They are entries that are presented to the broker by DTC I

8 believe organized by CUSIP number, which in effect is

9 alphabetical, that illustrate how many shares you have on

10 deposit with that clearing organization and the location of

11 those shares or some sort of a subsidiary definition of the

12 location. It may not be a perfect . . .

13 Q. What does each box typically represent?

14 A. One security.

15 Q. The DTC is the organization that custodies and holds

16 securities for organizations and firms?

17 A. Yes.

18 Q. Ms. Baskin, can we please take that document down, and can

19 we again go to a viewing that is just the witness, Judge Swain,

20 and the parties. I would like to call up Government Exhibit

21 105-D85.

22 Do you recognize this type of cover page?

23 A. Sure.

24 Q. Do you recognize the handwriting on this document?

25 A. Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 75 of Exhibit 179 47511 Pg 76 of 180 1 MR. ZACH: The government offers 105-D85.

2 THE COURT: Any objection?

3 MR. KRANTZ: No objection.

4 MR. MEHLER: No objection.

5 MR. FRISCH: No objection.

6 MR. BRESLIN: No objection, your Honor.

7 MR. RIOPELLE: No objection, your Honor.

8 THE COURT: Government Exhibit 105-D85 is admitted in

9 evidence.

10 (Government's Exhibit 105-D85 received in evidence)

11 MR. ZACH: Your Honor, can we publish this document as

12 well?

13 THE COURT: Yes, you may.

14 MR. ZACH: That you know.

15 Q. Are we again looking at a Madoff fax cover sheet?

16 A. Yes, we are.

17 Q. Ms. Baskin, can we please blow up the middle box. Who is

18 this faxed to again?

19 A. The same person as the first one, Tom Gearing at ICS.

20 Q. Do you recognize the handwriting on this fax?

21 A. It's Jerry's.

22 Q. Again going to the comments section, what is written there?

23 A. "Please find box's layout example."

24 Q. Can we pull out, Ms. Baskin, and can we go to the next page

25 of the document.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 76 of Exhibit 179 47521 Pg 77 of 180 1 Do you see this document?

2 A. I do.

3 Q. Can you recognize the handwriting on this?

4 A. No.

5 THE COURT: What page of the PDF?

6 MR. ZACH: Page 2, your Honor.

7 Q. What are we looking at here? Are these boxes?

8 A. They are.

9 Q. Let's go to the next page. Do you recognize what this is?

10 A. It appears to be a DTC participant report that's been

11 redacted.

12 Q. What's the only thing that's left after the redactions?

13 A. The boxes.

14 Q. You can take that down, Ms. Baskin. Now I would like to

15 again pull back the viewing so it is just the Court, the

16 witness, and the parties.

17 I would like to show you Government Exhibit 105-D70.

18 Do you recognize what type of document this is?

19 A. A DTC participant report.

20 Q. Do you recognize the handwriting on this?

21 A. Yes.

22 Q. Whose handwriting is it?

23 A. Jerry's.

24 MR. ZACH: Your Honor, the government offers 105-D70.

25 MR. KRANTZ: No objection.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 77 of Exhibit 179 47531 Pg 78 of 180 1 MR. MEHLER: No objection.

2 MR. FRISCH: No objection.

3 MR. BRESLIN: No objection, your Honor.

4 MR. RIOPELLE: No objection, your Honor.

5 THE COURT: Government Exhibit 105-D70 is admitted.

6 (Government's Exhibit 105-D70 received in evidence)

7 THE COURT: Do you want to display it to the jury now?

8 MR. ZACH: Yes. Thank you, your Honor. Can we please

9 display it to the jury?

10 THE COURT: Yes.

11 MR. ZACH: Thank you.

12 Q. Mr. DiPascali, could you please read the handwriting at the

13 top of the document.

14 A. It says July 9, 1996, looks like the number 8 asterisk DTC

15 L old version colon K, as in Kevin.

16 Q. Whose handwriting is that?

17 A. Jerry's.

18 Q. Now I would like to take that document down and I would

19 like to put up, again just for the parties, the witness, and

20 the Court, Government Exhibit 105-D65A. D65A is a shortened

21 version of 105-D65. Mr. DiPascali, do you recognize what we

22 are looking at?

23 A. Looks like a DTC participant position statement.

24 MR. ZACH: The government offers 105-D65A.

25 MR. KRANTZ: No objection.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 78 of Exhibit 179 47541 Pg 79 of 180 1 MR. MEHLER: No objection.

2 MR. FRISCH: No objection.

3 MR. BRESLIN: No objection, your Honor.

4 MR. RIOPELLE: No objection, your Honor.

5 THE COURT: Government Exhibit 105-D65A is admitted

6 and may be displayed.

7 (Government's Exhibit 105-D65A received in evidence)

8 Q. As you worked at Madoff Securities, were there attempts to

9 perfect the fake DTC reports?

10 A. Yes.

11 MR. MEHLER: Objection.

12 THE COURT: Please consult.

13 (Counsel conferred.)

14 MR. MEHLER: Your Honor, I think we need a decision.

15 THE COURT: Everyone please remain quietly here in the

16 courtroom while I consult with counsel. Thank you.

17 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 79 of Exhibit 179 47551 Pg 80 of 180 1 (In the robing room).

2 MR. MEHLER: My objection, and I speak for Mr. Krantz

3 as well, is, as the Court and everybody knows, that is very

4 delicate topic. Our concern is really twofold. I think the

5 evidence will suggest that Mr. DiPascali had no involvement in

6 the DTC report until many years later. I understand they don't

7 want to call Tom Gearing to talk about what happened with a

8 third-party vendor. Fine. We stipulated to it.

9 The difficulty we are having is twofold. First of

10 all, this is the wrong witness to be testifying about

11 activities that went on years before he got involved in any

12 meaningful way. Second, there is a deep concern that the way

13 that Mr. Zach is going to be asking the questions and has

14 already asked them imports intent to Mr. O'Hara, which is this

15 is a fake DTC report. I believe, Mr. Zach will correct me, the

16 questions that will follow is was it perfected over the years.

17 Again, DiPascali was not involved in this at all.

18 Second, did they finally get it right, this fake DTC

19 report? The obvious implication is that my client, Mr. O'Hara,

20 knew that this was a fake report, and it implicates the very

21 issue that is at the heart of this trial, I think for Mr.

22 Krantz as well, although he can augment my remarks.

23 MR. KRANTZ: Your Honor, I would add, because it is an

24 issue that I think is going to recur, the problem I have is

25 with the use of the word "fake" in the question. It suggests

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 80 of Exhibit 179 47561 Pg 81 of 180 1 that there was some discussion with Mr. O'Hara in this instance

2 of fakeness. I believe there will be no such testimony that

3 there was any discussion of fakeness. Of course, if there

4 were, that would be admissible.

5 The government is going from an absence of any

6 communication about inauthenticity or fakeness and just putting

7 it in its question, and then having the witness answer as if it

8 was openly revealed that this was a project of fakeness. That

9 is not what the evidence has shown so far. Mr. Zach carefully

10 avoided asking the witness, what did anyone to your knowledge

11 tell Mr. O'Hara about the project. Nothing has come out about

12 that. So the fakeness at the moment is in the question and the

13 witness's mind, not in the defendant's mind as established by

14 any evidence.

15 There is a problem with using the word "fake" in the

16 question to suggest misleadingly that that was discussed. If

17 it was, he's got to bring it out and lay a foundation for it.

18 If it wasn't, then he needs a neutral term: Reproduction of a

19 DTC report, something not suggesting criminal knowledge which

20 was never discussed. That is the heart of the question in the

21 case. To ask it over and over, fake this, fake that, tell us

22 what O'Hara did, gives the impression that this was an open

23 project involving fakeness, which is not what the evidence

24 shows.

25 MR. MEHLER: Your Honor, I'm sorry to jump in again,

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 81 of Exhibit 179 47571 Pg 82 of 180 1 I'm sure the Court very well gets the objection. But to give

2 it context, there is already in the record testimony from Ms.

3 Cotellessa-Pitz, I believe she dated it to the late '80s with a

4 gentleman named Kenny Hutchinson, about an effort to what she

5 talked about as reproducing the DTC report. The Court also saw

6 in Mr. Dubinsky's testimony, look at the comments there, a

7 reference to Mr. O'Hara getting it from Kenny.

8 I agree with everything that Mr. Krantz said. I'm

9 just saying that this is not a pie-in-the-sky objection.

10 There's already a record of alternative inferences that can be

11 drawn. To ask it in this way is simply to put the thumb on the

12 scale.

13 MR. ZACH: Judge, may I respond? This objection

14 relates to a question. Let me say what my question was and

15 where we are going, which was over time was this report

16 perfected.

17 MR. KRANTZ: Fake report.

18 MR. ZACH: Fake report perfected. What we are going

19 to get at now is I expect the witness is about to testify to an

20 incident he observed where they are being compared and Bernie

21 Madoff and Mr. Bonventre are saying we got it, they are

22 comparing the two and saying they look exactly right.

23 The reason we use "fake" is because Mr. DiPascali

24 obviously understood they were fake, they were in fact fake.

25 There is really no other way to refer to it. What we are about

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 82 of Exhibit 179 47581 Pg 83 of 180 1 to go through is a series of the real DTC report as compared

2 with the fake DTC report and going line by line between the two

3 through a series of documents.

4 There is no thumb on the scale. It is just the way

5 the witness understood it, the way it was in reality, and the

6 actual question that they are objecting to is going to get to a

7 moment where he is going to testify about how it was openly

8 discussed that they were fake. So I think the questioning is

9 appropriate.

10 MR. MEHLER: Openly discussed with Mr. O'Hara? That

11 is news to me after five years being on this case.

12 THE COURT: The underlying problem, as framed by

13 defense counsel, is the implication in linking reiterations of

14 the report to Mr. O'Hara that Mr. O'Hara was in a deliberate

15 process of creating the fake reports.

16 I do recall you opened this line of questioning with

17 essentially eliciting from Mr. DiPascali that there were fake

18 reports and that they were made in-house. Then you asked who

19 was involved in it, and Mr. O'Hara and I think Mr. Bonventre

20 were mentioned.

21 I sustain the objection. I would permit you to go in

22 one of at least two ways. Let me frame those ways. One is to

23 elicit essentially from Mr. DiPascali that in talking about

24 fake reports he means reports that he understood were made at

25 Madoff, not at DTC. Then from there on go to was there a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon3Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 83 of Exhibit 179 47591 Pg 84 of 180 1 process of perfecting the reports that were made at Madoff.

2 Another way to do it would be for you to clarify on

3 the record, instead of waiting for them to do it on cross-

4 examination, that he doesn't have any direct knowledge of Mr.

5 O'Hara's level of knowledge or involvement in this, he is just

6 talking about seeing handwriting on documents that again

7 reflect reports made at Madoff.

8 I do think it is appropriate to stay away from the

9 repeated use of "fake" in the context of documents as to which

10 this witness simply can testify that Mr. O'Hara's handwriting

11 is on something.

12 MR. SCHWARTZ: That's fine. I just want to get a

13 little bit more clarity because this is going to be an issue as

14 we get more into the computer part of the case, which

15 unfortunately is yet to come. We have been referring for the

16 last two months to real trades and fake trades to distinguish

17 between the two, without objection, regardless of whether the

18 witness knew --

19 MR. KRANTZ: There have been some objections.

20 MR. SCHWARTZ: Not to that term. Perhaps to the

21 repeated use of the term, but not to the term. But to

22 distinguish between two regardless of the knowledge of the

23 witness. All the folks that were involved in the process of

24 creating the fake trades, the defense is we didn't understand

25 they were fake. I think that is very clear to the jury.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 84 of Exhibit 179 47601 Pg 85 of 180 1 (In robing room)

2 MR. SCHWARTZ: So calling something fake versus real

3 is just a shorthand way to signify what set of documents that

4 we're talking about. I don't think with respect to the DTC

5 reports "created in-house" is sufficient or "reproduction" is

6 sufficient because they're not reproductions. In form, they're

7 reproductions, but in context, they're not reproductions, they

8 aren't facsimiles. They are fake.

9 I don't think there's going to be any argument from

10 defense counsel that they are anything other than fake. They

11 certainly will argue that their clients didn't understand them

12 to be fake or fraudulent, but I don't think in good faith

13 anyone here is going to argue that they aren't fake.

14 And so we need -- Fake may not be the word, although

15 it has been for the trades, but we need, I think going into

16 this phase of the case, a way to distinguish between real and

17 fake for these documents and documents like them.

18 MR. KRANTZ: Your Honor, I do think this is an

19 important issue that will be quite recurring, and I strongly

20 disagree with the government's view of the use of the word

21 fake. The word fake is a highly emotionally charged word,

22 which is why they like it so much. If I may observe, that when

23 all of the innocent employees are on the stand, the Winnie

24 Jacksons and the Charlene Whites and the like, all of whom are

25 inputting and doing other tasks with regard to fake trades,

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 85 of Exhibit 179 47611 Pg 86 of 180 1 they never once formulate the question that way. And after

2 this information was given to you, Ms. Jackson, did you input

3 the fake trade into the computer? Yes, I did. That is never

4 done.

5 Why? Because they are not trying to suggest with the

6 question guilty knowledge on the participant's part. So they

7 save it for when they want to suggest guilty knowledge on the

8 defendants' part, which would be fair if there were testimony

9 that the word fake was used, or some equivalent. I'd have no

10 objection, but that is not the case. And so we have just the

11 interjection of the term to suggest that's what the government

12 now knows the documents were or the witness thought they were

13 at the time, with Mr. DiPascali.

14 But that is not proof that any defendant knew of

15 fakeness at the time, and so it is misleading and prejudicial

16 to keep repeating "fake" in the questioning when referring to

17 what a defendant worked on without any proof that that was

18 discussed or made clear to them. In the absence of that, they

19 have to use a more neutral term, in my opinion.

20 MR. JACKSON: What term?

21 MR. KRANTZ: And then they have to prove, directly or

22 circumstantially, that the witness had criminal knowledge.

23 They understand that.

24 THE COURT: Do you have a vocabulary suggestion?

25 MR. KRANTZ: Well, with the DTC reports, it's

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 86 of Exhibit 179 47621 Pg 87 of 180 1 reproduction or recreation or something like that. With the

2 other trading documents --

3 MR. MEHLER: The Court suggested a great one, the one

4 created in-house at Madoff. Isn't that --

5 MR. KRANTZ: With the DTC that works. The other ones,

6 I think, respectfully, we need to think about it. It's a big

7 question, and I'd rather not blurt it out.

8 THE COURT: Are we going to get to computer runs that

9 are composites with, you know, fake trades and real trades

10 before lunch?

11 MR. ZACH: Maybe if I can give a little bit of flavor

12 of what the direct is going to be, your Honor.

13 THE COURT: I'm fine.

14 MR. ZACH: What Mr. DiPascali is going to start

15 walking through are examples of the real DTC report that was

16 kept in the market making business, followed by the fake DTC

17 reports that were generated from his programs. There are a

18 number -- and walking through a number of the differences. For

19 example, the asterisks are something that they were unable to

20 perfect. On the fake one, they spent a lot of time trying to

21 get the asterisks just right. And on the fake ones, there are

22 now all of the trades, the fake trades, are now put on there

23 and coded specially on there in a certain way. And so he's

24 going to walk through how the fake ones now bring in all of the

25 IA business' fake trades onto these fake book and records.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 87 of Exhibit 179 47631 Pg 88 of 180 1 THE COURT: Okay. So for this segment, and I do think

2 the broader question deserves some further thought and perhaps

3 a consultation with a thesaurus and some refinements. For this

4 segment, it seems to me, you can say, is this report that came

5 from the DTC? Is this a report that was created at Madoff

6 Securities? What are the differences? So the one from DTC,

7 the one created at Madoff Securities, and you can make your

8 points about the differences and the refinement of the reports

9 that were created at Madoff Securities.

10 And since the documents that you're putting up say

11 DTC on both of them, I don't think there will be any lack of

12 clarity in the testimony or the record that we're talking about

13 fabricated DTC reports, which maybe we should throw that in the

14 vocabulary hopper for further consideration.

15 MR. JACKSON: Your Honor, can we use the word

16 fabricated? I also have A concern. I think we have thought

17 about this a lot, and we're avoiding using the word fraudulent

18 here, which is --

19 THE COURT: Which is a good thing for you to do.

20 MR. RIOPELLE: Yes, thank you.

21 MR. JACKSON: -- which is accurate, but I don't

22 think -- I think for us, what Mr. Schwartz is saying, we have a

23 real concern about the jury being confused. And I think one of

24 the other problems, in terms of the ones that are created

25 in-house, we haven't -- I don't know if the jury completely

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 88 of Exhibit 179 47641 Pg 89 of 180 1 understands the entire process by which DTC report arrives.

2 We've heard about DTC terminals that exist at Madoff

3 Securities. At some point in the time period that the DTC

4 terminals were at Madoff Securities, it was possible to print

5 certain things from DTC that were actual DTC information at

6 Madoff Securities, but these are something completely

7 different. These are fake DTC documents made at Madoff

8 Securities that have false information in them.

9 I mean, if we -- we do need, for clarity of the record

10 when we get to the end of the case, terminology that when the

11 jury is looking at Mr. DiPascali's testimony they're not

12 confused about what he was talking about with this document and

13 that document in terms of the comparison. So if they could

14 proffer a word that they think is less --

15 MR. RIOPELLE: Your Honor, ruled on fabricated. Your

16 Honor may recall. It's a long time ago now, when we had in

17 limine motions. There were charts that had the word fabricated

18 on them. I objected to that word. That objection was

19 overruled.

20 THE COURT: That's what I thought.

21 MR. RIOPELLE: Fabricated. I do want to say, while I

22 do not want to undermine the objection of my co-defendants. I

23 was not jumping up every time the word fake was used because it

24 was my impression that, based on your Honor's ruling and what

25 had gone on in court all these months, that that was not going

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 89 of Exhibit 179 47651 Pg 90 of 180 1 to be a good objection.

2 And I feel now I'm being a little bit sandbagged,

3 frankly, with the word faked. I don't know if there's any

4 remedy for that at this point, and I don't mean to undermine

5 that objection, but I have to say, you know, the word fake was

6 in virtually every question relating to account statements.

7 You know, I have all the same arguments that my co-defendants

8 have about what was, if anything, was in Ms. Bongiorno's head

9 at the time on this issue. And, again, I didn't object because

10 I didn't think it would be fruitful.

11 THE COURT: You made your record. This particular

12 situation with these documents because the government

13 introduced them by, you know, essentially tieing them to

14 Mr. O'Hara as creator, and I'm told and it hasn't been refuted

15 here, that there isn't a record that can be made by this

16 witness that Mr. O'Hara knew that he was creating fake

17 documents, I am requiring particular caution and care of

18 language here.

19 This witness, Mr. DiPascali, said, you know, he knew

20 the reports were fake. He knew trades he engaged in were fake.

21 He knew that things didn't exist, and so he was speaking of

22 direct knowledge of fakeness, and other witnesses who have

23 talked about trades being fake spoke from direct knowledge of

24 that. So this is not a ruling, and everybody needs to

25 understand that, that the word "fake" can never be used again.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 90 of Exhibit 179 47661 Pg 91 of 180 1 In this context, because of the way these documents were

2 introduced, I'm requiring the government to use "created" or

3 "fabricated" rather than "fake."

4 MR. ZACH: I will use fabricated; so that everybody

5 knows.

6 MR. MEHLER: Gosh, I thought the Court's ruling was

7 that you would use "the document created within" --

8 THE COURT: I said "created" was one of the

9 possibilities, and I am reminded that I had already ruled that

10 "fabricated" was acceptable and, frankly, that was one of the

11 ones that was in my mind when I came up with "created," but I

12 didn't want to start another ten-minute conversation if I

13 hadn't already ruled on fabricated.

14 MR. ZACH: Judge, I don't want us to have to come back

15 here. When we start talking about the fake trades in the

16 fabricated, I'm still going to talk about them as the fake

17 trades because that's the way Mr. DiPascali understands it, and

18 they're fake.

19 MR. MEHLER: Your Honor, in order not to come back

20 here again, one other slightly subsidiary issue. Mr. Zach had

21 touched on, he mentioned that when he goes through the

22 documents that are 25 years old, 20 years old, I guess, if my

23 math is good, he shows that -- he shows a circle over two

24 asterisks. And he says to Mr. DiPascali, what's that? Well,

25 that's a circle and two asterisks.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 91 of Exhibit 179 47671 Pg 92 of 180 1 The idea that he is now going to be a witness

2 interpreting what the circling of the asterisks are -- he can

3 argue in summation -- is impermissible. This guy had no

4 dealings with it. You know, I'll argue this is a third-party

5 vendor. It's open and notorious. He'll argue they circled the

6 asterisk. Everybody has their arguments. But for

7 Mr. DiPascali, who never dealt with this until years later, to

8 interpret the document, that's not permitted.

9 THE COURT: I believe that there was a question, the

10 thrust of which was are the circled things the font sample, and

11 since Mr. DiPascali apparently didn't create this document and

12 isn't the one who was sending them, there wasn't an objection

13 to that. And, you know, I wasn't going to jump in on that

14 because I didn't know what the underlying record is. But

15 Mr. DiPascali, to the extent he didn't create these documents,

16 he's just recognizing handwriting, you can make your record

17 that asterisks are circled on a particular page, but not a

18 question that goes to the intent of the creator if he doesn't

19 know.

20 MR. ZACH: Just so the record is clear, I didn't do

21 that.

22 MR. MEHLER: Nor am I suggesting he did.

23 MR. ZACH: Hold on a second.

24 THE COURT: Then I put things together in my head.

25 MR. MEHLER: I think he's going to.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 92 of Exhibit 179 47681 Pg 93 of 180 1 MR. ZACH: No.

2 THE COURT: All right. All right.

3 MR. MEHLER: That's why I don't want to go back.

4 THE COURT: He said he's not going to. Can we go back

5 outside.

6 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 93 of Exhibit 179 47691 Pg 94 of 180 1 (In open court)

2 THE COURT: Mr. Zach?

3 MR. ZACH: Thank you, your Honor.

4 BY MR. ZACH:

5 Q. Now, Mr. DiPascali, was -- did the process at Madoff

6 Securities of working on the generation of these DTC reports go

7 on for a little while?

8 A. Yes, they did.

9 Q. And did there come a time that these fabricated DTC reports

10 were perfected?

11 A. Close to perfect.

12 Q. And do you recall how you -- Well, did you observe anything

13 in connection with sort of the finalization of this process?

14 A. There had to be a high-speed, continuous-feed laser printer

15 purchased. There had to be off-the-shelf software that was

16 close, I think, to what they were looking to accomplish, and

17 then that had to be tweaked over many, many, many generations.

18 And there had to be the proper papers secured to print the job.

19 Q. And did there come a time that you observed Mr. Madoff

20 looking at the results of this process and comparing a real DTC

21 report with a fabricated DTC report?

22 A. Yes.

23 Q. When approximately did that occur?

24 A. I think it was in the late '90s.

25 Q. And who was Mr. Madoff with when he was comparing this?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 94 of Exhibit 179 47701 Pg 95 of 180 1 A. It was in my office area with Mr. Bonventre, myself and my

2 staff.

3 Q. And what was he looking at?

4 A. He was literally holding a page up against the original and

5 the forgery to the daylight.

6 MR. MEHLER: Objection. Move to strike.

7 THE COURT: Overruled.

8 Q. He was comparing the two to the light?

9 A. To the daylight. He was -- he was eight inches from the

10 window with it on the Citibank side of our building. My office

11 is -- one wall of my office, the long wall, is all windows, and

12 they were at the left side of the office and they were looking

13 at it in a light and remarking how great it was.

14 Q. And who was remarking how great these fabricated DTC

15 reports were?

16 A. Pretty much Bernie.

17 Q. And who was present to observe him doing that?

18 A. Danny, myself and the rest of my staff.

19 Q. Now, let's look at Government Exhibit 105-A455. And I'd

20 like to go to the next page, if we can. Looking at this page,

21 what is this?

22 A. Looks like the month end September '05 DTC participant

23 report.

24 Q. And, again, you see the number 464 at the bottom?

25 A. That is our participant number.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 95 of Exhibit 179 47711 Pg 96 of 180 1 Q. And can we blow up the bottom part just to get a closer

2 look at that. That's -- the 646, that is the participant

3 number?

4 A. Yes.

5 Q. And the bigger sixes, are they composed of littler sixes?

6 A. Yes, they are.

7 Q. And can we back out of that. And now, I'd like to go to

8 Page -- the next page, if we can, and the next page. Now, what

9 are we looking at here, Mr. DiPascali?

10 A. The September 30th, 2005, participant statement.

11 Q. And can we jump ahead -- one second. I want to grab -- can

12 we jump ahead, Ms. Baskin, to Page 38.

13 And I'd like, if we can, to focus your attention down

14 the right side of the document, and do you see -- can you just

15 explain for us what each of these boxes means going down the

16 right side of the document?

17 A. Well, the way the depository prints their report is

18 security specific. So each security that you have on deposit

19 at DTC winds up inside one of these boxes. So if you look at

20 the one on the upper left, for example, there's the CUSIP

21 number of the security, then the name of the security and the

22 last time your account at DTC had any movement in that

23 security.

24 And then there's some titled account summary, and

25 within your DTC account you have a couple of subsidiary

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 96 of Exhibit 179 47721 Pg 97 of 180 1 accounts. One is an account where you would have securities

2 that are free and clearly owned by the firm, unencumbered by

3 anything, and that's called your free position.

4 There are other subaccounts that are accounts that

5 have been held aside that -- for securities that you've pledged

6 to your bank for a loan. And DTC is linked to your bank; so

7 that when you set aside securities as collateral for a loan,

8 DTC holds those securities in what's known as a pledge account,

9 and they reference the date of the loan on this report. And

10 then there are other entries or subaccounts that might be for

11 the benefit of customers.

12 So if you receive customer securities, for instance,

13 or you purchase customer securities and you're the custody

14 agent of those securities, they're also on deposit at DTC in an

15 account that is known as, for the benefit of customer, or seg

16 account, which stands for segregation. Each of those little

17 subaccounts have their own little codes on this report. 010, I

18 believe, stands for your free position subaccount. 014 would

19 stand for a pledge account, and 022 would stand for a

20 segregated account.

21 Q. Now, I want to focus on a specific example here. About

22 one, two, three -- five down. Ms. Baskin, can you blow up the

23 Caterpillar, Inc. Now, looking across the top, you see where

24 it says Caterpillar, Inc., what is that the name of?

25 A. That's the name of -- Caterpillar, Inc. is the corporation;

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 97 of Exhibit 179 47731 Pg 98 of 180 1 that's the name of the stock. That is the company that makes

2 tractors.

3 Q. And you see there's the 10 at the bottom. Can we highlight

4 that?

5 A. It says --

6 Q. Sorry, 010.

7 A. Yes.

8 Q. And what does that indicate?

9 A. That is the numerical title of the free position. So

10 anything in that subaccount would be free and clear,

11 unencumbered and controlled by the broker.

12 Q. And on the right you see there's the number 78?

13 A. Correct.

14 Q. Can we highlight that, Ms. Baskin. What does the 78 stand

15 for?

16 A. Number of shares.

17 Q. Can we, like -- I'd like to first just pull up briefly,

18 Ms. Baskin, and I ask you, Mr. DiPascali, what is this document

19 dated?

20 A. September 30th, 2005.

21 Q. Now, Ms. Baskin, can we blow up the Caterpillar, Inc. and

22 put that on the split screen, and can we now call up 105-D65A.

23 And can we -- Actually, I'm sorry, Ms. Baskin. Can we make

24 105-D65 the full screen.

25 Now, looking at this, let's turn to Page -- I believe

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 98 of Exhibit 179 47741 Pg 99 of 180 1 it is Page 36. I'm sorry, Ms. Baskin. I want to pull up

2 105 -- one second. Sorry, your Honor. Sorry about that. On

3 this one, can we go to Page 36?

4 THE COURT: "This one" being 105-D65A?

5 MR. ZACH: Yes, 105-D65A.

6 Q. Now, Mr. DiPascali, looking at this document, what is the

7 date on it?

8 A. September 30th, 2005.

9 Q. And do you see an entry for Caterpillar on this date?

10 A. I do.

11 Q. Where do you see that?

12 A. Fourth box down, right-hand column.

13 Q. Can we blow that up, please, Ms. Baskin. Now, can we put

14 that in split screen, and I'll also call up 105-A455, Page 38,

15 which we had just been looking at. Okay. Thank you,

16 Miss Baskin.

17 Now, Mr. DiPascali, I'd like you to -- can you compare

18 the titles on both of these entries?

19 A. They're identical.

20 Q. And looking at the account summary, what is different

21 between the document that's on the top and the document that's

22 on the bottom?

23 A. The one on the top is reflecting a segregated position of

24 158,400 shares of Caterpillar. The one on the bottom has no

25 such position.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 14:16:03Page 99 of Exhibit 179 47751 Pg 100 of 180 1 Q. Now, it also reflects shares in the 010 designation, right?

2 A. They both do.

3 Q. Mr. DiPascali, which one of these is real and which one is

4 fabricated?

5 A. The one on the bottom is real. The one on the top is a

6 forgery.

7 Q. Can you explain what's real about the one on the bottom

8 with respect to the 78 shares?

9 A. That's a position that the trading room held on

10 September 30th, 2005. That was real securities purchased in

11 the trading room or somehow acquired by our firm and deposited

12 at DTC and left to sit in what's called the free position

13 because it was free and clear securities unencumbered, owned by

14 the firm.

15 Q. And is that position reflected on the fabricated version at

16 the top?

17 A. Yes.

18 Q. Now, the 022 designation; do you see that?

19 A. Yes, I do.

20 Q. What does that refer to?

21 A. That is the subsidiary account that we have at DTC called

22 segregated or seg.

23 Q. What does it mean for securities to be in segregation?

24 A. Typically, they are someone else's securities that you are

25 simply holding as a custodian. So in effect, you are the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 100 of Exhibit 179 47761 Pg 101 of 180 1 custodian of your client's securities, holding them in

2 segregation for whatever reason for a client, and the

3 depository is recognizing those not to be yours but to be

4 someone else's you're simply segregating for their benefit.

5 It also could be a deposit that you're mandated to

6 make at the clearinghouse of securities for membership purposes

7 or for, you know, some other technical reason that needs to be

8 segregated. But typically, that 022 means it's segregated for

9 someone who is your customer, indicating that you don't own

10 them.

11 Q. So Ms. Baskin, can we highlight the 22 158,000 shares.

12 What, in terms of Madoff Securities, does the 158,000 shares

13 represent?

14 A. The position, in total, for the customers in the investment

15 advisory business, or it could be the position in total of the

16 special customers in the investment advisory business. This

17 report has many generations, and I'm not sure of the date and

18 what the purpose of this particular printout was.

19 But this report was designed to take the positions

20 that were resident in the investment advisory department for

21 customers and take the positions that the depository recognized

22 to be the firm's positions. And then they were melted together

23 and reproduced in a print job that had both.

24 So what sometimes happened, though, was it was

25 designed to take our entire customer stock record, which is the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 101 of Exhibit 179 47771 Pg 102 of 180 1 location of all your customer positions and I'm speaking about

2 the fictitious positions, and melt it with the entire picture

3 of the business. It also was used to take only a subset of the

4 fictitious stock record for special purposes, and melt it with

5 the entire positions of the firm.

6 For instance, that's what we did when the KPMG audit

7 was in town because they were only looking at a certain bunch

8 of clients, and Bernie was only willing to disclose to him that

9 his client list was very limited. So this type of report was

10 produced for that purpose to -- well, first, a very customized

11 special, quote, unquote, stock record was created of only the

12 customers that Bernie wanted to show the auditor.

13 Q. Mr. DiPascali, just what we're looking at here --

14 MR. BRESLIN: Your Honor, may I talk to Mr. Zach?

15 THE COURT: Did you want to consult?

16 MR. BRESLIN: Yes, thank you.

17 THE COURT: Okay.

18 (Counsel conferring)

19 MR. BRESLIN: We have an understanding.

20 THE COURT: Thank you.

21 Q. Now, Mr. DiPascali, on this specific document, on the top

22 one, are those 158,400 shares real?

23 A. No, sir.

24 Q. Are those the fake trades that you previously testified

25 occurred in the IA business?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 102 of Exhibit 179 47781 Pg 103 of 180 1 A. They are.

2 Q. Okay. Now, above them there is a -- there are 78 shares of

3 Caterpillar; do you see that?

4 A. Yes.

5 Q. Are those real?

6 A. Yes.

7 Q. And the total at the bottom you see -- can you highlight

8 that, Ms. Baskin. What part of that is real and what part of

9 that is fake?

10 A. Of the 158,478 total, 158,400 is fake. 78 is real.

11 Q. All right. Let's take -- and just so the record is clear,

12 the document at the top of the split screen is Government

13 Exhibit 105-D65A and the one at the bottom is 105-A455.

14 Let's -- I want to look to another -- going down to

15 the bottom document, 105-A455, can we turn to Page 89 on that

16 document, Ms. Baskin.

17 And looking at this example, do you see a company by

18 the name of KB Home?

19 A. I do.

20 Q. Can we blow that up. Where do you see that?

21 A. Third one down, left-hand column.

22 Q. Can we blow that up, please, and put that on split screen,

23 at the bottom. And at the top, Ms. Baskin, can we put up

24 Government Exhibit 105-D65A and go to Page 88. And do you see,

25 Mr. DiPascali, if you can, an entry on that page for KB Home?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 103 of Exhibit 179 47791 Pg 104 of 180 1 A. It's too small to read on my screen.

2 Q. If we can blow up that a bit. Can we blow up the

3 right-hand side?

4 A. I see it now.

5 Q. Where is it?

6 A. Third one down.

7 Q. Okay. Now, Mr. DiPascali, looking at these two documents,

8 can you tell which one is the real DTC report and which one is

9 the fabricated one?

10 A. One on the top is fabricated; the one on the bottom is

11 real.

12 Q. So let's pick -- let's start with the real one on the

13 bottom. How much stock in KB Home did the Madoff firm actually

14 have at this time period in 2005?

15 A. 39 shares.

16 Q. Can you highlight that, please, Ms. Baskin. And according

17 to the fabricated version, how many shares did Madoff

18 Securities have?

19 A. 564,039.

20 Q. And how many of those shares were fake?

21 A. 564,000.

22 Q. So the top fabricated DTC report reflects half a million

23 shares of KB Home that Madoff Securities didn't actually have?

24 A. That's correct.

25 Q. And, again, those half a million, approximately half a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 104 of Exhibit 179 47801 Pg 105 of 180 1 million shares, what is the DTC coding for them?

2 A. Segre- -- oh, 022.

3 Q. What does that indicate?

4 A. Segregation.

5 Q. And by segregated, does that mean that these are

6 purportedly customer securities but being held by Madoff?

7 A. Typically, your segregated account is segregated for the

8 benefit of a customer, yes.

9 Q. And does half a million shares, what part of the business

10 are they purportedly from?

11 A. The IA business.

12 Q. And per this document, is it reflecting that they are

13 actually housed in Madoff Securities' DTC account?

14 A. That top document?

15 Q. Yes.

16 A. That's exactly what it's trying to indicate.

17 Q. And were any of these securities at the Madoff DTC account?

18 A. No, sir.

19 Q. Did they exist at all?

20 A. No, sir.

21 Q. Now, I want to spend a moment and focus your attention on

22 this document between -- do you see where it says "total"?

23 A. I do.

24 Q. And on both documents?

25 A. I do.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 105 of Exhibit 179 47811 Pg 106 of 180 1 Q. Is there a difference there in the asterisks?

2 A. There is.

3 Q. Was that something that was part of trying to -- was trying

4 to be perfected as part of this DTC process?

5 MR. MEHLER: Objection.

6 MR. FRISCH: Objection.

7 THE COURT: Please consult.

8 (Counsel conferring)

9 MR. MEHLER: We've resolved it, your Honor.

10 THE COURT: Thank you.

11 Q. Now, Mr. DiPascali, as part of this process, was the

12 asterisks a subject of discussion at Madoff Securities?

13 A. All the different characters on the report were subject to

14 discussion, yes.

15 Q. And what discussions were had about these asterisks? I

16 can't say the plurals of it. Asterisksees?

17 THE COURT: Asterisks.

18 MR. ZACH: Asterisks. I think everybody knows what

19 I'm saying.

20 MR. MEHLER: Your Honor, may I consult with Mr. Zach?

21 MR. ZACH: About my grammar?

22 THE COURT: Like plural of risks, S at the end, risks.

23 (Counsel conferring)

24 Q. The symbol that we've been discussing, was that the subject

25 of discussions, the asterisk?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 106 of Exhibit 179 47821 Pg 107 of 180 1 A. I do not specifically remember asterisk as being one of the

2 characters on the report that was discussed in my presence.

3 Q. Okay. Let's bring that down and, now, let's look at

4 105-A455, Page 154. And looking at the top of this, what is

5 the date, sir?

6 A. September 30th, 2005.

7 Q. And I'd like to direct your attention to the right side of

8 the document, if we can blow that up. And can you tell us what

9 the second stock on this report is?

10 A. Tivo, T-i-v-o.

11 Q. And how many shares of stock does this document indicate

12 Madoff Securities has of Tivo?

13 A. 200.

14 Q. And how were they designated using the DTC code?

15 A. They're in the free position, 010.

16 Q. Now, what is the next security on this list?

17 A. Tootsie Roll.

18 Q. Tootsie Roll is a public company?

19 A. Yes.

20 Q. And how many shares does the Madoff Securities purport to

21 have of Tootsie Roll?

22 A. 1,100.

23 Q. Can we blow those up, please. And how are those shares

24 designated?

25 A. Also in the free position.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 107 of Exhibit 179 47831 Pg 108 of 180 1 Q. Now, I'd like to, again, Ms. Baskin, go to the split

2 screen, and can we put that on the bottom. Okay. Well, let's

3 go to -- let's put at the top, if we can, 105-D65A. Let's have

4 that take up the whole screen, if we can, actually.

5 Now, Mr. DiPascali -- I'm sorry. I want to go to

6 Page 155 of this document, and I want you, if you can, to find

7 the -- do you see whether or not Tivo is included on this?

8 A. I do.

9 Q. Where is the Tivo?

10 A. Fourth one down, right-side column.

11 Q. Okay. And what is this document dated?

12 A. September 30th, 2005.

13 Q. Is that the same date as the document we just looked at

14 with the Tivo and the Tootsie Roll?

15 A. It is.

16 Q. And, Ms. Baskin, can we blow up the bottom right-hand

17 corner. Now, do you notice a security between the Tivo and the

18 Tootsie Roll?

19 A. Toll Brothers.

20 Q. Did you see this security on the prior version of the DTC

21 report that we looked at?

22 A. I did not.

23 Q. Looking at this document, approximately how many shares of

24 Toll Brothers do you see appearing?

25 A. 760,000.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 108 of Exhibit 179 47841 Pg 109 of 180 1 Q. And how many -- How are those shares designated on the

2 report?

3 A. They're in the 022, which would be, again, the seg account.

4 Q. So is this the real or the fabricated version of the DTC

5 report?

6 A. This is the fabricated version.

7 Q. These three-quarters of a million shares of Toll Brothers,

8 did they really exist?

9 A. No.

10 Q. What part of the business were they from?

11 A. From the IA business.

12 Q. Let's take that down. Now, I'd like to go to 105-A455.

13 Again, but this time, Ms. Baskin, can we go to Page 170?

14 MR. MEHLER: I'm sorry, what page again?

15 MR. ZACH: 170.

16 Q. And, Mr. DiPascali, can you again look at the top of the

17 document and tell us what the date is?

18 A. September 30th, 2005.

19 Q. And looking at this document, do you see any type of

20 security that would relate to a treasury security?

21 A. The bottom box on the right-hand column.

22 Q. Can we blow that up. Can you tell us, sir, what we're

23 looking at here?

24 A. Well, on the upper left-hand corner of that box, again, is

25 the CUSIP number, and then there's a description. In this

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 109 of Exhibit 179 47851 Pg 110 of 180 1 case, the description is the two-and-five-eighths, which is the

2 coupon rate of interest on the treasury note, with a maturity

3 of 5-15-08. And then the word chills, I have no idea what that

4 means. CODWT deposit, again, in this context, I have no idea

5 what that means. The last activity date would be the exactly

6 what it says, the last time securities moved in and out of this

7 account, and then you have your account summary.

8 Q. Okay. And the CUSIP number for this, where is that?

9 A. Upper left-hand corner.

10 Q. And can we highlight that, Ms. Baskin. Great. I mean, can

11 we now pull out of this document, and can we now pull up what

12 is -- take this down and pull up 105-D65A and turn to Page 174.

13 Now, looking at Page 174, do you recognize what we're looking

14 at here?

15 A. I do.

16 Q. What is this?

17 A. Seems to be a fake DTC report dated September 30th, '05.

18 It has the configuration of Treasury note positions, it looks

19 like.

20 Q. Okay. Do you recognize the CUSIP number that we had just

21 looked at?

22 A. I actually don't remember the old one.

23 Q. Okay. Let's go back to the old one, which was Page 170.

24 Do you see that?

25 A. I do.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 110 of Exhibit 179 47861 Pg 111 of 180 1 Q. And so what is the CUSIP number?

2 A. We have highlighted here 912828. The entire number

3 includes the AZ3; so it's a nine-digit number.

4 Q. Okay. Just one second. And looking at this document, can

5 we just blow up the box for a second. Just looking at the 100

6 and the 14; do you see that?

7 A. I do.

8 Q. What are the balances for those two designations?

9 A. Well, this $13 million principal amount of that Treasury

10 note in the free position. There's $46,500,000 of that same

11 note that is pledged to various banks, and then there is the

12 description underneath of where it's pledged. Those codes,

13 554, 981 and 900, I believe are the bank clearance numbers.

14 And the dates that you see of 3-20-73, 3-20-73 and 5-31-01 are

15 the dates that various loan agreements were signed, and then

16 the position is the position.

17 So on the first line, what it's telling me is of the

18 46,500,000 that we've established is pledged, because it's all

19 sitting in a 014 location, the additional information is as

20 follows: You have pledged to bank 554, a million dollars,

21 pursuant to a loan agreement dated March 1973. You also

22 pledged to bank 981, $40,500,000 pursuant to a loan agreement

23 dated 3-20-73, and the last item is a pledge of $5 million to

24 bank 900 pursuant to a loan agreement of 5-31-01.

25 Those three items make up the 46,500, which are

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 111 of Exhibit 179 47871 Pg 112 of 180 1 pledged to various banks using DTC, it's like an intermediary

2 controlling custody of the asset because it's pledged now for

3 the bank because you've borrowed money against that. You might

4 have drawn down on that bank loan.

5 Q. So, Ms. Baskin, can we highlight the two closing balance

6 totals of 13 million and the 46 million. And can we put that

7 in split screen on the bottom, or no? Thank you, Ms. Baskin.

8 And now I'd like to go to 105-D65A, Page 174, and if we can

9 blow up, Ms. Baskin, the box that is the second one down on the

10 right.

11 Now, if we can, Mr. DiPascali, can you compare the

12 account -- the CUSIP number on the top document to the one on

13 the bottom document?

14 A. They're identical.

15 Q. And can you highlight that, please, Ms. Baskin. And now,

16 how much money is in the 010 and the 014 on the top document?

17 A. Same amounts, 13 million in the 010; 46.5 million in the

18 014.

19 Q. Now, looking at the pledgee information, is that -- are the

20 amounts the same?

21 A. In the pledgee information? They are.

22 Q. Is there anything that's different?

23 A. The pledgee banks are not the same and the date of the loan

24 is not the same. As a matter of fact, it's -- I don't even

25 recognize that to be a date.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 112 of Exhibit 179 47881 Pg 113 of 180 1 Q. Now, which one is real and which one is fabricated?

2 A. The one on top is fabricated.

3 Q. Now, pulling out of the top one, the fabricated one, now,

4 when we had looked at the prior example, the real one, how many

5 treasury securities did you see?

6 A. In total? 59,500,000.

7 Q. Okay. Now, I'd like to pull back on the top document. I'm

8 sorry. Make that the full screen. Now, do you see other

9 additional Treasury securities on the fabricated version?

10 A. Yes.

11 Q. What do you see on this page that's wasn't on the real DTC

12 report?

13 A. There's a line item indicating in segregation that we hold

14 398,700,000 additional Treasury notes.

15 Q. And where do you see that?

16 A. It says under the pledge information, it says 022 in

17 brackets, and in the far right-hand column 398,700,000.

18 Q. And now, I'd like to start just looking at the left-hand

19 side of the document, and just if you can just scan down the

20 left side of the document and tell us what types of securities

21 we're looking at there?

22 A. It's an array of Treasury notes.

23 Q. Did we see those Treasury notes on the real DTC report?

24 A. I don't believe I did.

25 Q. And I want to actually go back a few pages to Page 172.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 113 of Exhibit 179 47891 Pg 114 of 180 1 Going back on the same day, a few pages earlier, do you see any

2 Treasury transactions on this page?

3 A. The last two entries on the right-hand column are Treasury

4 bills.

5 Q. And can you read the amounts that those are for?

6 A. The fourth one down says $24,800,000 in segregation, in the

7 022 for a Treasury bill. I can't make out the description.

8 It's unclear to me.

9 Q. Well, just give us the amounts?

10 A. 24,800,000. It's CUSIP number, what I call, VW8.

11 Q. And the next one, how much is that one for?

12 A. The next one is CUSIP WD9, and that's for $1,305,150,000.

13 Q. Okay. Was that billion dollars real?

14 A. No.

15 Q. Let's go to the next page.

16 THE COURT: Mr. Zach, we have five minutes to the

17 break.

18 MR. ZACH: Okay, your Honor. Thank you.

19 Q. Do you see any fake Treasury bills listed on this page?

20 A. The entire page is covered with fake Treasury bills.

21 Q. Those didn't actually exist?

22 A. No, they didn't.

23 Q. Can you read out some of the amounts? Let's go down the

24 left-hand column and read out the amounts on those fake

25 treasury bills.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 114 of Exhibit 179 47901 Pg 115 of 180 1 A. 1,328,975,000.

2 THE COURT: Mr. Zach?

3 A. The next one is 1,578,200,000. No. 3 is 1,415,600,000.

4 Then we have 1,385,275,000, and the last one in that column is

5 1,418,350,000.

6 THE COURT: Just for a minute, let's just all stand up

7 for a second, and then we'll be in good shape for the last five

8 minutes of testimony. Thank you for that.

9 Q. So, Mr. DiPascali, you just read out on the right side what

10 looks to be -- my math is about as good as I can pronounce

11 asterisk -- but I'd say it's maybe in the area of $8 billion?

12 A. Yeah, approximately.

13 Q. That $8 billion, did that really exist?

14 A. No, it didn't.

15 Q. And looking on the left side, do you see additional

16 Treasury bills?

17 A. I do.

18 Q. And can you read out the amounts of those?

19 A. 1,305,075; 1,477,425,000; 1,305,577,000; 1,328,975,000; and

20 the last one is, 1,514,200,000.

21 Q. So these billions and billions of dollars of Treasury

22 notes, fake Treasury notes, what part of the business were they

23 associated with?

24 A. The investment advisory business.

25 Q. And if this document, this DTC -- fabricated DTC report

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4BON4Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 115 of Exhibit 179 47911 Pg 116 of 180 1 were to be provided to someone, what was the suggestion by

2 listing these on them?

3 MR. MEHLER: Objection.

4 MR. FRISCH: Objection.

5 THE COURT: Please consult.

6 (Counsel conferring)

7 MR. ZACH: Your Honor, this is likely a good time to

8 take a lunch break.

9 THE COURT: All right, then. Thank you. This

10 concludes our testimony for this morning. Members of the jury,

11 please be ready in the jury room at 2:00. Thank you for your

12 attentive work this morning, and continue to keep your thoughts

13 to yourselves and avoid outside information.

14 Ms. Ng, would you please escort the jury out.

15 (Jury exits)

16 Mr. DiPascali, you may step down. See you at 2:00.

17 Thank you.

18 THE WITNESS: Thank you, your Honor.

19 (Witness temporarily excused)

20 THE COURT: We'll reconvene at 2:00. Thank you.

21 (Luncheon recess)

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2 2:10 p.m.

3 (Jury not present)

4 THE COURT: I understand there is an application.

5 MR. BRESLIN: Your Honor, a short one. This is not

6 intend as any kind of criticism of Mr. Zach's doing a direct

7 examination of this length and breath, but there have been

8 times where the witness is still talking and has been

9 interrupted, for lack of a better word.

10 We believe, I believe, that how this witness speaks,

11 how he answers questions, doesn't answer questions, how his

12 mind works is itself probative. We would want the jury to see

13 it rather than have the government interpose another objection

14 even if they were to think that he is wandering off topic.

15 THE COURT: You mean another question.

16 MR. BRESLIN: Right, another question, even if they

17 think he is wandering off topic. We think how he speaks is

18 important. I don't propose to say that Mr. Zach did this on

19 purpose. It might have been a very natural reaction on his

20 part after a pause or a misunderstanding. But I would just

21 like it if the witness could be allowed to finish his answers

22 in full before the next question.

23 THE COURT: I hear you. I think this is a situation

24 in which there needs to be a balance. I think if left

25 unchecked, we would be here until February with half-hour long

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 117 of Exhibit 179 47931 Pg 118 of 180 1 answers. What I would urge Mr. Zach to do is, particularly if

2 he doesn't want free association that is unchecked, be as

3 specific as possible and to the extent necessary say to the

4 witness, I am asking you about this one line, tell me about

5 this one line. Then, if he does free associate, wait until he

6 comes up for air.

7 MR. ZACH: Certainly, your Honor.

8 THE COURT: Thank you.

9 Are we ready to have Mr. DiPascali brought back out?

10 (Continued on next page)

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2 FRANK DIPASCALI, JR., resumed.

3 THE COURT: Good afternoon, members of the jury.

4 Please take your seats. Please be seated, everyone.

5 Mr. Zach.

6 MR. ZACH: Thank you, your Honor.

7 DIRECT EXAMINATION (continued)

8 Q. Mr. DiPascali, before lunch we were looking at two

9 different sets of DTC reports. Do you recall that?

10 A. Yes, I do.

11 Q. We were looking at one that was real and one that was

12 fabricated, do you recall that?

13 A. Yes.

14 Q. On the real DTC report, what part of the business was that

15 used in connection with?

16 A. The proprietary trading market-making operation.

17 Q. The information on the real DTC report, did that reflect

18 real trading that was occurring in that part of the business?

19 A. It reflected the positions that were at the clearinghouse

20 that were the result of real trading.

21 Q. Where did the information in the real DTC trading report

22 come from?

23 A. DTC.

24 Q. Were there connections between Madoff Securities and DTC?

25 By connections I mean some sort of electronic link.

2 Q. How were Madoff Securities and the actual DTC linked?

3 A. I don't know the specifics of it, but we would get files

4 from DTC, or at least a file that I am aware of that would come

5 via some data feed or some electronic method of receiving a

6 file that was, in essence, the same information that was on at

7 a report, on paper.

8 Q. At times were there hardcopies of documents provided by the

9 DTC to Madoff Securities?

10 A. Yes.

11 Q. Setting aside the real DTC reports, I want to now talk

12 about the fabricated reports. Where did the information in the

13 fabricated reports come from?

14 A. From two sources: From that data file I spoke about, which

15 is again in essence the information that's coming from the

16 depository that would wind up in total to be on the real

17 report, and then from the IA business stock record.

18 The stock record is a document that illustrates the

19 location of the securities and the position you hold for your

20 clients. It's organized by CUSIP number. It will list every

21 client that owns a particular security, what his or her account

22 number is, and what position that client holds on their

23 statement.

24 Then there is an illustration as to the location of

25 all those securities. The stock record that was produced for

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 120 of Exhibit 179 47961 Pg 121 of 180 1 the IA business simply had a location called clearing banks.

2 It was a location that had a particular account number. So the

3 sum total of all of the securities illustrated as held for

4 customer was shown to be held at this thing called clearing

5 bank. That is the IA stock record.

6 Then the information, that entire block of

7 information, along with the real data that came from the data

8 feed of the depository, was sorted by CUSIP and melded to

9 produce the commingled real and fake positions on one report,

10 namely, the fake report.

11 Q. Who was it at Madoff Securities that worked to generate the

12 fabricated report?

13 A. That actually ran the program to generate it?

14 Q. Who worked to produce it?

15 A. Jerry.

16 Q. Mr. O'Hara?

17 A. That's correct.

18 Q. How did he go about producing it?

19 A. There was some off the shelf software I believe purchased

20 that would give him the base architecture of what he needed to

21 do.

22 MR. MEHLER: Your Honor, may I consult with Mr. Zach?

23 THE COURT: Yes.

24 (Counsel conferred.)

25 MR. MEHLER: We have resolved it, your Honor.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 121 of Exhibit 179 47971 Pg 122 of 180 1 THE COURT: Thank you.

2 Q. Did Mr. O'Hara work on the program that generated these

3 reports?

4 A. Yes.

5 Q. How were these reports printed out at Madoff Securities?

6 A. On a relatively high-speed continuous form-feed laser

7 printer.

8 Q. Who was it that picked the printer that was going to be

9 used to print out the fabricated DTC reports?

10 A. I believe Jerry did.

11 Q. Who set up the printer that was used to print off the

12 fabricated DTC reports?

13 A. Physically set up the printer? I don't know.

14 Q. Who was involved in overseeing the setting up of the

15 printer?

16 A. Jerry.

17 MR. MEHLER: Objection. Move to strike.

18 THE COURT: Please consult. Please face the window.

19 (Counsel conferred.)

20 MR. MEHLER: I'm sorry, your Honor.

21 THE COURT: Everyone please wait here quietly and we

22 will be back out as quickly as possible.

23 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 122 of Exhibit 179 47981 Pg 123 of 180 1 (In the robing room).

2 THE COURT: Mr. Mehler.

3 MR. MEHLER: I'm sorry, Judge. It's a variation of

4 the same thing. You have a series of questions that Mr. Zach

5 is asking about the set-up of the printer and other related

6 questions about what occurred in 1994 and 1995. There is

7 simply no way that this witness knows anything about that. He

8 didn't get involved in it until years later.

9 That is our objection, that he has no basis to do it.

10 I don't even think the answer is Jerry, I think it is Liz

11 Weintraub. But I'll let Mr. Zach speak to what he is aiming

12 toward.

13 THE COURT: Mr. Zach.

14 MR. ZACH: Your Honor, first of all, Mr. DiPascali was

15 working there since 1975. The point of this is there is a

16 special printer here that prints out DTC reports. It was

17 installed at the office. The person that was in charge of

18 bringing that in was Mr. O'Hara. Mr. DiPascali is going to

19 testify to that. I think it is entirely relevant.

20 THE COURT: Your offer of proof is that Mr. DiPascali

21 has personal knowledge that Mr. O'Hara was tasked with the

22 acquisition of the special printer that was used?

23 MR. ZACH: Yes. My expectation is that, and that

24 paper had to be procured for it. There was special paper. He

25 knows about how this printer was used, yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 123 of Exhibit 179 47991 Pg 124 of 180 1 THE COURT: And that Mr. DiPascali has personal

2 knowledge --

3 MR. ZACH: Yes.

4 THE COURT: -- that Mr. O'Hara was tasked with the

5 functions?

6 MR. ZACH: Yes. He was working on it. I'll ask the

7 question. I can ask him if you want --

8 MR. JACKSON: The question has already been asked and

9 answered for the record.

10 THE COURT: Which question?

11 MR. JACKSON: The last question which Mr. Mehler

12 objected to was asked and answered, which is who was

13 responsible for setting that up.

14 THE COURT: There was a question who was responsible

15 for setting it up. The answer was I don't know. Then there

16 was a question who supervised it, and the answer was O'Hara,

17 there was the motion to strike, which is why we are here.

18 Is it your representation that Mr. DiPascali has

19 personal knowledge that, as he would testify, Mr. O'Hara

20 supervised the setting up of this?

21 MR. ZACH: Yes. Just so I can explain, I think what

22 his response to who set it up was this isn't like a printer

23 that you would plug into your computer, it is an industrial

24 computer. An outside company had to come in and put it in.

25 That's what he was referring to when he said who set it up. It

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2 was people from the outside vendor who would provide it. It

3 wouldn't be a guy at Madoff Securities, it's such a big

4 printer.

5 THE COURT: On the basis of the offer of proof, the

6 motion to strike the testimony is denied.

7 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 125 of Exhibit 179 48011 Pg 126 of 180 1 (In open court)

2 BY MR. ZACH:

3 Q. Can you describe the printer that was procured to print out

4 these DTC reports.

5 A. I think the first one was manufactured by a company called

6 Plantronics, but I'm not certain. It was an IBM type printer.

7 It was six or so feet wide, three or so feet deep, four or so

8 feet tall. On the left side was an area you could put an

9 entire box of continuous feed paper into, 2,000 sheets maybe in

10 a box. I think there was a touch pad on the upper right-hand

11 corner. The whole center part of the unit looked like a

12 printing press type thing, with rollers and lights if you

13 opened the door.

14 It would feed the blank document up one side, go

15 through, and came out and had an automatic stacker that used to

16 make sure that it didn't get torn apart as it came out the

17 other side. It was very quick. If you started to print a

18 document and you had made a mistake, by the time you hit the

19 button, 60 pages might come off the thing or 40 pages. It was

20 a high-speed printer.

21 Q. Where was this printer located at Madoff Securities?

22 A. In December of '08 it was in the hallway right outside my

23 office door. We had built an alcove for it so that people

24 wouldn't knock into it. We didn't want to dedicate an office

25 to it, so we created this cutout in the hallway and buried it

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2 Q. Was there special paper required to print out these DTC

3 reports?

4 A. For DTC it had to be green bar continuous-feed 8½-by-11.

5 Q. Who was it that selected the paper that was used?

6 A. Bernie wanted that paper used because it looked like DTC's

7 paper.

8 Q. Now I would like to switch topics for a moment. Stepping

9 back to the treasury bills that we were looking at before

10 lunch, do you recall those?

11 A. Yes.

12 Q. What part of the business were those big treasury bills

13 used for?

14 A. The IA business.

15 Q. What was the name of the strategy that was being

16 implemented in the IA business that involved those treasury

17 bills?

18 A. It was called a split strike forward conversion.

19 Q. Who worked on implementing that strategy?

20 A. I was responsible for it.

21 Q. Who helped you?

22 A. Jodi Crupi and the rest of my staff.

23 Q. Could you describe generally the concept of going in and

24 out of the market with respect to the split strike strategy.

25 A. When you're going into the market, you're coming from a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 127 of Exhibit 179 48031 Pg 128 of 180 1 point of cash. We put through tickets that would indicate the

2 purchase of a big portfolio of stock, sometimes 35, sometimes

3 50 different issues. Then we would put an option put and an

4 option call into position, which was the hedge to the

5 portfolio. That stayed in the customer's account for a number

6 of days, sometimes a number of weeks or months.

7 Then, on Bernie's direction, we would reverse course

8 and put through tickets that would sell all those stocks in

9 that portfolio and tickets that would take off the option

10 positions that were hedging the portfolio. At that point we

11 would take the cash, because at that point that's all that's in

12 the customer's account, and we would put through tickets to

13 purchase treasury bills because he could not be in a cash

14 position over a certain period of time. He instructed us to

15 buy treasury bills or put through tickets to buy treasury bills

16 whenever we were out of the market. That's the positions that

17 you saw in the DTC report.

18 That was done many times a year, but certainly at the

19 end of every quarter. The run we were looking at is a

20 September 30, 2005 run, which would be the end of the third

21 quarter, which is why we were in treasury bills, because we

22 were, quote, out of the market.

23 Q. As part of this strategy, the IA business would do what was

24 referred to as going into the market and purport to buy

25 securities, is that right?

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2 Q. Were you really buying securities?

3 A. No.

4 Q. Was this all just on paper?

5 A. Yes.

6 Q. Then, when you got out of the market, the IA business would

7 purport to buy treasury securities, right?

8 A. That's correct.

9 Q. Did you really buy treasury securities?

10 A. No.

11 Q. Were those all fake?

12 A. Yes.

13 Q. When that activity happened, would there be communications

14 sent to customers?

15 A. Every time.

16 Q. Are you familiar with the term "trade confirmation"?

17 A. Sure.

18 Q. Would trade confirmations be sent to customers?

19 A. Yes.

20 Q. Would that reflect the fake trades that you just described?

21 A. Exactly that.

22 Q. Would account statements that we have looked at be sent to

23 customers?

24 A. Yes.

25 Q. Would those account statements reflect the fake trading

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2 A. Yes.

3 Q. When you sent those trade confirmations and sent those

4 account statements to clients, did you know that you were

5 committing fraud?

6 A. Yes.

7 Q. In terms of going in and out of the market, who would make

8 the decision to do that activity?

9 A. Bernie made the final decision on that.

10 Q. When you made that decision, were you looking at historical

11 prices when you were trying to get out of the market?

12 A. Most of the time.

13 Q. At any point was any of the trading actually real?

14 A. No.

15 Q. In connection with this activity in the split strike

16 account, did you receive notes from Ms. Crupi?

17 A. Regarding the activity in the split strike accounts?

18 Q. In the course of your work there, did you receive notes

19 from Ms. Crupi reflecting instructions from Mr. Madoff?

20 A. Occasionally.

21 Q. Could you describe what some of those notes said.

22 A. Bernie would like you to get out of the market; Bernie's

23 considering getting out of the market; call Bernie, he wants to

24 see if we could use yesterday to get out of the market. Or

25 when we were getting in the market, there would be notes of

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 130 of Exhibit 179 48061 Pg 131 of 180 1 similar content: You have been out of the market too long,

2 Bernie wants to be in the market, look at last night's close,

3 things like that.

4 Q. From time to time did other people on your staff leave you

5 notes reflecting communications from Mr. Madoff?

6 A. Yes.

7 Q. What was on those notes?

8 A. Call Bernie.

9 Q. Were the notes from Ms. Crupi more substantive?

10 MR. BRESLIN: Objection.

11 THE COURT: Please consult. Actually, if you just

12 want to reformulate that.

13 MR. BRESLIN: That would be fine, your Honor.

14 THE COURT: Thank you.

15 Q. Can you compare the notes you got from Ms. Crupi to the

16 notes you got from other people on your staff.

17 A. The information on the notes from other people on the staff

18 rarely included any detail or any thought.

19 Q. Now I would like to shift gears for a moment and ask you

20 about something at Madoff Securities that was referred to as

21 the disaster recovery program. Do you know what I am referring

22 to when I refer to the disaster recovery program?

23 A. Yes.

24 Q. What was the disaster recovery program?

25 A. It was basically a duplicate facility that would enable us,

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 131 of Exhibit 179 48071 Pg 132 of 180 1 if 885 Third Avenue had some sort of disaster, whether that be

2 a flood or a fire or an evacuation of the building or anything

3 in the midtown area that would preclude us from operating the

4 business in its entirety at 885, Bernie and Peter built an

5 alternative site in Queens that acted as basically a duplicate

6 operation. It had a trading room, it had a back office, had

7 all the bells and whistles that the normal operation had. It

8 was located at the Bulova Watch Company building, which was

9 right by LaGuardia Airport.

10 Q. When, roughly, did the preparations begin for having this

11 backup office?

12 A. In the '90s. It was being utilized during 9/11. I

13 remember being there, so it had to be in the '90s sometime.

14 Q. Were you involved in the planning meetings for this?

15 A. Some of the planning meetings, yes.

16 Q. Who led the planning?

17 A. Typically, Peter.

18 Q. Who were some of the other Madoff Securities employees that

19 participated in the planning for the disaster recovery site?

20 A. Certainly the heads of all the departments, which would

21 include Annette and Danny. Liz Weintraub was instrumental.

22 Mark and Andy Madoff were in some of these meetings. Charlie

23 Weiner was in most of these meetings. Some of the middle

24 management people, that would be Jerry and George, some of the

25 technicians. It depended on the topic of the meeting,

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2 Q. What was ultimately procured for the backup site for the

3 market-making and the proprietary trading side of the business?

4 A. They could operate that entire business for almost an

5 indefinite period of time out of that other facility. They

6 replicated 885.

7 Q. What sorts of hardware was needed to do that?

8 A. The same exact hardware that was over at 885.

9 Q. How substantial was that hardware?

10 A. Millions upon millions of dollars worth of hardware.

11 Q. As part of this process, was a plan put together at Madoff

12 Securities for setting up the disaster recovery site?

13 A. Not specifically for setting it up.

14 Q. Let me show you, the judge, and counsel what's been marked

15 for identification as Government Exhibit 4000-F4. Look at this

16 first page. Then I would like to go to page 67. Do you

17 recognize the document that we are looking at?

18 A. Right. This is called a BCP plan, business continuity

19 plan. This is the information that was housed in a binder that

20 was given to all the department heads. It outlined soup to

21 nuts what would occur in a disaster, who was going to be

22 responsible for what, who reported to who. It had contact

23 phone numbers, it had emergency service phone numbers. It had

24 all sorts of information. It included the phone numbers. It

25 had transit maps in it.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 133 of Exhibit 179 48091 Pg 134 of 180 1 It was supposed to be a booklet, or a binder actually,

2 that the supervisory personnel had to be very familiar with.

3 If I'm not mistaken, we kept one at home and one in the office,

4 each of us. There was a plan and procedure as to who would

5 first declare this to be an emergency where we would take

6 advantage, according to the BCP plan, of the disaster site.

7 There was a pecking order of who called who and what was put

8 into place.

9 MR. ZACH: Your Honor, the government offers 4000-F4.

10 THE COURT: Any objection?

11 MR. KRANTZ: May I speak to Mr. Zach one second?

12 THE COURT: Yes.

13 MR. RIOPELLE: No objection.

14 (Counsel conferred.)

15 MR. KRANTZ: No objection.

16 MR. MEHLER: No objection.

17 MR. FRISCH: No objection.

18 MR. BRESLIN: No objection, your Honor.

19 MR. RIOPELLE: No objection, your Honor.

20 THE COURT: Government Exhibit 4000-F4 is admitted in

21 evidence.

22 (Government's Exhibit 4000-F4 received in evidence)

23 MR. ZACH: Thank you, your Honor. May we publish it

24 to the jury?

25 THE COURT: Yes, you may.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 134 of Exhibit 179 48101 Pg 135 of 180 1 BY MR. ZACH:

2 Q. Can you tell us first, looking at the top part of it, read

3 the top part of the screen, if you can.

4 A. It says "F&A department relocation."

5 Q. What does F&A stand for?

6 A. Frank and Annette.

7 Q. You previously testified that the market-making and

8 proprietary trading end of the business had millions of dollars

9 of equipment bought to back it up, right?

10 A. Correct.

11 Q. Can we blow up at the bottom what is required for Frank and

12 Annette's business, department. What does it say is required,

13 Mr. DiPascali?

14 A. I'm sorry? Excuse me.

15 Q. What does it say is required to back up?

16 A. Bulova equipment and provisions: Two work stations, one

17 AS/400, one high-speed printer, one burster, one decollator,

18 and 300 boxes of paper.

19 Q. What is a burster?

20 A. It's a machine that when stuff comes off the printer, since

21 we use two-part paper, it separates it.

22 Q. What is a decollator?

23 A. The two-part paper is perforated, and it separates at the

24 perforation. I might have those two machines reversed in their

25 duties. But in essence, it splits paper.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 135 of Exhibit 179 48111 Pg 136 of 180 1 Q. What is an AS/400?

2 A. It's the box we operated the system on. It's the IBM

3 computer that has all the programs in it to run the F&A

4 department.

5 Q. In the event of a natural catastrophe or some sort of other

6 disaster, is this what was needed to keep the IA business up

7 and running?

8 A. Essentially, yes.

9 Q. Did you require any trading system?

10 A. No.

11 Q. Did you require phones to pick up and call brokers and

12 other people to buy securities?

13 A. There were phones at Bulova we could have utilized.

14 Q. What was your understanding of why this was all that was

15 needed to keep your business up and running?

16 A. Because in a disaster we were going to go into disaster

17 mode depending on what position we were in and depending on the

18 magnitude of the disaster and how it would affect the stock

19 market. Bernie's instructions to me were obviously that we

20 would communicate and he would have the final decision, but

21 whatever we had going in terms of the baskets would simply be

22 liquidated and then placed into treasury positions. Then we

23 would just sit on those treasury positions for the customers

24 for the duration of the disaster.

25 Q. During this time were there any securities that were

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 136 of Exhibit 179 48121 Pg 137 of 180 1 actually being traded by the IA business?

2 A. During what time?

3 Q. When this plan was being put together.

4 A. If we had a disaster, the tickets that we were going to put

5 through were going to be fictitious. It never occurred.

6 Q. Is that why you needed the 300 boxes of paper?

7 A. Correct.

8 Q. Nothing else?

9 MR. KRANTZ: I didn't hear the last question. I'm

10 sorry.

11 MR. ZACH: "Nothing else?"

12 THE COURT: The question was "Nothing else?" Was

13 there an answer?

14 A. No, there was nothing else.

15 Q. In comparison to the AS/400 that was listed here, what

16 sorts of trading hardware was needed for the market-making

17 business?

18 A. I'm not all that well-versed with it, but there was a

19 trading platform written on a whole series of computers. There

20 were all sorts of communication devices and servers. There was

21 a ticker plant that was built which holds all the current

22 market quotes of every security that we could possibly have an

23 interest in.

24 It was a very extensive architecture, very, very

25 sophisticated digital communication devices. It took up the

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 137 of Exhibit 179 48131 Pg 138 of 180 1 entire 18th floor between the equipment itself and the people

2 that managed that equipment, with the exception of some small

3 office space for some, you know, some of the back office

4 personnel.

5 Q. Can we take down this exhibit, Ms. Baskin, and put up

6 Government Exhibit 1100-2.

7 Do you recall what this is?

8 A. The 18th floor.

9 Q. Can you give the witness the ability to touch the touch

10 screen.

11 Could you point out, Mr. DiPascali, where on the 18th

12 floor all of this hardware that was used for the market-making

13 and proprietary trading business was located.

14 A. It would be all of this. It would be that C circle area

15 and the box next to it. The computer technicians that operated

16 that system would be in this area here. There was monitoring

17 stations of this equipment, which would be here. In essence,

18 all of this.

19 This was secretarial and private office space, which

20 would not be part of it. And this was the back office area,

21 which would not be part of the physical hardware. All of these

22 techies all had computers that went into that hardware, boxes

23 under their desks. It was very high-tech. I don't know the

24 specifics about the equipment used, but there was lots of it.

25 THE COURT: Mr. Zach, would you back up and do a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 138 of Exhibit 179 48141 Pg 139 of 180 1 description for the paper record.

2 MR. ZACH: I will, your Honor.

3 Q. Mr. DiPascali, looking at what is now 1100-2, there are

4 markings in the center of the document.

5 A. A series of five arrows.

6 Q. Yes. Was that the area that you said had hardware that was

7 used for the trading?

8 A. That was the location of the people that were monitoring

9 these systems. They had all sorts of screens and hardware

10 around them.

11 Q. Starting with the left, can we blow up the left side of the

12 document, Ms. Baskin, please.

13 There is a vertical column above a box that says UPS,

14 and it goes one 1, 2, 3, 4, 5, all the way up to 9. Do you see

15 that?

16 A. Yes.

17 Q. What was located there?

18 A. The computers.

19 Q. Do you see to the right of it there are a couple of boxes

20 that say AC? What does AC mean?

21 A. Air conditioning.

22 Q. For what reason was there air conditioning in that area?

23 A. There was so much equipment, it needed to be cooled. There

24 were monstrous what they called Liebrink air conditioning

25 units. They were 6-foot tall.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 139 of Exhibit 179 48151 Pg 140 of 180 1 Q. That was to cool the computers?

2 A. Yes, to cool that whole room.

3 Q. In response to the question of where was some of the

4 trading hardware, that is one of the areas?

5 A. Certainly.

6 Q. Now, Ms. Baskin, can we pull out and blow up the middle

7 lower section where the marks have been made.

8 So the record is clear, there is an X over a set of

9 stations that has the number 1839 on the right-hand middle side

10 of that section. Do you see that?

11 A. I do.

12 Q. So the record is clear, what was located in this area?

13 A. That was the software writers or tech support area. Each

14 one of those desks was kind of set up in a cubicle environment.

15 They had computers under and on their desks and screens and

16 they were linked to other equipment that was in the equipment

17 room or the computer room.

18 Q. That, too, was part of the area where hardware was located

19 that was used in furtherance of the trading and the market-

20 making side of the business?

21 A. Yes.

22 Q. Now I think there were also some series of five triangles

23 at the top left that go through a room called operations?

24 A. Correct.

25 Q. What is there?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 140 of Exhibit 179 48161 Pg 141 of 180 1 A. That was a monitoring station. There was an entire wall of

2 like flat screen TVs and there were three guys that -- you see

3 those three seats? They were monitoring I don't know what

4 related to the system. They had tons of hardware and

5 communication devices that were also back-linked into our

6 network and into the system.

7 Q. Finally, in this part there is a long arrow going up

8 starting in a room with the number 2408 and going up through

9 another room that is unlabeled but just above a closet. What

10 is there?

11 A. Those were the location in the center where there is four

12 desks in a vertical rectangle. Those were computer technicians

13 that had similar equipment.

14 Q. Can we pull out of that, Mr. Baskin.

15 You also made a mark on the right-hand side. What is

16 that?

17 A. That had nothing to do with the hardware that drove the

18 trading. Those were executive offices.

19 Q. I think we can pull out now. How did this amount of

20 hardware compare to what sort of computer systems were on the

21 17th floor?

22 A. There were similar desktop units and CPUs under most desks

23 on the 17th floor. There was an AS/400 box in the computer

24 room on the 17th floor. There was not much more than that.

25 There was some communications to that AS/400 from outside

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 141 of Exhibit 179 48171 Pg 142 of 180 1 vendors, but it was not nearly as sophisticated as the 18th

2 floor computer center.

3 Q. Let's for a moment look now at Government Exhibit 1100-1.

4 Do you recognize what this is?

5 A. Yes.

6 Q. Can you put a mark on where the AS/400 would be located.

7 A. Stay with me a second, because I'm half blind. It would be

8 in this room. I believe ours was right here on the floor off

9 the right shoulder of that desk operator.

10 Q. It was on the floor?

11 A. I believe it was.

12 Q. Were there those industrial air conditioners needed for

13 that?

14 A. There was sometimes a temporary unit rolled into that room

15 that had this big flexible accordion thing to vent it. That

16 was, I believe, not for the comfort of the computer but for the

17 operators.

18 Q. To keep the room cool for the workers?

19 A. Yes. It was an internal room.

20 Q. We can take that down. Previously you had testified that

21 as the new clients came from A&B directly to Madoff Securities,

22 you had to address the logistical problems of setting up

23 accounts at Madoff Securities. Do you recall that?

24 A. Yes.

25 Q. To do that, did you have to computerize a lot of the data?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 142 of Exhibit 179 48181 Pg 143 of 180 1 A. The programs necessary to input a new client into the

2 system I believe were already resident. The task was to input

3 lots of them. I don't think they needed to reinvent the wheel

4 to have the computer recognize a customer account.

5 Q. Who was in charge of the IT at that time?

6 A. Liz Weintraub.

7 Q. Did Ms. Weintraub assist in doing that?

8 A. No.

9 Q. Who was it that helped set up the necessary computer

10 programs to take on this increased volume of clients?

11 A. I don't understand your question.

12 Q. As part of bringing in the clients, did you have to work

13 with anyone in the IT department to prepare programs so that

14 customer data could be processed and kept track of?

15 A. I don't remember working with anyone for that specific

16 purpose.

17 Q. During this time period were you working with computer

18 programmers to help you assist in your business?

19 A. Absolutely.

20 Q. Who were you working with?

21 A. Primarily Jerry.

22 Q. What sorts of tasks were given to Mr. O'Hara?

23 A. We were trying to invent, as I explained before, a way of

24 being able to trade many, many, many accounts using the same

25 exact strategy. We chose the name batch trading. What we were

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon5Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 143 of Exhibit 179 48191 Pg 144 of 180 1 going to do was trade everything in big batches of data.

2 Q. In sorting and working with that data, who did you work

3 with?

4 MR. MEHLER: Objection.

5 THE COURT: Please consult.

6 MR. ZACH: I'll rephrase.

7 Q. Who was it you were working with in terms of the batch

8 trading?

9 A. Jerry O'Hara.

10 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 144 of Exhibit 179 48201 Pg 145 of 180 1 Q. Now, at this time, did Mr. Perez work at Madoff Securities?

2 A. He did.

3 Q. When did Mr. Perez start working at Madoff Securities?

4 A. It was sometime after Jerry started, but not -- certainly

5 not two or three years after. I think it was about a year

6 after.

7 Q. And what specifically -- what specific year was it, if you

8 recall, or whereabouts did he start?

9 A. I believe it was prior to 1992. I'm not sure of the year.

10 It might have been '89. It might have been '90. It might have

11 been '91.

12 Q. Sometime in the late '80s, early '90s?

13 A. I'll agree to that.

14 Q. And Mr. O'Hara was hired before Mr. Perez?

15 A. Yes.

16 Q. And when Mr. Perez was hired, who did he -- who did you

17 observe him working with in the mid '90s?

18 A. Mostly Annette and Jerry, taking instruction from Liz

19 Weintraub.

20 Q. And was the work that was being done by those folks -- was

21 a portion of that work that was being done by those folks done

22 in connection with the IA business?

23 A. Certainly.

24 Q. Now, I'd like to switch to a different topic, which is, are

25 you familiar with an individual named Stanley Chais?

2 Q. How are you familiar with an individual named Stanley

3 Chais?

4 A. He was one of Bernie's clients.

5 Q. When do you recall first becoming familiar with Mr. Chais?

6 A. I've heard the name as far back as certainly the '80s,

7 early '80s.

8 Q. And did he -- did he have --

9 A. Can I correct that?

10 Q. Of course.

11 A. I heard that name in 1977.

12 Q. Okay. Do you recall how you heard that in 1977?

13 A. Bernie said, I have a client named Stanley Chais. His wife

14 is a writer. She wrote a screenplay. Threw it at me. He

15 said, go read it, kid. Tell me if it's any good. Her name is

16 Pamela Chais, and I remember where I read the screenplay, which

17 was Ralph Madoff's office; so it had to be '76 or '77.

18 Q. Did Mr. Chais have accounts with Madoff Securities?

19 A. Yes.

20 Q. Do you recall what types of accounts they were?

21 A. They were Annette's accounts. They were convertible

22 arbitrage accounts and long position accounts, then

23 subsequently hedge accounts and long position accounts, and

24 then after that, option hedge accounts and long position

25 accounts. The business went through a few generations of

2 Q. Okay. Now, you said when you first became aware of it,

3 that those accounts were being managed by Ms. Bongiorno?

4 A. Yes.

5 Q. Over time, did another individual at Madoff Securities take

6 a role on with respect to the Stan Chais accounts?

7 A. Yes.

8 Q. Who took on that role?

9 A. Jodi.

10 Q. And what role did Ms. Crupi take on with respect to the

11 Stanley Chais accounts?

12 A. She became the manager of his hedge work.

13 Q. Do you recall approximately when that was?

14 A. I'll guess mid '90s. It wasn't, I don't think, in the '80s

15 and it wasn't as late as the 2000s.

16 Q. And before that, was Ms. Bongiorno the one that was

17 operating those accounts?

18 A. Her and her staff, yes.

19 Q. Now, I'd like to show you what's in evidence as Government

20 Exhibit 105-C122, and can we blow up the written portion of

21 that, Ms. Baskin. Now, Mr. DiPascali, do you recognize some of

22 the handwriting on this piece of paper?

23 A. Yes.

24 Q. Whose handwriting do you recognize it to be?

25 A. Jodi's.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 147 of Exhibit 179 48231 Pg 148 of 180 1 Q. Could you read for us -- Let's blow up the top half, if we

2 can, Miss Baskin. Can you read for us what it says?

3 A. It's titled hedges. One, figure out as if it's an

4 arbitrage. Do not, underlined, count weekends with lag days.

5 And there's some note in between that says, start counting lag

6 day after last day. It goes on to say, always seven lag eight

7 week. If new dates would become due in current quarter, you

8 have to turn them again.

9 Q. Now, let's pull out. And can we blow up the bottom part of

10 the document. Could you read for us the part above the line?

11 A. It says, use last week in trade dates, highest vol, selling

12 eighth to a quarter below high by eighth to a quarter above

13 low.

14 Q. And can you read the bottom portion too?

15 A. It says, one million running 22 weeks at two. I think it

16 says, two and a quarter. Profit needed equals one million

17 times two and a quarter times 22 divided by four, and then

18 there's a figure of 123,750.

19 Q. Now, we can take that down. Now, was Mr. Chais connected

20 with or did he have a relationship with any other employee at

21 Madoff Securities going back in time?

22 A. Sure. He was roommates at Syracuse University to Marty

23 Joel.

24 Q. And Mr. Joel was the individual that you learned options

25 trading from, right?

2 Q. Now, did there come a time that you were assigned

3 responsibilities with connections to Mr. Chais' accounts?

4 A. Yes.

5 Q. When was that?

6 A. In the '90s.

7 Q. And what were you tasked with doing?

8 A. To create a strategy for him that would be hedged using

9 stocks and individual stock options for five of his accounts,

10 three of which were funds that he managed and one was an

11 offshore or foreign philanthropy trust and the other was a

12 trust for one of his children.

13 Q. And as part of your involvement with Mr. Chais' accounts,

14 did you learn about requirements he had for the trading in his

15 accounts?

16 A. For the accounts that I managed?

17 Q. Yes.

18 A. He was never allowed to take a loss.

19 Q. How did you learn that his requirement was that he was

20 never allowed to take a loss?

21 A. Because after Bernie explained to him what the strategy

22 would look like, because the money that we were going to

23 utilize the strategy for had come from convertible bond and

24 convertible preferred hedge and arbitrage investments. But

25 Bernie was unwinding those and moving funds from that arena

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 149 of Exhibit 179 48251 Pg 150 of 180 1 into this new product that I had developed with Bernie called

2 the split strike. The split-strike strategy involves buying

3 the stock, buying the put to hedge the stock, and shorting the

4 call. It's a three-legged animal. And you have a defined

5 downside risk and a defined upside potential.

6 When -- after Mr. Chais became agreeable with Bernie

7 that this was okay to do, they moved the credit from his old

8 arbitrage or hedge account into a similar account number that

9 was in my domain. I set up a bunch of this work the way I had

10 been told to do it, and we sent them the tickets and he called

11 up like a lunatic and said that this is all wrong, that you

12 can't do this because he wasn't getting down the concept that

13 you can make two points on the stock and lose a point and a

14 half on the hedge and still be a net half point winner.

15 He wanted to make either break even or make money on

16 all three legs, which was insane. So Bernie, you know,

17 switched gears, and he could not put him back in this

18 arbitrage, but Stan claimed he couldn't -- didn't know how to

19 account for a loss, wouldn't be able to explain to his

20 accountant what a loss was all about. Losses were just not

21 part of his universe. So he forced Bernie to redirect the

22 trading strategy within the same strategy but never write a

23 ticket that has a loss. It was insanity.

24 MR. BRESLIN: Your Honor, objection, and move to

25 strike the entire answer.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 150 of Exhibit 179 48261 Pg 151 of 180 1 THE COURT: Will you consult, please.

2 (Counsel conferring)

3 MR. BRESLIN: Your Honor, I'm sorry, we need a ruling.

4 THE COURT: All right. What we'll do is start the

5 afternoon break for the jury, and we can have a discussion out

6 here. So, ladies and gentlemen, please be ready in the jury

7 room at 3:30 and continue to keep your thoughts to yourselves

8 and enjoy your break. All rise. Ms. Ng will escort the jury

9 out.

10 (Jury exits)

11 THE COURT: And, Mr. DiPascali, you may step down.

12 Thank you.

13 THE WITNESS: Thank you, your Honor.

14 THE COURT: Mr. Breslin? Okay. Now we're ready.

15 MR. BRESLIN: Your Honor, the question was, how did

16 you know Mr. Chais was never to take a loss. We got, instead,

17 a long answer that was utterly nonresponsive, that had folded

18 into it statements apparently from Mr. Chais, although no

19 foundation was laid for any of those, to Mr. Madoff, although

20 again it's not clear exactly who the witness was talking to

21 when Mr. Chais' preferences were conveyed to a middleman. I

22 mean, it's gibberish, I mean, and it doesn't belong on this

23 record.

24 And, yes, I know, as Mr. Zach reminded me, I'm the one

25 who said he should be allowed to run, and I stand by that, but

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 151 of Exhibit 179 48271 Pg 152 of 180 1 that doesn't mean that he's allowed to -- you know, to put on

2 the record answers that are simply not competent testimony.

3 THE COURT: Mr. Zach?

4 MR. ZACH: Your Honor, I thought the answer was clear.

5 He described what his conversations were with Mr. Madoff and

6 his understanding of Mr. Chais' requirements, and it made

7 sense. Both Mr. Madoff and Mr. Chais are names that were

8 disclosed in the government's letter of co-conspirators, and I

9 thought the answer made sense and should not be stricken.

10 THE COURT: The answer made sense in its own little

11 internal universe to me, and since the government's allegation

12 proffers that they are co-conspirator statements, we don't have

13 the hearsay exclusion problem. So the request to strike is

14 denied.

15 MR. BRESLIN: Thank you, your Honor.

16 THE COURT: Have a good break, everybody. See you at

17 3:30.

18 MR. JACKSON: Excuse me, Judge, I'm sorry.

19 THE COURT: Hold on a second, everybody.

20 MR. JACKSON: I just have one issue I just wanted to

21 clarify, your Honor. Earlier when your Honor granted two

22 motions to strike, I just want to clarify, because I think it's

23 going to be our obligation to redact the transcript

24 appropriately, those were only granted as to the portions of

25 the answers which speculated about another person's thoughts?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 152 of Exhibit 179 48281 Pg 153 of 180 1 That was our understanding.

2 THE COURT: Yes, I'm thinking back, but I believe that

3 the motion to strike, at the point, was directed to the

4 portions of the answers that said so and so intended to do this

5 or so and so was thinking that. And, Mr. Breslin, did you want

6 to say something?

7 MR. BRESLIN: I will wait to hear what your Honor was

8 going to say. I was just standing up to stretch.

9 THE COURT: All right. So does anyone have an

10 inconsistent recollection of their intent to moving to strike?

11 MR. KRANTZ: Your Honor, I would just suggest that if

12 there's going to be some discretionary striking, that we should

13 probably just consult before it's done because if it's

14 discretionary, there might be room for disagreement. So I

15 suggest government -- if the government is going to strike some

16 portion, they should let us know what portion so we can

17 acknowledge we agree or don't agree.

18 MR. JACKSON: At the end of the day, your Honor, any

19 transcript that went back to the jury would be, obviously,

20 reviewed by defense counsel. I just wanted to be clear on the

21 record that that was our understanding of what the application

22 was that was granted so that, to the extent that we look --

23 we're looking at it in the future, the record is clear that

24 that was the motion to strike, it was based on the witness'

25 speculation about what others were thinking, and it was only

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 153 of Exhibit 179 48291 Pg 154 of 180 1 that portion of the answers that needed to be stricken.

2 THE COURT: Yes, that was my understanding of the

3 motion to strike, and that was what I intended to grant. And

4 to the extent there is to be any redaction of transcript to go

5 into the jury, I would certainly require and expect that the

6 parties consult on and agree to the particular redactions

7 before the redacted transcript is sent back.

8 MR. KRANTZ: Fair enough. Thank you, Judge.

9 MR. JACKSON: Thank you, your Honor.

10 THE COURT: Okay.

11 (Recess)

12 THE COURT: Good afternoon. Please be seated. Is

13 everyone here? I think everybody is here. Ms. Ng, would you

14 please bring the jury in.

15 (Jury enters)

16 Good afternoon, again, members of the jury. Please

17 take your seats. Please be seated, everyone. Mr. Zach.

18 MR. ZACH: Thank you, your Honor.

19 DIRECT EXAMINATION (RESUMED)

20 BY MR. ZACH:

21 Q. Mr. DiPascali, before the break, you were testifying about

22 certain investment accounts by an individual named Stan Chais;

23 do you recall that?

24 A. Yes, I do.

25 Q. Now, did Mr. Chais have one or more than one accounts with

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 154 of Exhibit 179 48301 Pg 155 of 180 1 Madoff Securities?

2 A. He had many.

3 Q. And were those accounts all of a personal nature, or did he

4 also have accounts that included other investors' money?

5 A. Both.

6 Q. On his personal accounts, who at Madoff Securities was

7 responsible for overseeing them?

8 A. Annette.

9 Q. And for the accounts that had other people's -- had other

10 investor's money in them, who was responsible for dealing with

11 those?

12 A. Ultimately, I was and Jodi was.

13 Q. Now, after the conversation you testified about in which

14 Mr. Chais said his accounts were not permitted to lose money,

15 was a new trading strategy implemented in which there would

16 never be a loss for any of his accounts?

17 A. What Bernie decided to do was to -- in order to ensure that

18 the strategy would never result in a loss, he stopped charging

19 him commissions because there was one time where we actually

20 put on a strategy and took it off and the net of the three legs

21 was zero, and Stanley still complained that he lost money.

22 We, quite frankly, were baffled at where, we don't see

23 it, and it turned out it was the 100 or 200 or $300 in

24 commission on the option transactions that was posted that

25 caused him to go into the red slightly. So Bernie put down a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 155 of Exhibit 179 48311 Pg 156 of 180 1 mandate never charge him a commission, and this way it ensured

2 that even if you bought stock at 10 and sold stock at 10 or

3 bought an option at two and sold it at two, where you would on

4 paper break even, you wouldn't be in the red because you

5 weren't even charging commissions.

6 Q. So when you say Mr. Chais couldn't have a loss in his

7 account, you mean in any aspect of his account, not in the

8 overall monthly results?

9 A. That is correct, in any aspect of a particular hedged

10 setup.

11 Q. Now, this new hedged setup, with no commissions at all, was

12 that implemented?

13 A. Yes.

14 Q. Now, was that option strategy something that could be

15 implemented in the real world, in the manner it was with

16 Mr. Chais?

17 A. No.

18 Q. And was any of the trading in Mr. Chais' account real?

19 A. No.

20 Q. Now, did you observe how Ms. Crupi handled the trading in

21 the Chais accounts?

22 A. Yes.

23 Q. And did you have discussions with her about the trading in

24 those accounts?

25 A. Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 156 of Exhibit 179 48321 Pg 157 of 180 1 Q. Briefly describe, from a high level, how the fake trading

2 that was going on in the Chais accounts occurred?

3 A. When I was preparing it or when she was preparing it?

4 Q. When she was preparing it.

5 A. She would have a list of securities that were fairly well

6 known stocks that were very volatile, typically. She

7 maintained that list, and then occasionally when it was

8 necessary to put Mr. Chais' money to work in the five accounts

9 that her and I were responsible for, she would take what's

10 known as a Bloomberg sheet. Bloomberg is a vendor.

11 When you punch up a security symbol on the screen,

12 there are certain parameters you can request that will give you

13 historical pricing. I think the first page goes back about 20

14 trading days. It shows you the high, the low, the last sale,

15 maybe it shows you the opening, but it's historical pricing

16 data of a security.

17 So she would typically look to her list, print out an

18 array of historical stock prices and, based on the level of the

19 stock price, she would choose which option would most likely

20 work. So she would print a put option, spreadsheet and a call

21 option spreadsheet, and then she would lay them out on the

22 table and look for the pricing movement and the days where the

23 stock was -- had the widest range, and she would literally

24 build a little puzzle.

25 Because if you purchase stock at X and you purchase

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 157 of Exhibit 179 48331 Pg 158 of 180 1 the put at Y, and you sold short the call at Z, the net of that

2 needed to equal one of the functions of the put. If it did,

3 mathematically, it guaranteed no loss. And not all of these

4 little stock put call sheets that she printed would present in

5 any of the 20 days she was looking at that scenario, but when

6 it did, she circled the pricing that she needed and she made

7 certain notations on those Bloomberg sheets.

8 She also had to be cognizant of the dividend income

9 stream of that particular security, when it was going to pay a

10 dividend because she anticipated having these securities bought

11 for a certain time period and held for a certain time period.

12 So if a dividend was going to hit in that anticipated period,

13 she needed to notate that.

14 MR. BRESLIN: Objection. Motion to strike as to the

15 testimony as to what Ms. Crupi anticipated or intended.

16 THE COURT: The motion to strike is granted. The jury

17 will disregard the portions of the answer relating to what

18 Ms. Crupi allegedly anticipated or intended.

19 Q. And when these documents were being prepared and reviewed

20 by Ms. Crupi, where did that occur?

21 A. In our common area.

22 Q. And were you able to see how she was working on these

23 documents?

24 A. Initially I taught her how to do it; so I would see every

25 move she made.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 158 of Exhibit 179 48341 Pg 159 of 180 1 Q. And did you review her work with her?

2 A. Yes.

3 Q. And did you speak with Ms. Crupi about what trades to put

4 in or how to make this scenario play out correctly?

5 A. Extensively.

6 Q. And through those discussions and through those

7 observations, is that how you learned how she was able to

8 implement this strategy?

9 A. Yes.

10 Q. So let's look at Government Exhibit 105-C133. Can we blow

11 up the note. Do you recognize the handwriting on this

12 document?

13 A. Yes.

14 Q. Whose handwriting is it?

15 A. It's Jodi's.

16 Q. And you see going down the left-hand side of the note there

17 are a series of names and numbers?

18 A. Correct.

19 Q. Can you read out the names for us?

20 A. Brighton, Chais, Lambeth, Popham, Unicycle.

21 Q. And do you recognize what those names are?

22 A. Yes.

23 Q. And what are those names?

24 A. Well, Brighton, Lambeth and Popham are funds that Mr. Chais

25 had established, where he was raising money from outside

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 159 of Exhibit 179 48351 Pg 160 of 180 1 investors, collecting those monies into his fund, and then

2 turning it over to Bernie to manage. So there were accounts

3 for those three entities of non-Chais money, if you will.

4 The one reference Chais, which is seat 1285, I believe

5 was a trust for one of his kids or some family related entity.

6 And then Unicycle, Bernie explained to me was some Israeli

7 entity that Stanley used to do philanthropy in Israel.

8 Q. Now, were these the accounts that you had discussions with

9 Miss Crupi about?

10 A. Yes.

11 Q. And how -- and were these the accounts in which there could

12 be no loss for Mr. Chais?

13 A. Yes.

14 Q. And were these the accounts in which the trades that were

15 put in them were all fake?

16 A. Yes.

17 Q. And can you read what it says at the top of the letter?

18 A. P and L needed. Trades, P and L needed.

19 Q. Now, let's take that document down and let's pull up, if we

20 can, Government Exhibit 105-C23. Now, do you recognize the

21 handwriting on the side of this envelope?

22 A. Yes.

23 Q. Whose is it?

24 A. It's Jodi's.

25 Q. And what does it say?

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 160 of Exhibit 179 48361 Pg 161 of 180 1 A. Stan 2006, second quarter.

2 Q. And what was Mr. Chais' first name?

3 A. Stanley.

4 Q. Let's turn to Page 2. Do you recognize the handwriting on

5 this page?

6 A. Yes.

7 Q. Whose handwriting is it?

8 A. It's Jodi's.

9 Q. Have you seen Ms. Crupi prepare this type of document

10 before?

11 A. Yes.

12 Q. What instances -- strike that.

13 Under what circumstances did you see Ms. Crupi prepare

14 a document like this?

15 A. Either before she was starting to do her trading for a

16 particular quarter, or as a recap mechanism of a particular

17 quarter. She kept notes of exactly what the results of her

18 trading was. Stan sometimes would call and ask questions, and

19 she would refer to her notes as to rate of return and things of

20 that nature.

21 Q. So were these accounts that related to Mr. Chais?

22 A. Yes.

23 Q. And I want to come back to this page, but can we just

24 quickly go to Page 3 and look at that first. And looking at

25 Page 3, do you recognize the handwriting on it?

2 Q. And whose handwriting is it?

3 A. It's Jodi's.

4 Q. And let's go back, if we can, to Page 2. What are the

5 accounts that are listed on this page?

6 A. Brighton and Lambeth.

7 Q. And can we blow up -- and who ultimately was the holder of

8 the Brighton and Lambeth accounts?

9 A. They were accounts set up by Stan with outside investor

10 monies.

11 Q. And did you have discussions with Ms. Crupi about the fake

12 trading that was going on in these accounts?

13 A. Yes.

14 Q. And can we blow up the first group, please. Can you walk

15 us through what this document shows, starting with the first

16 line, Brighton with a number, 91 days at nine and a half?

17 A. Well, in order to establish what one needs to do in this

18 case for the second quarter of 2006, you need to have some sort

19 of a starting point or reference point. And then from that

20 reference point, you're going to calculate what one's expected

21 return is. And this looks, to me, like it's a recap of this

22 account for the second quarter. It starts out with the name

23 and the account number, and it references that there are 91

24 days in the quarter and that the account should earn 19 and a

25 half percent annualized in that period. Her starting point is

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 162 of Exhibit 179 48381 Pg 163 of 180 1 the account's value or equity at March 31st, '06, and in this

2 case, it was 299,841,375.40.

3 She identifies that, at that point in time, this

4 account was running $27,149.23 over its expected rate of

5 return, at the end of March of '06. The account then also took

6 a wire or a check out. That's that CW it stands for capital

7 withdrawal, on May 22nd of a million dollars. There was also

8 transfer activity also referenced as a capital withdrawal on

9 May 22 of $2 million.

10 What she's doing in this sheet -- and you don't see

11 the math running because she's running a computer tape to get

12 to some of these numbers -- is she's starting with 299 million.

13 She's adjusting for the fact that she was over coming into the

14 period, and she's running a calculation of what $299 million

15 should earn at 19 percent for a certain amount of days.

16 You'll notice that there's the number 51 written and

17 circled on the right-hand side of the document. That's her

18 calculation of how many days probably until the first

19 withdrawal happened because when you start at 299 and then the

20 gentleman takes a million dollars, you need to adjust your

21 starting point by that million dollars. So you calculate the

22 first 51 days at 19 and a half percent, and then on the 299,

23 and then you go forward from there based on 298 because you

24 need to account for the million dollars that was withdrawn and

25 so on.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 163 of Exhibit 179 48391 Pg 164 of 180 1 After running these tabulations on a calculator, she's

2 established that her expected return or her ER at the end of

3 the second quarter of '06 should be 14,511,785.39. That

4 number, when you go back to the starting point, you adjust for

5 the overage. You adjust for the withdrawals that occurred, and

6 you add what that account was expected to earn in the period.

7 Tells you that the equity should be -- EQ should be, SB,

8 311,325. She makes a record notation here that the equity

9 actually is 311,045. Therefore, she has now closed the end of

10 the second quarter under by $280,000.

11 Q. Now --

12 MR. BRESLIN: Your Honor, objection and move to strike

13 the last answer.

14 THE COURT: The motion to strike is denied.

15 Q. Now --

16 THE COURT: You may continue.

17 Q. Now, you said that there is an expected rate of return of

18 19 and a half percent, which we see on the top right-hand side?

19 A. Yes, sir.

20 Q. What was your understanding of the return -- of what that

21 expected rate of return was?

22 A. It was an amount that was dictated by Bernie.

23 Q. So Mr. Madoff decided what the expected rate of return

24 would be?

25 A. Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 164 of Exhibit 179 48401 Pg 165 of 180 1 Q. And what is an expected rate of return?

2 A. It's how much money something should earn over a period of

3 time.

4 Q. So in this case, Mr. Chais' account, this Brighton account,

5 should earn 19 and a half percent. Do you know over what time

6 period that would be?

7 A. Annualized for the second quarter for 2006.

8 Q. So --

9 A. So it's approximately 5 percent per quarter.

10 Q. Annualized means over a year --

11 A. Correct.

12 Q. -- 19 and a half percent?

13 A. Right.

14 Q. So for each quarter, you would make?

15 A. Just shy of five percent per quarter.

16 Q. Now, there's reference to -- well, let's pull out of that.

17 And now, let's go to in the same document, Page 9. Now, do you

18 recognize what type of sheet this is?

19 A. That's a printout of a screen shot from the Bloomberg

20 terminal I spoke about earlier.

21 Q. And if you look at the bottom, there is some handwritten

22 notations; do you see those?

23 A. I do.

24 Q. And who wrote those?

25 A. Jodi.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 165 of Exhibit 179 48411 Pg 166 of 180 1 Q. Now, Ms. Baskin, can we blow up -- well, there's

2 handwriting at the top. Do you recognize whose handwriting

3 that is?

4 A. Jodi's.

5 Q. Can we blow up, Ms. Baskin -- correct, starting there, and

6 the rest of the document going down. Now, can you tell when

7 this Bloomberg sheet was printed out?

8 A. If you go to Bloomberg's information, which is just above

9 Ms. Crupi's writing, the last thing written on the lower

10 right-hand side under the box says, 20 June '06 at 10:51:40.

11 Actually, the information was accessed from the terminal and

12 then printed at 10:51 in the morning on June 20th, 2006.

13 Q. Can we highlight that, Ms. Baskin. And that part is where

14 you looked to see when a Bloomberg printout occurred?

15 A. Yeah. If I wanted to know when the screen shot was taken,

16 my eye would look there. You'll notice it says, open, high,

17 low, closed. You'll notice the market had not closed yet on

18 June 20th. It was only 10:51 in the morning; so that closed

19 figure was actually the last trade prior to 10:51:40, and you

20 would need to know that.

21 Q. Now, Mr. DiPascali, going down the left-hand side, how many

22 days back in the month does this go?

23 A. Twelve.

24 Q. And you see in Ms. Crupi's handwriting there are -- on the

25 left-hand side, there's a date. Can you read what that is?

2 Q. And on the right-hand side, do you see there's a series of

3 dates as well. What are they dated?

4 A. 6-14.

5 Q. And did you see Ms. Crupi with this type of Bloomberg sheet

6 when you were working with her at Madoff Securities?

7 A. Yes.

8 Q. And what stock is this for?

9 A. It's Google.

10 Q. Now, if we can, I'd like to go to Page 4 of this same

11 document, and can we blow -- can we blow up the text in this,

12 Ms. Baskin, to see if it can be a little bit easier to read.

13 Now, just generally, do you recognize what type of a

14 document this is?

15 A. It's an Excel spreadsheet.

16 Q. And have you observed this type of Excel spreadsheet at

17 Madoff Securities?

18 A. I created it.

19 Q. And was this type of Excel spreadsheet utilized in

20 connection with some of the Stanley Chais accounts?

21 A. Yes.

22 Q. Who did you observe utilizing this type of spreadsheet?

23 A. Initially, me and my keypunch operators, and then Jodi and

24 the keypunch operators.

25 Q. And can you explain what the purpose of this spreadsheet

2 A. So that the young ladies in the computer room could input

3 the trades. It is, in essence, a trade ticket. You have on

4 this spreadsheet all the information that the keypunch

5 operators would key into the system to produce a confirmation

6 and to have a security appear in a customer statement.

7 There's also some calculations being done here. The

8 purpose of the spreadsheet was to, in an orderly fashion, put

9 certain information on the sheet and guide you along in the

10 process of putting together a quarter's worth of work for

11 Mr. Chais. When you were done and everything meshed the way it

12 needed to, certain columns on this sheet were just simply

13 hidden on Excel, and then the columns that were left were used

14 as just printed and used to give to the keypunch operators so

15 that they could input the information to the system.

16 So you'll see down the left-hand column it says buy,

17 buy, sell; buy, buy, sell, all the way down, and then there's a

18 unit quantity, but that unit quantity never went into the

19 computer room. The next column never went into the computer

20 room. However, the fourth column did, so did the fifth and so

21 did the sixth column, and the trade date and the settlement

22 date. Then there was the next one didn't. The closeout did.

23 The trade date and the settlement date did and the last one and

24 the little tiny numbers didn't.

25 So this had two purposes, to allow you to, on Excel,

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 168 of Exhibit 179 48441 Pg 169 of 180 1 set up the architecture of what you needed to do and then cover

2 up, hide or delete certain information that's extraneous to the

3 computer punching operation, print a copy of what's left over

4 and give it to the young ladies to punch.

5 Q. Now, Mr. DiPascali, you said that you prepared this

6 spreadsheet?

7 A. Yes.

8 Q. The format for the spreadsheet, at least?

9 A. I prepared this exact spreadsheet.

10 Q. And with this spreadsheet, there are certain totals that

11 are summed up, right?

12 A. Yes.

13 Q. Are you able to put in or take out transactions to adjust

14 those totals?

15 A. What's happening in the spreadsheet is in the background,

16 Excel is running some very simple math. Certain of these

17 columns are fixed columns, and what you're doing is you're

18 adjusting those columns by quantity so that you could hit to a

19 particular total that Excel is telling you all of the above has

20 now calculated to. It goes back to trying to hit to a specific

21 rate of return.

22 What you're seeing on this spreadsheet, by the way,

23 are not just the buy side tickets of going into the market,

24 that this is going into the market and coming out of the

25 market. So by the time this spreadsheet is created, it's a

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDC4PBON6Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 169 of Exhibit 179 48451 Pg 170 of 180 1 finite done deal. So if you just keep playing with the

2 numbers, you will hit to the point you want to be because there

3 is no more variables. Everything is fixed, and you're just

4 changing how much of this I should do to accommodate that exact

5 number I'm trying to hit to.

6 Q. So stepping back, Mr. Chais expected a predetermined rate

7 of return?

8 A. Correct.

9 (Continued on next page)

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon7Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 170 of Exhibit 179 48461 Pg 171 of 180 1 Q. Does the spreadsheet allow you to adjust the amount of a

2 share that is purportedly purchased to try and target that

3 amount?

4 A. It's designed to do exactly that.

5 Q. Does all of the purported trading on the spreadsheet have

6 historical stock information on it?

7 A. Yes.

8 Q. Was any of the stock that's reflected on this sheet

9 actually purchased?

10 A. No.

11 Q. Does this allow to insert, to calibrate the fake trades

12 that need to be put in to Mr. Chais's account to achieve the

13 target rate?

14 MR. BRESLIN: Objection, your Honor.

15 THE COURT: Do you want to consult?

16 MR. BRESLIN: Yes.

17 (Counsel conferred.)

18 MR. BRESLIN: Mr. Zach will rephrase, your Honor.

19 THE COURT: Thank you.

20 Q. By being able to pick and choose the amount of the fake

21 trade, how does that help you reach the target?

22 A. The information regarding the pricing structure of each

23 option and stock was derived from the historical prices, so

24 that's a fixed given. Let's say, for instance, a particular

25 three-legged set-up is going to make two points, just for

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon7Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 171 of Exhibit 179 48471 Pg 172 of 180 1 argument's sake. Naturally, if you did 200 of those, you would

2 make $400. If you did 800 of those, you would make $1600. If

3 you know you need to make $1600, you would key in 800 and then

4 give it to the operators to print.

5 You previously had determined how much you need to

6 make in dollars. That's a number that is sitting on a pad next

7 to you. The P&L per unit that you see dead center in the

8 bottom of this spreadsheet has been determined by randomly

9 going into the fixed quantity field, which is your security

10 positions, and adjusting them until you get the desired result.

11 That first entry of 1100 could have, quite frankly,

12 started at 300, but the result wasn't high enough, so it went

13 to 400. Then it went to 500, and so on and so on, until,

14 bingo, 1100 is what's necessary to get the desired result. At

15 that point you eliminate all the extraneous information and you

16 just print the symbol, price, date, settlement date, buy or

17 sell, and give it to the girls to punch.

18 Q. When you give it to the folks to punch, what is turned out

19 in terms of paperwork?

20 A. The trade confirmation and then subsequently the statement.

21 Q. None of that trading was real?

22 A. No.

23 Q. Did you observe Ms. Crupi utilizing the spreadsheet that

24 you created?

25 A. Yes, I did.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon7Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 172 of Exhibit 179 48481 Pg 173 of 180 1 Q. Did you teach her how to use it?

2 A. Yes, I did.

3 Q. Let's take that down and let's look at Government Exhibit

4 105-C115. Can we turn to page 7. Can we please, Mr. Baskin,

5 blow up page 7.

6 Mr. DiPascali, do you recognize the handwriting on

7 this document?

8 A. It's Jodi's.

9 Q. What kind of document are we looking at?

10 A. The firm issued these little desk calendars to all the

11 employees every year. That's December 27th of her desk

12 calendar.

13 Q. Can you tell what year it is?

14 A. 1999.

15 Q. And what the date is?

16 A. December 27th.

17 Q. Can you read what Ms. Crupi wrote on this.

18 A. "Stan, buy T-bills 12/13. Issue of SUNW," which I believe

19 is Sun Microsystems, a stock, "sell for wires of 12/15".

20 Q. Next to the "buy T-bills" there is a date 12/13. Do you

21 see that?

22 A. Correct.

23 Q. Is that before or after December 27th?

24 A. It's before.

25 Q. You see there is a "sell for wires of 12/15." Is December

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon7Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 173 of Exhibit 179 48491 Pg 174 of 180 1 15th before or after December 27th?

2 A. It's before.

3 Q. Let us go now to Government Exhibit 101-122. Can we, Ms.

4 Baskin, make this readable.

5 Mr. DiPascali, do you recognize what type of document

6 this is?

7 A. It's probably a customer ledger.

8 Q. Let's flip through some of the pages.

9 A. I know exactly what it is. It is the digital format of the

10 Madoff statement, but it is not printed on statement paper.

11 Q. What is this document dated?

12 A. 12/31/99.

13 Q. For what account is this?

14 A. Popham.

15 Q. What type of account was Popham? Strike that. Who was the

16 ultimate holder of the Popham account?

17 A. Again, Mr. Chais set up an entity called Popham, and the

18 funds that funded Popham were investors' moneys.

19 Q. Can we turn, Ms. Baskin, to page 7 of this document. Can

20 we blow that up as well, please.

21 Do you recognize what this is?

22 A. 12/31/99 statement for, again, Popham, but it's a different

23 account.

24 Q. Again, Popham is a Stan Chais related account?

25 A. Yes.

SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300 10-05286-smbDc4rbon7Case 1:10-cr-00228-LTS Doc 202-1 Filed Document 03/22/19 DiPascali 856 Entered Filed - 04/03/14 direct03/22/19 Page14:16:03 174 of Exhibit 179 48501 Pg 175 of 180 1 Q. Looking at this document, what is it dated?

2 A. 12/31/99.

3 Q. Do you see on this document any transactions in treasury

4 bills?

5 A. Yes.

6 Q. Where do you see that?

7 A. There is the purchase of the December 9, '99 bill at 99.90

8 on the 1st. There is the sale of part of that bill on the 2nd.

9 There is the redemption of the rest of that bill, another part

10 of it, on the 9th.

11 Q. Thank you. Can we take this document down. Now I would

12 like to show you what is in evidence as Government Exhibit

13 105-C163.

14 THE COURT: Mr. Zach, we have about seven minutes left

15 to the end of the day.

16 MR. ZACH: OK, your Honor. I think I have a little

17 bit that I can do in the next few minutes.

18 THE COURT: Thank you.

19 Q. Do you recognize generally what type of document this is?

20 A. It's a Madoff customer confirmation.

21 Q. Do you recognize the handwriting on this document?

22 A. Yes.

23 Q. Whose handwriting is that?

24 A. I believe it's Jodi's.

25 Q. Did the preprinted forms at Madoff change over time?

2 Q. As you worked there, did you know that they were changing

3 over time?

4 A. Yes.

5 Q. Did the fact that these documents changed over time present

6 any problems or difficulties to you?

7 A. Yes.

8 Q. What were the difficulties that those changes caused you?

9 A. Every time Bernie changed some format of the preprinted

10 form, we needed to be very careful, based on his instructions,

11 to retain the old copies. When you are going back in time, you

12 can't use a form from 2004 and put through a confirmation of

13 trade dated 1999, as an illustration.

14 There were many changes to his confirmation. Some

15 involved some of the legal jargon that was on the back of the

16 confirmation, the small print, if you will. Some involved a

17 complete different heading. When he became an LLC after he was

18 a sole proprietor, the letters LLC suddenly appeared on the

19 Madoff comps. There were changes to our commission schedule on

20 options and on the dealer markup of equity securities that was

21 referenced on the legend in the back of the comp.

22 So yes, there were many changes to a form like this,

23 six, seven over the years that I witnessed the changes.

24 Q. Did you keep track of those changes?

25 A. You had to.

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2 screen, Ms. Baskin, please. And can we pull up Government

3 Exhibit 105-C162 at the bottom. Can we blow that up. Can we

4 go to the next page of that document and blow that up. And can

5 we go to the top one and below that one up, too. Next page,

6 please. Sorry.

7 I think you said that one of the things that changed

8 over time were commissions.

9 A. That's correct.

10 Q. Looking at the top, which is the document with the

11 handwriting on it, what does it say the commission was?

12 A. In the second paragraph it says "customer transactions"

13 blah blah blah blah blah. It discusses a dealer markup or

14 markdown of a fraction of 1/16 per share in the case of

15 equities and a half a point per bond. Our commission was what

16 is called a commission equivalent, and it was 6 1/4 cents.

17 Q. What does the commission say on the bottom?

18 A. It says, "Unless otherwise stated, the trade price of your

19 transaction is an average price and includes a commission

20 equivalent of 4 cents."

21 Q. As you worked to send out these trade confirmations for the

22 fake trades, did you have concerns about making sure this

23 documentation was correct?

24 A. Sure.

25 Q. What was your concern as to whether or not you used the

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2 Madoff Securities?

3 A. It was more Bernie's concern than anything else. He was

4 very, very, very careful on a point like this, that we needed

5 to maintain blank copies of the legend that said a 16th of a

6 share in storage marked perfectly so that once we changed to 4

7 cents a share, the new print jobs were taking confirmations out

8 in the mail going forward. If you ever needed to go back to a

9 point in time when the commission schedule was a 16th of a

10 share, we would send one of the kids down to the warehouse or

11 down to the basement and pick up a box of the old paper, and

12 then he would run that trade or Annette would run the trade on

13 the old paper.

14 Q. What was the point of using the backdated trade on the old

15 paper?

16 A. You couldn't use a backdated trade on the new paper.

17 Q. Why?

18 A. Because 4 cents a share went into effect on a particular

19 date, and any date of a trade prior to that date would be an

20 obvious indication of fraud.

21 MR. ZACH: Your Honor, I think this is a good place to

22 stop.

23 THE COURT: Very well. Ladies and gentlemen, this

24 concludes our presentation of evidence for the day. We will

25 begin again tomorrow morning. Members of the jury, please be

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2 ready for 9:15 as well.

3 Members of the jury, your afternoon instructions.

4 Please continue to keep your minds open for the evidence that

5 is being presented here in court. Please continue to keep your

6 minds closed to all outside information, including news reports

7 and the opinions of others, and separate yourself from people

8 who may be discussing the case. Please continue to keep your

9 thoughts to yourselves and do not do any research or

10 investigation on your own.

11 You must leave your notes in the jury room in the

12 envelopes provided and leave your access cards with Ms. Ng and

13 sign for them. Thank you for your dedicated and attentive work

14 with us today. Have a safe trip home and safe return.

15 Ms. Ng, would you please escort the jury out. All

16 rise. Good evening. Mr. DiPascali, you may step down. Thank

17 you. See you tomorrow.

18 We will reconvene at 9:00 tomorrow morning. Have a

19 good evening, everyone.

20 (Adjourned to 9:00 a.m., December 5, 2013)

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2 Examination of: Page

3 FRANK DIPASCALI

4Direct By Mr. Zach ...... 4680

5 GOVERNMENT EXHIBITS

6 Exhibit No. Received

7 105-A374 ...... 4705

8 105-C117 ...... 4736

9 105-D77 ...... 4746

10 105-D85 ...... 4751

11 105-D70 ...... 4753

12 105-D65A ...... 4754

13 4000-F4 ...... 4809

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1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK 2 ------x

3 UNITED STATES OF AMERICA

4 v. 10 Cr. 228 (LTS)

5 DANIEL BONVENTRE, JEROME O'HARA, 6 GEORGE PEREZ, ANNETTE BONGIORNO, 7 JOANN CRUPI, Jury Trial 8 Defendants.

9 ------x New York, N.Y. 10 December 5, 2013 9:10 a.m. 11 Before: 12 HON. LAURA TAYLOR SWAIN 13 District Judge 14

15 APPEARANCES 16

17 PREET BHARARA United States Attorney for the 18 Southern District of New York MATTHEW L. SCHWARTZ 19 RANDALL W. JACKSON JOHN T. ZACH 20 Assistant United States Attorneys

21 GORDON MEHLER 22 SARAH LUM Attorneys for Defendant O'Hara 23

24 LARRY H. KRANTZ KIMBERLY A. YUHAS 25 Attorneys for Defendant Perez

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1 APPEARANCES

2 ANDREW J. FRISCH 3 GARY VILLANUEVA AMANDA BASSEN 4 Attorney for Defendant Bonventre

5 ROLAND G. RIOPELLE 6 Attorneys for Defendant Bongiorno

7 ERIC R. BRESLIN 8 MELISSA S. GELLER Attorneys for Defendant Crupi 9

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1 (Trial resumed; jury not present)

2 THE COURT: Good morning. Please be seated.

3 (Case called) (Appearances noted)

4 THE COURT: So I understand, Mr. Krantz, there's an

5 issue?

6 MR. KRANTZ: Yes, your Honor. I just wanted to go

7 back to two separate things relating to the "fake" issue, and I

8 don't mean to beat it to a pulp but, obviously, it's an issue

9 that's been troubling for us, and I want to say two things, two

10 separate things, on behalf of all defendants because we have

11 conferred on this.

12 First of all, in the past we've already been

13 describing trades as fake and DTC documents as fake and, to

14 some degree, the horse is sort of out of the barn on that, and

15 I understand that. But there is a new type of document that I

16 believe is going to start being introduced today which relates

17 to documents produced for the audits in 2004 to 2006, and those

18 are Madoff documents which, according to the government, are

19 false, meaning they contain false entries. And the charges

20 are, of course, falsification of books and records of a

21 broker-dealer. They are not fake in the sense of the other

22 documents that we've been talking about.

23 You know, if you look up "fake," it's sort of a

24 counterfeit, a forgery, something like that. I understand the

25 government's theory in the case as to the DTC documents is that

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1 they really were a kind of allegedly a counterfeit of what they

2 should have been, but the Madoff documents, to me, are in a

3 different category. They appear to be part of the books and

4 records of the company and, in fact, they're charged as being

5 part of the books and records of the company, or else they

6 couldn't support the statutory charges.

7 So the claim is falsity, and the jury's determination

8 is going to have to be are the documents false and did the

9 defendants know they were false. So I believe that, as to

10 those documents, the correct terminology for the document

11 itself is false. Now, it may contain reference to trades that

12 they contend are fake, but the document is false or not false.

13 And the question for the jury, to me, is was what's the

14 defendant's knowledge of that.

15 I believe if they're referred to in questioning -- and

16 I understand we can't control the witness' answers, the witness

17 can use whatever words naturally come to the witness' mind, but

18 in terms of the questions, I believe the questioning should be

19 falsity as to those documents because that's the statute that

20 they're charged with violating. That's what the documents

21 allegedly are, and it makes it much easier, I believe, for the

22 jury to understand and frame the real issue in the case, which

23 is knowledge of the falsity. So that's first application.

24 Maybe I'll stop there before I get to the second.

25 THE COURT: Thank you. Mr. Zach?

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1 MR. ZACH: Your Honor, the government disagrees.

2 These documents that are used in connection with the audits are

3 trade blotters, stock records that change over time. So the

4 first iteration of them is, itself, made as far as the -- those

5 documents are completely redone to reflect completely different

6 scenarios from what was done in the first SEC production. And

7 then when the SEC comes back, they're redone again to reverse

8 back. These are, in fact, fake documents.

9 The government uses -- There's no 403 problem using

10 the word fake. It accurately describes them, and it is the

11 simplest way to discuss them. I don't think there's any sort

12 of 403 problem with it, and it's odd to have defense attorneys

13 control the language of a witness' questions if there's not a

14 403 problem. I think it accurately describes it. It gets at

15 the heart of what these documents are.

16 THE COURT: Is it your thesis that to the extent

17 holdings attributable to the IA business were reflected on the

18 first generation of some of these documents, at least the stock

19 record, confirms, that sort of thing, those documents contained

20 false information but were not fake, but the later iterations

21 contained different false information and, therefore, were fake

22 so the original documents that contain false information?

23 MR. ZACH: Yes, that's one way of looking at it. To

24 explain a little bit further, in the background, prior to these

25 audits, there were false records being generated. They were

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1 continually making blotters and stock records in the background

2 in anticipation of having to shows these to someone in the

3 future. Obviously, those blotters and stock records contain

4 fake trades. Nothing on them is real.

5 I think those are fake documents as well, but as to

6 your Honor's point, once you hit the SEC audit, there's a whole

7 new set of documents made, instead of the things that are

8 running in the background, to specifically deceive the SEC. So

9 they are, I guess, a fake version of the fake records that were

10 running in the background.

11 As Mr. Jackson is pointing out, the allegation here is

12 that they are all, all these defendants, are charged in a

13 conspiracy to produce these fake records, and to be involved in

14 this securities fraud, so describing it as fake, you know, is

15 consistent with the government's allegations, even the initial

16 ones.

17 THE COURT: It's consistent with the government's

18 allegations, but as Mr. Krantz and other defendants have

19 brought up, it subsumes a key element of the charge, which is

20 intent to defraud and intentional faking by somebody else. So

21 to the extent your witness says, oh, yeah, I knew these were

22 false and I intended it to be fake and is talking about the

23 witness' own conduct and that's clear, I mean, fake is fair

24 game.

25 To the extent of the witness' saying that person over

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1 there gave me a document that I know included false

2 information -- the witness wouldn't, of course, be saying it in

3 these words, but in essence, if that is the witness' knowledge,

4 I think it's important for the jury to be able to follow the

5 conceptual train, and also for 403 purposes, that you talk

6 about the document with the false information or the different

7 false information or the replacement false information created

8 for the regulator or whatever.

9 MR. ZACH: A couple of things. The first thing, your

10 Honor, is they're using the word fake in, I think, a bit more

11 sinister way than the word fake I think is generally

12 understood. If I had a fake $20 bill and I gave it to

13 Mr. Krantz, I'm still giving him a fake $20 bill. I don't

14 think it impugns on me that I've done something wrong. That's

15 why we haven't --

16 THE COURT: If you made it in your basement, it would

17 certainly impugn on you that you did something wrong, and

18 that's the charge here.

19 MR. ZACH: But we're not using the word, I've given

20 him a fraudulent dollar bill or I've given -- or a word that

21 gets at the mental state. These are, in fact, fake documents.

22 Mr. DiPascali, from his perspective, as he's testified about

23 it, understands them all to be fake documents. And so when he

24 discusses them, that's what these things mean to him.

25 THE COURT: And he's perfectly free to talk about what

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1 his conduct meant to him and what it means to him to have your

2 $20 bill in his pocket that he's going to, you know, use to get

3 the $20 worth of merchandise at a cost to nobody, except for

4 your printing it. But the whole context of this case is that

5 this fakery is not only sinister, but it's illegal, and these

6 five defendants are at various levels and in various ways and

7 in various counts of the indictment, charged with the sinister

8 version of fakery.

9 And so the use of the "fake" nomenclature in the

10 context of the proof of this case is loaded and, therefore,

11 care and precision are warranted, in the view of this judge

12 who's presiding over the proceedings and has ultimately the

13 authority over the order and context of the presentation of

14 proof. I don't do this lightly, and I don't do this in order

15 to try to hobble the government's case or anything, but I do it

16 to make sure that information is presented clearly, accurately,

17 in a conceptually consistent way and in a way that does not

18 unnecessarily load a legitimate and important factual

19 presentation with a legal argument that goes to a key point

20 that has to be proven in the government's ultimate carriage of

21 its burden of proof beyond a reasonable doubt.

22 So to sum it back up, Mr. DiPascali is free to say I

23 know that we made the -- that I participated in or I directed

24 the faking of documents or further fakes of our books and

25 records that were always fake; yes, this is the fake book and

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1 record that I talked about. But your question to him as to

2 things that were prepared by other people should come out of

3 the box as, is this the version of -- and you'll think of a

4 much more elegant way to do it, but, is this the version of the

5 trade blotter that was created six months later with a

6 different set of false entries.

7 MR. ZACH: Do you want me to adopt, as Mr. Krantz

8 suggested, this is the false version, these are the false

9 records?

10 THE COURT: Yes. You can call them false version or

11 false records, or if you don't want to blur any more of the

12 lines between your fake concept and the word false, you can

13 talk about false underlying information, if that's more

14 consistent with what you wanted to do conceptually.

15 MR. ZACH: And we have certain different categories of

16 documents that we're talking about; so I just want to make sure

17 that we're clear. With respect to the trading, the word fake

18 is sort of what's been used and what's out there. We're

19 permitted to still refer to it as the fake trade; is that fair?

20 THE COURT: Yes.

21 MR. ZACH: With the DTC report, the word that I have

22 to use is fabricated we were using yesterday, and with --

23 THE COURT: We'll have a glossary by the end of the

24 day.

25 MR. ZACH: Someone is going to raise a sign; so I --

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1 and with respect to these internal Madoff records, false is now

2 the word that needs to be used? Unless it's something from --

3 THE COURT: Unless you're talking about that witness'

4 conduct.

5 MR. SCHWARTZ: Let me just ask one further question

6 because this is going to be an ongoing issue, particularly as

7 we get into, with this witness and the future witnesses,

8 talking about the audits where there are documents. I think

9 every single document created, almost without exception at

10 Madoff Securities was false. The trade blotters for the market

11 making business, even though they were real trades, were false

12 because they omitted the investment advisory business.

13 There were false documents even if something in them

14 had the accurate information. Where we start getting into

15 multiple iterations of the same document and a witness

16 describes it as fake, to avoid confusing the jury, can we adopt

17 that shorthand? Let me give you an example. I think

18 Mr. Jackson did this very clearly with Mr. Friehling and his

19 testimony. This was the first sort of example where we had two

20 versions, both of which were false but one of which was extra

21 fake, which were general ledgers. So he had the original false

22 general ledger, and then you had the second version of the

23 false general ledger that was prepared for the tax audits. And

24 I think Mr. Jackson established with Mr. Friehling, and

25 Mr. Friehling understood that the second one was the fake

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1 version of the original, and then that was used as a shorthand

2 to distinguish between the two. Once the witness testifies to

3 that, at least with respect to that witness, can we adopt that

4 shorthand to make this comprehensible to the jury?

5 MR. KRANTZ: Judge, can I just ask that -- I didn't

6 follow what the shorthand was. I apologize. Can Mr. Schwartz

7 just state it again?

8 MR. SCHWARTZ: I just said once the witness describes

9 something as fake or whatever the word is, can we adopt that

10 word in our questioning because the witness has testified that

11 is his or her personal knowledge or personal understanding.

12 MR. MEHLER: Your Honor, I would argue against that,

13 and I'm not trying to revisit the ruling you made before. Any

14 young lawyer knows not to do that. I just wanted to oppose

15 what Mr. Schwartz is asking for, and to clarify something that

16 Mr. Krantz said.

17 We were dealing yesterday with DTC and when we were

18 back there, I think we were all struggling for alternative

19 words, and a very easy one that didn't occur to me at the time

20 was internally created DTC report. Language is important, and

21 I think that's what the Court's ruling is. If the Court were

22 to adopt Mr. Schwartz's view, Mr. DiPascali, who has a flair

23 for the dramatic, ups it one and uses the word forgery, under

24 Mr. Schwartz's logic. He would then adopt the word and use the

25 word forged.

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1 Language is important, and in an issue, and I think

2 this is what the Court is saying. In a case where intent is

3 delegate, it's a gossamer-thin concept, having language that's

4 as neutral as possible is crucial to fairness. That's my only

5 point.

6 THE COURT: Quickly, Mr. Breslin. Did you want to

7 speak, Mr. Breslin?

8 MR. BRESLIN: I did, your Honor. I think that what

9 Mr. Schwartz is proposing would be an exception that would

10 basically swallow the rule that your Honor just referenced.

11 THE COURT: I get that, and once you let me speak,

12 I'll talk about that. Anybody else want to tell me what I

13 already know? Okay. We can't go with the general rule that

14 let's the witness drive the nomenclature because, Mr. DiPascali

15 being Exhibit A is going to say fake, false, whatever and

16 that's in their minds and also these cooperating witnesses,

17 their goal is to be as -- you know, be and appear consistent

18 with their cooperation agreements, as truthful as they can

19 possibly be and call what are, in their views, spades spades

20 and everything else. So they're always going to use the most

21 inflammatory language.

22 And if Miss Cotellessa-Pitz says, I created the fake

23 FOCUS report by writing the fake numbers in them, you can have

24 at it with her on her fake FOCUS report. If Mr. DiPascali says

25 I wanted a fake -- well, let's go back to the DTC things or a

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1 fake computer run, and so I told Mr. O'Hara to prepare it, your

2 follow-up question cannot come back, and so Mr. O'Hara came

3 into your office and gave you the fake DTC report?

4 The answer, whether it goes through your clarification

5 that, you know, that's the one with the false information in

6 it, but the question to Mr. DiPascali has to come back

7 essentially defining the fake DTC run that was referred to in

8 the context of Mr. O'Hara as a document or a run or a program

9 that inputted information that was false or fabricated or

10 something other than fake.

11 MR. ZACH: Just, do you want me to, regardless of what

12 his answer is, to utilize the agreed-upon language that we've

13 just discussed?

14 THE COURT: As long as you're talking about the

15 conduct of someone other than the witness.

16 MR. ZACH: Got it.

17 THE COURT: That's as far as I'm going with you, but

18 it's an important point, and that's how I'm addressing it.

19 MR. KRANTZ: Thank you, your Honor. And just the

20 second issue I was going to bring up, which is a request for an

21 instruction on this subject, and it's an instruction that can

22 be given at any appropriate time, it doesn't need to be now.

23 But given what's gone on with the "fake" issue and the

24 like, at some point, on behalf of all the defendants, we think

25 the jury needs an instruction that whenever a witness uses

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1 words like "fake" or "forgery," that they're describing their

2 own state of mind about the documents and that, at the end of

3 the case, it will be up to the jury to determine the state of

4 mind and the knowledge of any particular defendant. And so

5 when a witness uses words like that, they're describing their

6 own state of mind.

7 Of course, that assumes -- it would be different if

8 they were to express conversation where the word was used with

9 a defendant, but I don't think that's ever going to happen in

10 this case, so it's strictly when they're describing their state

11 of mind.

12 THE COURT: I invite you to draft, singly or

13 collectively, a proposed instruction. Discuss it with the

14 government, and once any controversy is really refined in that

15 way, I'm happy to hear you on it.

16 MR. KRANTZ: Perfect.

17 MR. JACKSON: And, your Honor, we would like, when

18 they draft that, time to respond because we think that's wildly

19 inappropriate. We will set out all the reasons that that is

20 inappropriate in response to your Honor after they draft that.

21 MR. KRANTZ: We'll cross that bridge.

22 THE COURT: I would expect nothing less.

23 MR. RIOPELLE: I think we can probably use as a model

24 the standard instruction that's given in every case, that a

25 witness' guilty plea is no evidence of anybody else's mental

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1 state, or why don't we just use that and change the words?

2 THE COURT: All right. Well, bring that thought into

3 your drafting session and before the letter writing starts, I

4 do want both sides to have seen the draft. And to the extent

5 certain concerns can be addressed on sort of a major conceptual

6 level by toning down the language that we're arguing about in

7 the draft of the letters, I'd be grateful for that.

8 Now, I just had a couple of housekeeping things.

9 Before the Thanksgiving holiday I had offered to you all a

10 framework for the use of exhibits with the jury in the context

11 of deliberations and, in summary, that's the parties have to be

12 prepared with four copies of any documents that are

13 specifically mentioned in their closings.

14 And the government has represented that it will have

15 at least one copy of all other non-voluminous documentary

16 exhibits, exhibits that are voluminous but have been shown only

17 in excerpt versions that haven't been marked separately as

18 excerpt versions, can be prepared as the displayed pages with

19 the legend on it that says this is an excerpt from a more

20 voluminous document, which we can provide to you or show to

21 you, so on and so forth. And the jury will have to request

22 exhibits.

23 So I need by, I'll call it Monday, a definitive yes,

24 no or here's my specific objection to that framework from both

25 sides so that we know where we're going, and that also included

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1 the creation, with consultation as necessary back and forth

2 between the sides, of an exhibit list that's a little bit less

3 cryptic than the form of exhibit list that we've been working

4 with. So just let me know by Monday on that.

5 And we are scheduled to come back from the Christmas

6 and New Year's holiday break on Monday, the 6th of January. I

7 just found out yesterday I have to be out of town on Monday,

8 the 6th of January, and so we'll start back on Tuesday the 7th

9 of January. And I propose to inform the jury of that when I

10 remind them at the beginning of next week of the holiday break.

11 So that's my news.

12 Is there anything else that we should discuss

13 together? Ms. Ng, are all the jurors here?

14 THE DEPUTY CLERK: Yes -- oh, there were three

15 missing.

16 THE COURT: Would you see if they're here, and if

17 they're here, give them a two-minute warning, and if they're

18 not here, come out and tell us.

19 THE DEPUTY CLERK: Okay, will do.

20 MR. BRESLIN: One tiny point, your Honor?

21 THE COURT: Yes.

22 MR. BRESLIN: I think it's reasonable that

23 Mr. DiPascali is going to go into next week, late into next

24 week, but in the event that he doesn't, in order to avoid the

25 kind of document logjam that we had on Monday, we would ask the

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1 government for maybe one other witness and their document list

2 on Friday anyway so that, in the event that Mr. DiPascali

3 finishes in the middle of next week, we're not caught

4 flatfooted and have to waste the Court's time for an hour as we

5 figure out the documents.

6 THE COURT: Mr. Schwartz.

7 MR. SCHWARTZ: That's fine, your Honor. In fact, I'm

8 prepared to identify that person and also make an application

9 in that respect. We have a witness Paul Crawley, who is a

10 revenue agent with the IRS. Because of various scheduling

11 things, he is only available on the 12th. We expect him to be

12 a relatively short witness; so we'll designate him for next

13 week. In the event that Mr. DiPascali is still on on Thursday,

14 we would ask for leave to interrupt for the hour or so that it

15 would take to present Mr. Crawley's testimony to put him on at

16 some point during the day next Thursday.

17 THE COURT: It seems reasonable to me. Is there any

18 objection to that?

19 MR. RIOPELLE: No, your Honor.

20 THE COURT: Okay. So Mr. Crawley is designated as

21 next up. Ms. Ng, what's the status of the jury?

22 THE DEPUTY CLERK: We're still missing one juror. I'm

23 about to give her a call.

24 THE COURT: All right, then. I will go in the robing

25 room until all the jurors are present, and Ms. Ng will give us

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1 all the two-minute warning.

2 MR. KRANTZ: Thank you, your Honor.

3 (Recess)

4 THE COURT: Good morning, again. Please be seated.

5 Good morning, Mr. DiPascali.

6 THE WITNESS: Good morning, your Honor.

7 THE COURT: Ms. Ng, would you bring the jury in.

8 (Jury enters)

9 Good morning, members of the jury. Please take your

10 seats. Please be seated, everyone. Mr. Zach.

11 MR. ZACH: Thank you, your Honor.

12 FRANK DIPASCALI,

13 called as a witness by the Government,

14 having been previously duly sworn, testified as follows:

15 DIRECT EXAMINATION (Resumed)

16 BY MR. ZACH:

17 Q. Ms. Baskin, can we pull up Government Exhibit 105-C162.

18 Now, Mr. DiPascali when we broke for the evening last night, we

19 were -- you were testifying about these trade confirmation

20 tickets; do you recall that?

21 A. Yes, I do.

22 Q. And what was the reason that Madoff Securities retained

23 these various versions of documents that went out over the

24 years?

25 A. Well, in the event that Bernie instructed someone to do a

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1 backdated trade that was beyond the scope of a reasonable

2 amount of time, back a year or two or three or ten, one needed

3 to make perfectly sure that you were printing that very dated

4 trade on the appropriate stationery that was in place at the

5 time.

6 Q. And for what reason did you need to make sure you were

7 putting it on the right type of stationery?

8 A. So that it wouldn't throw out a red flag indicating that it

9 was a fictitious ticket.

10 Q. So I'd like to take that down, and Ms. Baskin, can we go to

11 what's already in evidence as Government Exhibit 105-B465, and

12 I'd like to go to Page 2.

13 Now, looking at this document, Mr. DiPascali, do you

14 recognize any of the handwriting?

15 A. I do.

16 Q. Whose handwriting do you recognize on this document?

17 A. Jodi Crupi's.

18 Q. And what portion of this is Jodi Crupi's, or is all of it

19 hers?

20 A. All of it.

21 Q. Okay. And looking at the cursive part -- can we highlight

22 that, Ms. Baskin -- what does that say there?

23 A. Different comp.

24 Q. And what's a comp?

25 A. It's a slang term for comparison or confirmation. It's the

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1 shortened version of comparison, which is an interchangeable

2 term to confirmation. It's a trade ticket.

3 MR. BRESLIN: Objection, your Honor.

4 THE COURT: Please consult.

5 (counsel conferring)

6 THE COURT: Let's not have the highlighting for now

7 until they...

8 Q. And, Mr. DiPascali, was the term comp frequently used at

9 Madoff Securities?

10 A. Yes.

11 Q. Now, I'd like to turn to two different documents on the

12 split screen, if we can. First, Miss Baskin, can we put on top

13 Page 12 of this same document. It's 105-B465. Page 12, yes.

14 And on the bottom can we put Page 11.

15 Now, Mr. DiPascali, are these comps?

16 A. Yes.

17 Q. I'd like to direct your attention first to the document at

18 the top. What is the trade date on this comp?

19 A. January 31st, 1990.

20 Q. Can we highlight that, Miss Baskin. And what is the

21 settlement date on this comp?

22 A. February 7th, 1990.

23 Q. And whose account is this for?

24 A. Daniel and Barbara Bonventre.

25 Q. Now, looking at the comp below it, what is the trade date

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1 on that?

2 A. September 26th, 2002.

3 Q. And what is the settlement date?

4 A. October 1st, 2002.

5 Q. And whose account is that for?

6 A. Daniel and Barbara Bonventre.

7 Q. And the document below, what is the security that's being

8 traded?

9 A. Big Lots, Incorporated.

10 Q. Now, Mr. DiPascali, are there differences between the comp

11 version at the top, by which I'm referring to the stationery,

12 and the comp version at the bottom?

13 A. Yes.

14 Q. What's the first difference that you can identify?

15 A. In the title block of the firm on the top version, Bernard

16 L. Madoff Investment Securities is stated. On the bottom

17 version, it says, Bernard L. Madoff Investment Securities, LLC.

18 Q. Ms. Baskin, can we highlight the Bernard L. Madoff logo at

19 the top of the first one, and at the second one. So on the top

20 one, there's no LLC, and at the bottom one, there is an LLC?

21 A. That is correct.

22 Q. What does LLC mean?

23 A. Limited liability corporation, I believe.

24 Q. And when did Madoff Securities become an LLC?

25 A. Early 2000s.

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1 Q. And let's -- What's the second difference that you can

2 identify?

3 A. On the top right of each document there's the address and a

4 series of phone numbers. The top one includes a telex number

5 and the bottom one does not.

6 Q. Okay. And can we highlight those, Ms. Baskin. And what do

7 you observe next that's different between the two?

8 A. Some of the membership organizations on the top comp are

9 listed at the bottom.

10 Q. Okay. Ms. Baskin, can you highlight that. And what are

11 those trade organizations?

12 A. The top comp is the NASD, which is the National Association

13 of Securities Dealers. Then it says CSE, which is the

14 Cincinnati Stock Exchange. Then there is SIPC, it's the

15 Securities Industry Protection Corporation. NSCC is National

16 Securities Clearing Corp. DTC is the Depository Trust Company,

17 and I don't know what ISCC stands for.

18 Q. And where do you see at least some of those organizations

19 on the bottom comp?

20 A. On the top of the confirmation.

21 Q. And can we highlight that. Now, I'd like to turn your

22 attention to the account number on the top of the ticket. Is

23 that -- is that -- what kind of account number is that?

24 A. It's an alphanumeric account number.

25 Q. And what year was this trade purportedly put through?

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1 A. In 1990.

2 Q. Was that account number used back in 1990?

3 A. I don't think so.

4 Q. What kind of account numbers were used in 1990?

5 A. Strictly a numerical number.

6 Q. But in looking at the account at the bottom, do you see the

7 account number there?

8 A. I do.

9 Q. Is that the same account number that you see on the top one

10 from 1990?

11 A. Yes.

12 Q. Now, as you worked at Madoff Securities, did you see,

13 observe instances where various versions of these historical

14 documents were saved over time?

15 A. Yes.

16 Q. And where the relevant time period was in the past, would

17 employees at Madoff Securities seek out the corresponding

18 historical document that had been used by Madoff Securities?

19 A. Yes.

20 MR. ZACH: Your Honor, may I -- I have the originals

21 of the trade confirmations. May I pass them around to the

22 jury?

23 THE COURT: Yes.

24 MR. ZACH: You can take those down, Miss Baskin.

25 Q. Now I'd like to go back to Government Exhibit 105-C115, and

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1 can we go to Page 7 and blow that up. Now, we looked at this

2 document briefly yesterday. Again, whose handwriting is on

3 there?

4 A. Jodi Crupi's.

5 Q. And what is the calendar date that this is written on?

6 A. December 27th, 1999.

7 Q. Okay. And you see the first piece of the writing says,

8 Stan?

9 A. I do.

10 Q. Do you know who Stan was?

11 A. Stanley Chais.

12 Q. And looking -- can you read now the next two entries and

13 the date that are on this?

14 A. It says buy T bills 12/13, issue of and the symbol for Sun

15 Micro System.

16 Q. Okay. And there's the date 12-13?

17 A. There is.

18 Q. Now, I'd like to go -- can we take that down, Ms. Baskin.

19 And I'd like to go to Government Exhibit 101-11 -- sorry,

20 101-122, which is already in evidence, and if we can go to Page

21 8 and blow that up. Looking at the account heading, what's the

22 name of the company there?

23 A. The Popham Company.

24 Q. And who is the Popham Company associated with?

25 A. It's an entity controlled by Stanley Chais.

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1 Q. And looking at this document where the date 12-13 is

2 indicated, do you see that?

3 A. I do.

4 Q. Can we highlight that, Ms. Baskin. What securities do you

5 see listed on this account statement on 12-13?

6 A. Sun Micro Systems and the United States treasury bill.

7 Q. And do you see under the -- can you highlight that,

8 Ms. Baskin, please. Do you see under the Sun Micro Systems,

9 there is the letters D-I-V and a date? Do you know what that

10 means?

11 A. It's a dividend, and I believe the record date and the

12 payment date of same.

13 Q. What is a dividend?

14 A. It's a distribution of the -- by the company in either cash

15 or securities back to the stockholders.

16 Q. So does this reflect as a credit or a debit on this account

17 statement?

18 A. It's a -- this particular dividend is a stock split that

19 occurred. The line item there is referencing the credit of

20 shares to the customer's account because the stock split, and

21 the payment date was on 12-13. So shares were put into the

22 customer's account on 12-13 to reflect the issuance of shares

23 that the company issued to its stockholders.

24 Q. And do you also see on this same date a reference to a U.S.

25 treasury bill?

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1 A. I do.

2 Q. And where do you see that?

3 A. On 12-13.

4 (Continued on next page)

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1 Q. Let's go back to Government Exhibit 105-C105 page 7, Ms.

2 Baskin.

3 Again you see 12/13 T-bills and the Sun Microsystems

4 ticker symbol?

5 A. Yes.

6 Q. Do those two things match up with what we just saw on the

7 statement?

8 A. Yes.

9 Q. But this calendar page says December 27th, not December 13,

10 right?

11 A. It does.

12 Q. The bottom piece, where it says "sell for wires of 12/15,"

13 do you see that?

14 A. I do.

15 Q. Can we go back, Ms. Baskin, to 101-122 page 8 again, and

16 can we blow that up.

17 I want you to look at the entries for 12/15. Do you

18 see those?

19 A. I do.

20 Q. Do you see any sort of wire on 12/15?

21 A. Yes.

22 Q. What do you see that?

23 A. Reference under 12/15 there is an entry called check wire,

24 a code representing capital withdrawal, and a figure in the

25 debit column of $3 million.

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1 Q. Can you highlight that, Ms. Baskin, please. This is again

2 for the Stanley Chais associated Popham Company?

3 A. It is.

4 Q. Ms. Baskin, can we go back one more time to 105-C115

5 page 7.

6 Looking at the bottom, where it says "sell for wire of

7 12/15," does that match up with what we just looked at on the

8 account statement?

9 A. Yes.

10 Q. This calendar date is December 27th, not December 15th,

11 right?

12 A. That is correct.

13 Q. Now, Mr. DiPascali, I would like to go to a different

14 document. Can we bring up 105-C121. Mr. DiPascali, first let

15 me ask you, do you recognize the handwriting on these

16 documents?

17 A. I do.

18 Q. Whose handwriting is it?

19 A. Jodi Crupi's.

20 Q. Have you seen these documents before?

21 A. Yes.

22 Q. Where have you seen them before?

23 A. I think when the FBI was interviewing me and showing me

24 various documents.

25 Q. Do you know where these documents were from at Madoff

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1 Securities?

2 A. No.

3 Q. I'd like to direct your attention to the bottom sticker.

4 Blow that up. Can you read what that says.

5 A. "When BLM buys stock, use 60-20 3 cent commission."

6 Q. Whose handwriting is that?

7 A. Jodi's.

8 Q. Are you familiar with what 60-20 means?

9 A. Yes.

10 Q. What does the 60-20 refer to?

11 A. It is an account code that is utilized to house securities

12 that are either sent in by the customer or actually purchased

13 in the marketplace and placed in that account.

14 Q. The 60-20 account was used for real securities?

15 A. Most of the time, yes.

16 Q. What types of occasions did that 60-20 account have to be

17 used?

18 A. When a client sent securities into the account or when

19 Bernie bought securities and instructed us to book the entry

20 into the client's account because he bought securities.

21 Q. From time to time when real securities came in, would this

22 account have been utilized?

23 A. Yes.

24 Q. How did that compare to the accounts where the fake trading

25 would occur?

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1 A. Typically, the fake trading occurred in codes like 10-30,

2 40, 50, 70. The 60 and the 20 were earmarked for a specific

3 purpose.

4 Q. That specific purpose was to store real securities?

5 A. That's correct.

6 Q. Let's take that down. Now I want to step back for a moment

7 and talk about the IA account trading that was going on with

8 respect to the split strike strategy. OK?

9 A. Sure.

10 Q. As part of that component of the business, were certain

11 accounts promised a rate of return?

12 A. Yes.

13 Q. How was that rate of return determined?

14 A. By Bernie.

15 Q. What is that rate of return conveyed to you?

16 A. Yes.

17 Q. Did you convey that to other people that you worked with?

18 A. Yes.

19 Q. Who were some of the people that you conveyed that to?

20 A. Jodi.

21 Q. How did you come to learn that certain of these accounts

22 had a rate of return that was targeted?

23 A. As it pertained to me in the basket split strike strategy?

24 Q. Yes.

25 A. I was called into a meeting that was about to break up

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1 between Bernie and Frank Avellino.

2 Q. Can we step back. Frank Avellino, was that the Avellino of

3 Avellino & Bienes?

4 A. Yes.

5 Q. When, approximately, did this occur?

6 A. The winter of '93.

7 Q. What happened in that meeting?

8 A. Bernie introduced me to Frank Avellino, who I don't think I

9 had met him up to that point. They basically gave me a quick

10 synopsis of what their meeting was about and handed me a

11 document that had figures on it that illustrated the meat and

12 potatoes of their meeting.

13 Q. What was your understanding of the figures that were on

14 there?

15 A. It was funds that needed to be put into various client

16 accounts that had split strike strategy as a method of paying

17 these individuals for bringing in money.

18 Q. Who were some of the individuals that were going to get

19 this credit?

20 A. Stephen Mendelow, Ed Glantz, Richard Glantz, a trust for

21 Aaron Levy controlled by his son Joel. That's all I can

22 remember off the top of my head.

23 Q. These accounts were of individuals that were bringing

24 additional customers in to Madoff Securities?

25 A. Yes.

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1 Q. As part of bringing in new customers, what was given to

2 them?

3 A. In essence, a commission.

4 Q. The commission for bringing in those customers?

5 A. Correct.

6 Q. Now I would like to show you what's in evidence as

7 government 105-C51. Looking at this cover page, do you

8 recognize the handwriting?

9 A. It's mine.

10 Q. What does it say?

11 A. It says, "I need to shtup."

12 Q. What did you mean by "shtup"?

13 A. To put funds into clients' accounts.

14 Q. Can we turn to page 3 of this document. Do you recognize

15 that document?

16 A. I do.

17 Q. What is it?

18 A. The typewritten information on the document is what was

19 given to me at the tail end of the Bernie Madoff-Frank Avellino

20 meeting explaining who and in what quantities we were going to

21 quote-unquote shtup these accounts, put funds into these

22 accounts.

23 Q. Is that the credit for bringing in the clients that you

24 just discussed?

25 A. It is.

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1 Q. Can we blow up the top half of it. First of all, Mr.

2 DiPascali, when is this dated?

3 A. February 3, 1994.

4 Q. Do you see there is a row that says "1993 only"?

5 A. Correct.

6 Q. Do you recall what that meant, "1993 only"?

7 A. Yes.

8 Q. What did it mean?

9 A. It meant that there was an arrangement in place between

10 Frank and these clients and then subsequently between Bernie

11 and Frank that because A&B had unwound in late '92 and these

12 individuals were due a payment for '93 that had not yet

13 occurred, and here it is in early '94 that they were addressing

14 this payment, they were instructing me that for '93 only these

15 people would get these amounts, then going forward after '93

16 they would get a different amount.

17 Q. On the left side you see a list of four underlined names.

18 Are those the folks that were going to get schtupped?

19 A. Yes.

20 Q. Did this process continue going forward?

21 A. Yes.

22 Q. Stepping back for a moment, A&B had been, we talked about

23 it earlier, shut down by the SEC, right?

24 A. That is correct.

25 Q. You and others were involved in the process of bringing

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1 those A&B clients back to Madoff Securities, right?

2 A. That is correct.

3 Q. Again, who were the people that were speaking to these A&B

4 clients that were coming back in?

5 A. Bernie, myself, Jodi, Annette, members of Annette's staff.

6 Q. These people were asking you questions about the trading

7 that was going to occur at Madoff Securities?

8 A. Yes.

9 Q. Did you lie to those folks?

10 A. Yes.

11 Q. As part of these people coming back in, did folks like we

12 see here bring in additional customers to Madoff Securities?

13 A. These entities were clients of A&B. A&B, being closed down

14 by the SEC, had no vehicle to pay them any longer. The purpose

15 of this was illustrated to me and explained to me that since

16 Frank can't pay these guys anymore for the money they

17 originally brought in to A&B and now those very same clients

18 are going to be transferred, if you will, to Madoff, if you

19 will, and have direct accounts, the only vehicle that Frank and

20 therefore now Bernie would have to pay these managers of other

21 people's money would be to shtup their personal accounts with

22 extra P&L.

23 Q. Just so the record is clear, when you say Frank, were you

24 referring to Frank Avellino?

25 A. I was.

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1 Q. This was the process by which to pay these folks money,

2 right?

3 A. Exactly that.

4 Q. What were they getting that extra money for?

5 A. For originally bringing in the clients to A&B and then

6 subsequently those clients became clients of Madoff.

7 Q. Did those payments continue after this and into the '90s

8 and beyond?

9 A. Yes.

10 Q. How were those payments made to these folks?

11 A. We would design an option transaction, typically an index

12 option, and we would calculate what the payment should be.

13 These numbers over the years changed somewhat. But once we

14 identified what the number was, then we would write a

15 fictitious buy ticket and a subsequent fictitious sell ticket

16 that would create P&L in their accounts, and the value of their

17 account would therefore increase equal to the amount of

18 theoretical commission Bernie owed them.

19 Q. These trades that were being put into their accounts to get

20 back credit, were those trades real?

21 A. No.

22 Q. Over time did the number of folks that were getting

23 schtupped increase?

24 A. Yes.

25 Q. How would folks get added to the shtupping?

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1 A. A number of ways.

2 Q. What are some of the ways, Mr. DiPascali?

3 A. Since this mechanism was in place, we would typically put

4 these transactions through as the last or one of the last

5 orders of business before closing out a year. We also had a

6 situation from time to time where some of the very small

7 accounts that did not have enough money to justify purchasing a

8 full-blown basket of securities, those accounts would typically

9 sit in a treasury instrument pretty much all year or in some

10 money market fund pretty much all year. Their rate of return

11 was in the 2 or 3 or 4 percent range when other similar clients

12 that simply had more money were in the 10 and 14 range.

13 In an effort to be equitable, we would put extra P&L

14 into some of these smaller accounts. I ran a quick Excel

15 program to identify who these people were and how much money

16 would bring them up to some midpoint of a bell curve of all our

17 clients, identified the dollar amount, and then ran a quick

18 program to process a series of tickets that would put that P&L

19 into those accounts using the same format that I used for these

20 accounts.

21 Q. Did you keep track of these various accounts in a file?

22 A. Yes.

23 Q. When in the year did you do most of this activity?

24 A. Late in the year.

25 Q. Can you describe the process that you would engage in in

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1 doing it late in the year.

2 A. I typically worked on this between Christmas and New

3 Year's. By Christmas more than likely the trading for the

4 entire year, the amount of tickets that were going to be posted

5 to all of my accounts were pretty much done, so I could take a

6 preliminary view of where all of these accounts sat in terms of

7 their P&L.

8 I used that information and created a fictitious trade

9 buy side and a fictitious trade sell side, and I set it up into

10 the system as a basket trade. I ran some rudimentary Excel

11 programs that would take the information and run the tickets

12 against this file. So we were able to accomplish a couple of

13 tasks with the same process.

14 Q. Why would you do this at the end of the year?

15 A. Some of these accounts had almost like a double mandate.

16 For instance, these accounts in particular, it was promised to

17 these guys by Bernie that they would earn 17 percent on their

18 account, pretty much dead-on 17 percent, and on top of that

19 they would receive this exact dollar amount.

20 In order to see where they were vis-a-vis 17 percent

21 at the end of the year, you needed to wait until the end of the

22 year. You couldn't do that in June. By Christmas, all the

23 chips had pretty much settled, I had a very close handle on

24 where these accounts were going to wind up. And then on some

25 of these accounts I looked at them and I first adjusted them to

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1 17 and then I added extra P&L on top of that. That's why it

2 was done at the end of the year.

3 Q. Who would help you with this process?

4 A. I pretty much did it on my own, with keypunch help.

5 Q. You would do this right before New Year's?

6 A. Usually between Christmas and New Year's, yes.

7 Q. For how many years did you do that?

8 A. 14 or 15 years.

9 Q. Were most of the clients that got this extra shtup clients

10 that had brought in at some point new clients to Madoff

11 Securities?

12 A. A good part of the list was that, yes.

13 Q. As part of this process, did you engage in activity that

14 helped certain clients with their taxes?

15 A. Yes.

16 Q. What sorts of activity did you engage in to help certain

17 clients with their taxes?

18 A. The concept in general helps all of these clients with

19 their taxes. If this is in essence a commission payment for

20 bringing in money, you would typically account for that as

21 ordinary income; you would bill and you would receive a payment

22 and you would book it as ordinary income on your income tax

23 return. By doing in it this format, and using index options in

24 particular as the transaction vehicle, it became treated

25 differently by the IRS because index option profits are

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1 favorably treated by the IRS and it is not ordinary income. It

2 is calculated at a different rate.

3 Everyone who got P&L or received P&L because they were

4 owed a commission took advantage of the fact that the vehicle

5 we chose to use to pay that commission was very tax

6 advantageous. There was also situations where occasionally a

7 loss would be put through that would offset other ordinary

8 income.

9 Q. To be clear, these index options that had favorable tax

10 treatment, those trades that were put into the accounts were

11 fake?

12 A. Absolutely.

13 Q. The losses that were put in the accounts, those were fake

14 as well?

15 A. Yes, they were.

16 Q. They just had the effect of helping people pay less taxes?

17 A. That's correct.

18 Q. When you did that, did you know what you were doing was

19 wrong?

20 A. Sure.

21 Q. Now let me ask you this. Did Ms. Crupi have an accounts in

22 the IA business?

23 A. Yes.

24 Q. Were those accounts were for her, her friends, and her

25 family?

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1 A. I believe so.

2 Q. Did you have conversations with Ms. Crupi about shtupping

3 her accounts?

4 A. Yes.

5 Q. Could you describe what types of conversations you had with

6 Ms. Crupi about shtupping her accounts.

7 A. Going back, one of the purposes of shtupping was to get

8 some of the little people to have a rate of return that was

9 pretty much the average of all people. I noticed one year that

10 the employees, some of which had small accounts, were on the

11 low side of the bell curve. I started to do a little study of

12 some of the employee accounts and where they stood because I

13 felt that certainly the employees should attain a rate of

14 return that was the average of all our customers.

15 I started to request from people that I knew had

16 accounts for themselves and their family a list of the account

17 numbers because I wasn't familiar with all of them and I didn't

18 want to miss one. It was during those discussions with her and

19 other members of my staff that had family accounts that we had

20 these conversations.

21 Q. Did you have an account or did someone in your family have

22 an account?

23 A. My mother.

24 Q. Were other people at the firm that had these type of

25 accounts?

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1 A. Yes.

2 Q. We can take down that down, Ms. Baskin, and put up 105-C51.

3 Can we go to page 42. I want to direct your attention to the

4 bottom Post-it. Do you see that?

5 A. I do.

6 Q. Whose handwriting is that?

7 A. Jodi's and mine.

8 Q. What is yours and what is Jodi's?

9 A. The part that says "J. Crupi 5,000" crossed out, "option

10 loss see 12/10/40" is Jodi's. The number 15,000 is mine.

11 Q. Do you recall what this related to?

12 A. I do.

13 Q. Did you have a discussion with Ms. Crupi about what this

14 relates to?

15 A. We did.

16 Q. Tell the jury what discussion you had with Ms. Crupi about

17 this Post-it.

18 A. We discussed the fact that it would have been advantageous

19 for her to take a loss at the end of that particular year. I

20 asked her to make sure she left a note with her account number

21 and the amount of loss she wanted to take. Sometime after that

22 there was this sticky on my desk. Subsequent to seeing the

23 sticky, I just put it in a folder, because we were going to get

24 to that sometime after Christmas.

25 Then, when I was about to do this transaction based on

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1 this information, she had changed her mind and requested a loss

2 of 15,000 and not 5. So I crossed off the 5 on the sticky and

3 I wrote 15,000 so I wouldn't forget to do it that way.

4 Q. As part of the discussion you had with Ms. Crupi, did she

5 explain why she wanted to have a loss on her account?

6 A. She had other gains in other arenas that she wanted to

7 offset.

8 Q. What was the purpose of offsetting those?

9 A. So that you wouldn't pay income tax on those gains.

10 Q. Now I would like to take this down. Ms. Baskin, can we put

11 up Government Exhibit 101-124, and can we go to page 3. We

12 redacted some personal information. And can we blow up the --

13 exactly. Thank you, Ms. Baskin.

14 Mr. DiPascali, do you recognize this document?

15 A. I do.

16 Q. What is it?

17 A. It's a screenshot of the account statement of Ms. Crupi's

18 option account.

19 Q. Can we highlight Ms. Crupi's name. When was this statement

20 dated?

21 A. December 31, 2002.

22 Q. We redacted some other information. Looking at the account

23 activity, do you see a loss that is being put into the account?

24 A. Yes.

25 Q. Who put that loss into the account?

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1 A. I did.

2 Q. Can you explain to the jury what loss you put into the

3 account.

4 A. I processed this ticket that said that she sold index

5 options at $5.40 for about $9,000 and purchased those same

6 index options for $14.50, for a cost of about $24,000. The net

7 between the purchase and the sale was a loss of $15,000.

8 Q. Was any of that real?

9 A. No.

10 Q. Who instructed you, who asked you to put this in there?

11 A. She did.

12 Q. When you put this in there did you know that what you were

13 doing was wrong?

14 A. Yes.

15 Q. Going back to the handwritten note that we just looked at

16 in 105-C51, page 42, is the option loss that we just looked at

17 the same as we looked at in the account, roughly?

18 A. Is the verbiage of this note what happened in the account?

19 Q. Yes.

20 A. Exactly what happened in the account.

21 Q. One last thing. Can we go to put this in the split screen

22 and go back to that account, 101-124. Mr. DiPascali, can you

23 compare the account numbers, the one that was in Ms. Crupi's

24 handwriting asking for the loss, with the one that is in the

25 account.

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1 A. They are the same.

2 Q. Can you highlight that, please, Ms. Baskin.

3 This account statement is in December of 2002?

4 A. It is.

5 Q. Is this generally the time period that you did the

6 shtupping activity?

7 A. It is.

8 MR. ZACH: One moment, your Honor.

9 Q. While we are looking for that, you put through a loss in

10 this account. Was there any actual money lost by putting this

11 through?

12 A. No.

13 Q. Was there only a tax advantage gained by this?

14 A. Yes.

15 Q. When you did that, did you know what you were doing was

16 wrong?

17 A. Sure.

18 Q. I would like to take that down, if you can, Ms. Baskin, and

19 move on to what is in evidence as Government Exhibit 105-C116.

20 Can we blow that up. Do you recognize, Mr. DiPascali, the type

21 of stationery that this is written on?

22 A. Yes.

23 Q. What type of stationery is it?

24 A. It's the standard issued by the company desk calendars.

25 Q. What is the date on the stationery?

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1 A. December 31, 2003.

2 Q. Do you see there is some handwriting on that?

3 A. I do.

4 Q. Whose handwriting is that?

5 A. Jodi's.

6 Q. Can you read what it says.

7 A. "Losses my account."

8 Q. Now I would like to take that down, please, Mr. Baskin.

9 Let's go to Government Exhibit 105-C51. Shtup file again.

10 It's an I need to shtup document, do you see that?

11 A. I do.

12 Q. Could you turn to page 40, please.

13 MR. ZACH: Just one moment.

14 Q. Do you recognize what we are looking at here?

15 A. Yes.

16 Q. What are we looking at?

17 A. It's an illustration of what needed to be done for 2003.

18 This document was kept in my right-hand desk drawer in the

19 folder called "Shtup."

20 Q. Whose handwriting is this?

21 A. All mine.

22 Q. Is this sort of a chart of the shtupping that you were

23 going to do in 2003?

24 A. It is.

25 Q. Let's orient ourselves on this document. On the left side

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1 what were those numbers going down the left side of the

2 document?

3 A. They were the customer account numbers.

4 Q. Next to that there is a column that says "Name."

5 A. The client's name.

6 Q. Can you briefly describe what each of the subsequent

7 columns are.

8 A. The column labeled "Units" is how many units of trading I

9 would need to put through the system. The column called "Need"

10 is the amount in dollars rounded to the nearest thousand. And

11 the column labeled "Why" is a short note to myself as to why I

12 did that.

13 Q. Is this fairly representative of the shtupping activity

14 that you would do on a annual basis?

15 A. There's probably 13 or 14 of these documents in that

16 folder.

17 Q. This is for the year 2003?

18 A. Correct.

19 Q. When you are talking about the need and the thousands of

20 dollars, how were you going to put that into these accounts?

21 A. By running a fictitious buy ticket and a fictitious sale

22 ticket or series of them that would accomplish that P&L goal

23 equal to need.

24 Q. Now I would like to direct your attention, if I can, Mr.

25 DiPascali, to an entry -- let me make this a little bit easier

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1 to read. Can we blow up the top third of the document, Ms.

2 Baskin.

3 I want to direct your attention to an account that

4 number is C1210. Do you see that?

5 A. I do.

6 Q. Can we highlight that whole row. Whose account is that?

7 A. Jodi's.

8 Q. Do you see the name next to it that says -- go ahead.

9 A. It says "JC pers," P-E-R-S. Stands for personal.

10 Q. Do you see under "Need" there is a 3 in parens?

11 A. Correct.

12 Q. What do those parens signify?

13 A. It means it's a loss and not a profit.

14 Q. This is 2003, right?

15 A. Yes, it is.

16 Q. Around this time did you have a discussion with Ms. Crupi

17 about putting through a loss in her account?

18 A. Yes.

19 Q. Describe what that discussion was about.

20 A. Under the tax code an individual that year could take up to

21 $3,000 of capital losses as a direct offset to your ordinary

22 income.

23 MR. BRESLIN: Objection, your Honor.

24 THE COURT: Please consult.

25 (Counsel conferred.)

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1 Q. Did you discuss the tax reasons for doing this with Ms.

2 Crupi?

3 A. I did.

4 Q. What did you discuss about the tax reasons for putting a

5 loss into her account?

6 A. Since the loss would be a meaningless loss on paper only,

7 it would be tax advantageous to take a $3,000 loss to offset

8 ordinary income.

9 Q. When you say a meaningless loss on paper, what do you mean

10 by that?

11 A. In the real world one would put up $3,000 into an account,

12 unfortunately do a trade that loses that money, and whsst, the

13 money was gone. There was no money involved in this, it was

14 simply done on paper. There was no out-of-pocket cost

15 associated with this loss.

16 Q. What was the benefit of putting through this fake loss for

17 Ms. Crupi's taxes that you discussed with her?

18 A. It would reduce the tax consequence of her ordinary income

19 by $3,000.

20 Q. Now I would like to go back, Mr. Baskin. Can we blow this

21 up a little bit more and put it in split screen. I would like

22 to go back very briefly to Government Exhibit 105-C116. Can we

23 blow that up.

24 If you recall, at the top, that was your shtup page

25 for 2003, right?

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1 A. It was.

2 Q. When would you normally be doing the shtupping in the year?

3 A. Sometime after Christmas and before we closed the year.

4 Q. Looking at the calendar page below, what is the date on

5 that?

6 A. December 31st.

7 Q. Of what year?

8 A. 2003.

9 Q. Is that the same year as your list?

10 A. It is.

11 Q. What did Ms. Crupi write on the calendar page on December

12 31, 2003?

13 A. "Losses my account."

14 Q. Did she tell you to put those losses into her account?

15 A. She did.

16 Q. When you did what she asked you to do, did you know what

17 you were doing was wrong?

18 A. I did.

19 Q. We can take that down. I would like to go now to

20 Government Exhibit 105-C154. On this document I would like to

21 go to page 4, please. Can we blow that up. First of all, do

22 you recognize the handwriting on this?

23 A. It again is Jodi's.

24 Q. What kind of stationery are we looking at?

25 A. It's the same type of annually issued desk calendars that

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1 the firm gave us.

2 Q. The last one we looked at was in 2003. What year is this

3 one for?

4 A. 2008.

5 Q. What month are we looking at?

6 A. September.

7 Q. Can you read what's written on the calendar page.

8 A. It says "F. Levy 220,000. Get option trade for Annette to

9 get Kugel in line and me."

10 Q. Was there someone named Kugel that worked at the firm?

11 A. David Kugel.

12 Q. Who was F. Levy?

13 A. Francis Levy.

14 Q. Was there an Annette that worked at the firm?

15 A. Yes.

16 Q. Who was that?

17 A. Annette Bongiorno.

18 Q. Now I would like to go to Government Exhibit 105-F27.

19 Before we jump ahead, do you recognize the handwriting on this?

20 A. Not specifically.

21 Q. Let's go to page 7. Can we take it down and show it to the

22 judge, defense counsel, and the witness.

23 MR. ZACH: Your Honor, may we have one moment?

24 THE COURT: Yes.

25 Q. Can we go to page 7.

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1 THE COURT: Are we still on the limited view?

2 MR. ZACH: Yes, we are on the limited universe right

3 now.

4 THE COURT: This 105-F27 is not in evidence yet?

5 MR. ZACH: No.

6 Q. Do you recognize what type of document this is?

7 A. Yes.

8 Q. What type of document is it?

9 A. It's a trade sheet used to input data into the AS/400.

10 MR. ZACH: The government offers 105-F27.

11 THE COURT: The whole document?

12 MR. ZACH: Yes, the whole document.

13 THE COURT: Is there any objection?

14 MR. RIOPELLE: No objection, your Honor.

15 MR. KRANTZ: No objection, your Honor.

16 MR. FRISCH: No objection.

17 MR. MEHLER: No objection.

18 MR. BRESLIN: No objection, your Honor.

19 THE COURT: Mr. Frisch?

20 MR. FRISCH: No objection, your Honor.

21 THE COURT: Government Exhibit 105-F27 is admitted in

22 evidence.

23 (Government's Exhibit 105-F27 received in evidence)

24 MR. ZACH: So the record is clear, we are looking at

25 page 7 of 105-F27. Can we publish that to the jury, your

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1 Honor?

2 THE COURT: Yes, you may.

3 MR. ZACH: Thank you, your Honor.

4 Q. What type of document is this, Mr. DiPascali?

5 A. A trade entry sheet so these entries could get processed

6 into the 400.

7 Q. Briefly, what is the process for taking information that is

8 on this document and putting it into the AS/400?

9 A. This document was given to an operator of the 400, and they

10 would type various bits of information found on this sheet into

11 the system.

12 Q. The trades that you see written on here, were they real?

13 A. No.

14 Q. Going down the left-hand side, Mr. DiPascali, do you see

15 there is a series of names?

16 A. Yes.

17 Q. Do you recognize those names?

18 A. Yes.

19 Q. The first set of those names, who do those relate to?

20 A. Those were entities owned by Stanley Chais or controlled by

21 Stanley Chais.

22 Q. The names at the very bottom, whose names do you see there?

23 A. Ms. Crupi's.

24 Q. I would like to, if we can, blow up the bottom part of the

25 document. With respect to the information at the bottom, whose

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1 account is that?

2 A. Ms. Crupi's.

3 Q. Can we highlight that, Ms. Baskin.

4 Can you walk us through, if you can, what each of

5 those columns means.

6 A. Sure.

7 Q. If you have a problem because I cut it off --

8 A. I know what they mean. The first column far left is the

9 customer name. The next column is the customer account number.

10 The column to its right would be an indicator of whether this

11 ticket should be a buy or a sell. The next column indicates

12 the quantity.

13 The column after that is the symbol for that security.

14 The next column would be the price of that security that should

15 appear on that ticket. The next two columns are the trade date

16 and the settlement date. The last column far right is the

17 commission that's going to appear on the ticket.

18 Q. Can we take this, Ms. Baskin, and put it up on the top in

19 split screen. On the bottom I would like to bring up 101-142.

20 We can make a redaction. Now can we blow it up, please. We

21 just redacted some personal information.

22 Whose account statement is this for?

23 A. Jodi Crupi.

24 Q. Can we go to page 20, Mr. Baskin.

25 THE COURT: Page 20 on the bottom document, which is?

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1 MR. ZACH: 101-142.

2 THE COURT: Thank you.

3 MR. ZACH: Thank you, your Honor.

4 Q. Looking at this account statement, is this also related to

5 Ms. Crupi?

6 A. Yes.

7 Q. What is the statement dated?

8 A. September 30, 2008.

9 Q. Can we highlight that date. Can you compare the account

10 number on the bottom document to what's on the top document in

11 Ms. Crupi's handwriting.

12 A. They are the same.

13 Q. Do you recognize any of the transactions listed at the top

14 in Ms. Crupi's handwriting on the statement that is below?

15 A. The statement below is the computer output results of the

16 information that was inputted above.

17 Q. What is the effect on the account of inputting the

18 information from above?

19 A. A profit of 440 some-odd thousand dollars.

20 Q. Was any of the trading that we are looking at real?

21 A. No.

22 Q. Going back, this was all in September of 2008, correct?

23 A. Yes, it is.

24 Q. Going back, if we can, to government -- well, stop. Before

25 we go there, what are the dates of the transactions on the

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1 bottom?

2 A. The settlement date of the first transaction is September

3 3rd. The settlement date of the second is September 19th.

4 Q. Can we highlight those, Ms. Baskin, so this is clear.

5 Do those dates match up to the dates at the top?

6 A. They do.

7 Q. September 3rd and September 19th. We can take that down.

8 And can we go back to Government Exhibit 105-C154. Blow that

9 up again. Turn to page 4 of that. Again, what does the

10 cursive writing say at the bottom?

11 A. "Get option trade for Annette to get Kugel in line and me."

12 Q. Did we just look at an option trade?

13 A. We did.

14 Q. That was an option transaction to happen on September 9th

15 and September 19th, according to that statement we just looked

16 at?

17 A. I think the dates were September 3rd and September 19th.

18 Q. What is this calendar date?

19 A. September 29th.

20 Q. Is September 29, 2008, before or after September 3rd and

21 September 19, 2008?

22 A. It is -- please rephrase the question or restate the

23 question.

24 Q. Is September 29 before or after September 3rd?

25 A. It is after.

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1 Q. Is September 29th before or after September 19th?

2 A. After.

3 Q. We can take this down. Now, Mr. DiPascali, I would like to

4 change gears a little bit here. We discussed previously that

5 there are both split strike clients and certain clients that

6 were managed primarily by Ms. Bongiorno. Do you recall that?

7 A. Yes.

8 Q. Who were, as we get into the '90s and early 2000s, Ms.

9 Bongiorno's clients generally?

10 A. High-net-worth individuals that were some of Bernie's

11 oldest clients.

12 Q. How wealthy were many of these clients?

13 A. Uber wealthy.

14 Q. What were the names of some of Ms. Bongiorno's major

15 clients?

16 A. Carl Shapiro and his family, Stanley Chais, Jeffrey

17 Picower, Norman Levy.

18 Q. Stanley Chais had personal accounts, right?

19 A. Yes.

20 Q. He also had other accounts that we have been looking at

21 over the last few days, right?

22 A. Yes.

23 Q. Those other accounts, what were those primarily?

24 A. They were entities that he had established where he raised

25 money from other individuals and those entities had accounts

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1 with Madoff.

2 Q. What types of Stanley Chais accounts did Ms. Bongiorno

3 primarily manage?

4 A. I believe they were trusts for various children and

5 grandchildren.

6 Q. Mr. DiPascali, were you aware of instances where some of

7 these individuals that you have just discussed provided Madoff

8 Securities with real assets?

9 A. Yes.

10 Q. Do you have an understanding of how those assets were used

11 by Madoff Securities?

12 A. Yes.

13 Q. Where did your understanding of how those assets were used

14 come from?

15 A. Bernie.

16 Q. What types of assets did some of these customers provide?

17 A. Government securities, municipal securities, and equity

18 securities, stocks.

19 Q. Now we are talking about real stocks, real securities?

20 A. Real stuff.

21 Q. How, based on what you have just said, were those

22 securities used at the Madoff firm?

23 A. They were taken in by the customer and processed to two

24 separate locations. They were processed by our back office,

25 because the real securities were really at DTC being held in a

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1 custody account, and they were simultaneously taken into the IA

2 business and posted to the customer statement.

3 Q. When you say posted to the customer statement, does that

4 mean that they were reflected as an asset on the customer

5 statement?

6 A. Yes.

7 Q. After they were reflected as an asset on the customer

8 statement, how were they used elsewhere?

9 A. They were delivered in via DTC. They were received into

10 the business. The net effect was there was a position stated

11 in our trading inventory, so they would be used as an asset of

12 the firm.

13 Q. When you say they were used as an asset of the firm, what

14 were some of the different ways that these customer real

15 securities were used?

16 A. They were often used as collateral to draw down on a bank

17 loan.

18 Q. When you draw on a bank loan, does that give cash to Madoff

19 Securities?

20 A. It does.

21 Q. Where you aware of times when Madoff Securities was running

22 low on money?

23 A. Yes.

24 Q. How, if at all, were these loans that were obtained using

25 customer real securities used at those times?

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1 A. The cash from those loans replenished the account that was

2 running low on money.

3 Q. Were there specific times that you remember that happening?

4 A. Yes.

5 Q. What are some of those specific times that you recall that

6 happening?

7 A. December of '08, during the period that Bernie needed to

8 refund back to the trustee the Avellino & Bienes funds, and

9 other times.

10 Q. Was Mr. Bonventre involved in any of these loans?

11 A. Yes.

12 Q. How do you know Mr. Bonventre was involved?

13 A. That was his job function.

14 Q. What was his role?

15 A. He was the firm's liaison to our banks, the seniormost

16 person that dealt with our banks.

17 Q. Did you have discussions with Mr. Madoff about how these

18 loans were obtained using customer securities?

19 A. Yes.

20 Q. In any of those discussions did Mr. Madoff mention Mr.

21 Bonventre?

22 A. Yes.

23 Q. What did Mr. Madoff say about Mr. Bonventre's role in using

24 real customer securities to get loans from banks?

25 A. Typically, he would just mention to me, I'm getting in

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1 stock or I'm getting in bonds from so-and-so, do me a favor and

2 stay on the cage's backs, I want to know when they come in. So

3 I would occasionally walk in the cage and ask them if the bonds

4 came in.

5 In that conversation he would say that he -- he

6 obviously told Danny the same thing. He just was playing

7 double safe, double sure, having two guys do the same thing.

8 It was kind of like just a conversation as to what the process

9 Bernie expected was going to be.

10 Q. In those discussions did Mr. Madoff mention how these loans

11 were going to be utilized on the books and records of the firm?

12 A. I'm not so sure the loans were reflected on the books and

13 records of the firm.

14 Q. Did he discuss how these were going to be accounted for in

15 the firm?

16 A. Not specifically, but I know how they were accounted for.

17 (Continued on next page)

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1 Q. Well, how do you know they were accounted for?

2 A. Because at one time, I was a trader on that desk and I saw

3 those very same securities that came in from customers,

4 specifically Norman Levy. And I saw where they put them, which

5 was in a trading account up in that room, and I know that that

6 trading account appears on our books and records as an asset.

7 So I just -- it's logic.

8 Q. And what is a trading account?

9 A. It's a subsidiary account of the firm's inventory broken up

10 by each trader responsible for a group of securities; so each

11 group has its own account, but the collective account is the

12 collective firm inventory.

13 Q. Now, going back to those customers that Ms. Bongiorno

14 managed, were they part of the so-called split-strike strategy?

15 A. No.

16 Q. How were their accounts typically traded?

17 A. In what's known as a long position account.

18 Q. And what is a long position account?

19 A. Typically an array of securities of various portfolios,

20 sometimes hedged, sometimes not, but it could be a portfolio of

21 one stock, it could be a portfolio of 40 stocks, depending on

22 the account.

23 Q. And who was it that was in charge of putting in the trades

24 for Ms. Bongiorno's accounts?

25 A. She was.

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1 Q. Were any of those trades real?

2 A. No.

3 Q. Now, are you, sir, familiar with a entity called ACF?

4 A. I am.

5 Q. What was ACF?

6 A. It was a pension-type account controlled by Jeffrey

7 Picower.

8 Q. And who was Mr. Picower?

9 A. A wealthy investor.

10 Q. Where did he live?

11 A. I have no idea.

12 Q. And what was -- or what is a pension plan?

13 A. It's a pool of money that has been earmarked to pay the

14 retirement funds of typically employees or something like that.

15 Q. Now, in the course of working down on the 17th floor, do

16 you recall that there were problems with the ACF account?

17 A. I do.

18 Q. How did you learn that there were problems with the ACF

19 account?

20 A. I observed people talking about it.

21 Q. Who are some of the folks you observed talking about it?

22 A. Jodi, Annette and Bernie.

23 Q. And what did you hear them say about the problems that were

24 being had with the ACF account?

25 A. ACF was, I believe, a typical long position account that

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1 Mr. Picower's ACF was about to undergo an ERISA audit and that

2 Bernie didn't like the complexion of the account, the way it

3 looked; so it needed to be redone.

4 Q. So what is an ERISA audit?

5 A. It's an acronym for a government agency that is responsible

6 for the compliance of retirement plans, basically. I'm not

7 that well versed in what it is, but it's a government agency.

8 Q. Okay.

9 THE COURT: Mr. Zach, I'm sorry, we're going to need

10 to start the break in another minute or two; so would you --

11 MR. ZACH: I can stop right now, your Honor, if you

12 want.

13 THE COURT: All right. Thanks very much. Ladies and

14 gentlemen, were going to begin our 15-minute morning break now.

15 Jurors, please be ready in the jury room by 11:20. Thank you

16 for your work so far with us. Enjoy your break, and continue

17 to keep your thoughts to yourself. All rise. Ms. Ng will lead

18 the jury out.

19 (Jury exits)

20 Mr. DiPascali, you may step down. Thank you.

21 THE WITNESS: Thank you, your Honor.

22 THE COURT: We'll reconvene at 11:20, and I'll ask

23 that our student guests hang around. I'll come down and say

24 hello.

25 (Recess)

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1 THE COURT: Mr. Zach, is there something you wanted to

2 discuss before we went on?

3 MR. ZACH: No.

4 THE COURT: Ms. Ng, would you bring the jury in.

5 MR. KRANTZ: Your Honor, would you mind if some of us

6 took off our jackets because it's kind of warm?

7 THE COURT: Not at all, and would you like me to make

8 the take off your jackets announcement. But I will warn you

9 that when winter comes it's spontaneous and there's nothing we

10 can do about it. So do whatever makes you comfortable with

11 that. All rise.

12 (Jury enters)

13 Welcome back, members of the jury. Please take your

14 seats. Please be seated, everyone. Members of the jury, just

15 before we start, you'll have noticed that the temperature in

16 this room varies wildly and often spontaneously. So I have

17 told everyone, and I tell you as well, if you feel hot and you

18 want to take your jacket off or something, everybody feel free

19 to do that. If you feel the need to bundle up, go right ahead.

20 We do our best to try to keep it somewhere in a reasonable

21 range, but that doesn't always happen. So thanks for

22 understanding. Mr. Zach?

23 MR. ZACH: Thank you, your Honor.

24 BY MR. ZACH:

25 Q. Now, Mr. DiPascali, before we broke for the morning break,

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1 you were testifying about ACF, the pension plan associated with

2 Mr. Picower; do you recall that?

3 A. I do.

4 Q. And I believe what you said was there were certain problems

5 that you came to learn were happening with that account?

6 A. That's correct.

7 Q. And one of the things that you testified before the break

8 was that Mr. DiPascali -- I'm sorry, Mr. Madoff was wrong -- or

9 unhappy with the complexion of those accounts; do you recall

10 saying that?

11 A. That is correct.

12 Q. And what did you mean by Mr. Madoff was unhappy with the

13 complexion of the ACF accounts?

14 A. My understanding was that since it was a long position

15 account, it was invested in an array of stocks. Bernie

16 recognized that there was an ERISA audit about to begin or had

17 begun, I'm not sure, and that he would have preferred to have

18 that account in an array of treasury securities to give the

19 appearance of greater safety.

20 Q. Are treasury securities generally thought to be safer than

21 stocks?

22 A. Yes.

23 Q. Now, did you come to learn that there was a project to

24 re-do some of the ACF statements?

25 A. Yes.

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1 Q. And who was involved in that project to re-do the ACF

2 statements?

3 A. Bernie, Annette and Jodi and, to a certain extent, myself.

4 Q. And how did you participate in re-doing the ACF statements?

5 A. I provided an array of U.S. treasury notes and researched

6 historical pricing mechanisms and fed information to Annette.

7 Q. And when you say you provided treasury notes, did you go

8 out and buy real treasuries to put in the ACF accounts?

9 A. No.

10 Q. Are you again speaking of just providing information for

11 fake trades?

12 A. Correct.

13 Q. I'd like to show you what has -- what is in evidence as

14 Government Exhibit 105-B17. Now, do you recognize,

15 Mr. DiPascali, what type of document this is?

16 A. Yes.

17 Q. What is it?

18 A. It's a brokerage statement for the period ending

19 January 31st, '02, for ACF services that has been crossed out.

20 Q. And who was managing the ACF accounts?

21 A. Annette.

22 Q. What year is this account statement from?

23 A. 2002.

24 Q. Now, I'd like, if we can, Ms. Baskin, to go to Page 121 of

25 this document. And, Mr. DiPascali, looking at this document,

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1 is this still the ACF services account?

2 A. It is.

3 Q. And what is the date on this account?

4 A. July 31st, '02.

5 Q. And looking at this version of the statement, do you see

6 any treasury securities?

7 A. I don't.

8 Q. Looking at the top of the document, what do you see?

9 A. Activity in treasuries.

10 Q. Okay. What does that mean?

11 A. That particular line item is -- appears to be the purchase

12 of 6,970,000 of the 1212 treasury bill.

13 Q. And what is the date on that?

14 A. July 31st.

15 Q. Now, let's -- I want to go maybe two pages back, if we can.

16 This is Page 4 of this statement, right? Here is Page 3. What

17 types of securities generally do you see here?

18 A. I see the purchase of treasury bills and the sale of equity

19 securities, stocks.

20 Q. So which is the purchase, which is the sale?

21 A. The treasury bill is the purchase. The rest of the items

22 are sales.

23 Q. And let's move forward to Page -- and what are the amounts

24 there?

25 A. I'm sorry?

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1 Q. What are the amounts?

2 A. There's $17 million worth of treasury bills. And would you

3 like me to read the amounts of the sales?

4 Q. No, just the amount of the treasuries, 17 million. And can

5 we go back to Page 1 of the document. So, I'm sorry,

6 Ms. Baskin, Page 1 of the January 2000 -- the July 2002

7 statement, sorry. Now, let's just start at this page. So this

8 is the ACF statement, right?

9 A. It is.

10 Q. And what is it dated?

11 A. July 31st, 2002.

12 Q. Look at the securities on this page. What are they,

13 generally?

14 A. Sales of stocks and the posting of some dividends.

15 Q. Let's go to the next page, the very next page. Do you see

16 a Post-it there?

17 A. I do.

18 Q. What does the Post-it say?

19 A. Old statements.

20 Q. Do you recognize the handwriting?

21 A. I don't.

22 Q. Let's go to the -- one second. Let's go to the next page,

23 if we can. And what do we see on this page?

24 A. Additional sales of stock and the sale of a treasury bill

25 and some dividends.

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1 Q. And how much is that treasury bill sold for?

2 A. I'm sorry, that treasury bill actually was redeemed for

3 16,905,000.

4 Q. What does it mean for it to be redeemed?

5 A. The bill matured on July 11th, and you'll notice the

6 posting date is July 11th. So on July 11th, you would receive

7 back from the government your principal of 16,905,000.

8 Q. Let's go to Page 3, which we already looked at very

9 briefly. Page 3 has that $17 million purchase, right?

10 A. It does.

11 Q. And let's go to Page 4. Page 4 has a purchase of around --

12 treasury bill of around almost $7 million; do you see that?

13 A. I do.

14 Q. Now, just to be clear, is any of the trading that we're

15 looking at real on these statements?

16 A. No, it is not.

17 Q. Let's now go to Page 5. What types of activity do you see

18 here?

19 A. Those are the residual positions at the end of the period

20 July '02, all stock positions.

21 Q. Okay. So what we just looked at was the activity for the

22 month, and this is what's in the account at the end of the

23 month?

24 A. That is correct.

25 Q. So looking at what's in the account at the end of the

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1 month, on Page 4, what do we see?

2 A. This isn't Page 4.

3 Q. I'm sorry, let's go back to Page 4. Sorry, Ms. Baskin.

4 Where does the residual security positions begin?

5 A. Around the middle of the page, where it says security

6 positions as a heading, and the first entry being Daimler

7 Chrysler.

8 Q. And can we highlight that, please. So everything going

9 down from here is going to be security positions, right?

10 A. That is correct.

11 Q. And are these stocks that we're looking at?

12 A. Yes.

13 Q. Let's go to Page 5 now. And what types of securities are

14 we looking at here?

15 A. More stocks.

16 Q. Can we go to Page 6, please, Ms. Baskin. What are we

17 looking at?

18 A. More stocks.

19 Q. And Page 7?

20 A. And, again, more stocks.

21 Q. And Page 8?

22 A. The top part of that schedule is a continuation of the

23 stock positions, and then there's five treasury bill positions,

24 and then the last entry is back to a stock position.

25 Q. And so for those treasury positions, are these the treasury

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1 securities that were in the account at the end of the month?

2 A. Yes, they are.

3 Q. Okay. And can you just make an estimate of the amount of

4 treasury securities that we're looking at here? Ms. Baskin,

5 can you highlight those?

6 A. 50 million?

7 Q. The one above, I think, as well. So that's around 50

8 million?

9 A. Approximately.

10 Q. And can we go to Page 9. And what type of securities do we

11 see there?

12 A. Those are all stocks.

13 Q. And is that the end of the statement?

14 A. It is.

15 Q. So let's take that down, and I'd like to show you --

16 MR. ZACH: Well, first, at this point, the government

17 would move to offer a subset of what is already in evidence as

18 Government Exhibit 300-4, and what we would seek to offer is

19 something called 300-4A.

20 THE COURT: Any objection?

21 MR. MEHLER: No objection.

22 MR. FRISCH: No objection.

23 MR. BRESLIN: No objection.

24 MR. KRANTZ: No objection.

25 MR. RIOPELLE: No objection.

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1 THE COURT: Government Exhibit 300-4A is admitted in

2 evidence and may be published to the jury.

3 MR. ZACH: Thank you, your Honor.

4 (Government's Exhibit 300-4A received in evidence)

5 BY MR. ZACH:

6 Q. Can we pull that up? Now, what are we looking at? This is

7 a single page of the -- of a statement, and can you tell us

8 what account it's for?

9 A. For the same account, ACF Services pension plan.

10 Q. And what is it dated?

11 A. July 31st, 2002.

12 Q. And do you see any treasury positions on this statement?

13 A. I do.

14 Q. And the last one, approximately how much in treasury bills

15 did we see in the X'd out statement?

16 A. I believe it was about 50-some-odd million.

17 Q. Okay. And can you try and estimate what the amount is on

18 this statement?

19 A. About 900 million.

20 Q. Let's -- Can we put this in split screen, Ms. Baskin, with

21 what was Page 9 of Government Exhibit 105-B17. Thank you very

22 much, Ms. Baskin. Now, comparing -- Thank you. Looking at

23 these two documents, I would ask you first, Mr. DiPascali, to

24 look at the account numbers for the top and the bottom?

25 A. They are the same.

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1 Q. And can you look at the dates for the top and the bottom?

2 A. They are the same.

3 Q. And can you look at the names on the accounts?

4 A. They are the same.

5 Q. And how are the treasury positions different from the X'd

6 out version on the bottom from the different version we looked

7 at at the top?

8 A. The 50 million or so principal amount of treasury bills

9 that were resident on the bottom document are no longer

10 resident on the top. Neither are any of those securities on

11 that document. On the top document there is a position of five

12 treasury notes and a treasury bill.

13 Q. And the $50 million of treasury securities listed on the

14 bottom document, were any of those securities real?

15 A. No.

16 Q. And the, you know, 600-million-plus treasury securities on

17 the statement on top, were any of those real?

18 A. No.

19 Q. Now, looking -- by changing the amount of the treasury

20 notes, how does that compare to the goal that you heard

21 Mr. Madoff -- or how does that relate to the goal that you

22 heard Mr. Madoff discuss in connection with fixing these ACF

23 accounts?

24 A. It basically attained that exact goal.

25 Q. And can you explain how it attained that exact goal?

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1 A. This account was no longer in an array of stocks.

2 $50 million worth of the account was in treasuries, and the

3 balance, which was 600-some-odd million, was invested in stocks

4 in the first set of documents. Those stocks disappeared off

5 the statement, as well as the 50 million worth of treasury

6 bills, and were replaced by a longer term holding in various

7 U.S. treasury notes to the tune of 900 million.

8 Q. So if an ERISA audit were to occur and the above -- the

9 statement above, with the hundreds of millions of dollars of

10 treasury bills, were to be provided to them, what would that

11 reflect about the state of the ACF account?

12 A. Holdings in U.S. government securities are typically deemed

13 to be the safest investment.

14 Q. So it would be safer than having stocks in an account?

15 A. Yes.

16 Q. We can take that down. Thank you very much, Miss Baskin.

17 And who was it that was running up the changing of these

18 statements?

19 A. Annette Bongiorno.

20 Q. And who was working with her?

21 A. Jodi and myself.

22 Q. And what was your role in it? I'm sorry. And what was

23 your role in it?

24 A. I provided some of the pricing on those treasury notes.

25 Q. And when you provided the fake treasury note prices, did

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1 you know what you were doing was wrong?

2 A. Yes.

3 Q. And when you provided the fake treasury information, did

4 you know that you were committing fraud?

5 A. Yes.

6 Q. Now, over the years, did Ms. Bongiorno ask you for treasury

7 bill information?

8 A. Yes.

9 Q. How often would she have conversations with you about

10 obtaining treasury bill information?

11 A. She would have conversations with either me or my staff

12 every month.

13 Q. And what would -- what, if anything, would she say that she

14 needed that treasury information for?

15 A. She wouldn't typically say what she needed it for.

16 Q. What would she say to you?

17 A. I need a treasury bill for this month.

18 Q. And how would you go about getting the treasury bill for

19 that month?

20 A. I'd look at where we are on the calendar. I'd estimate

21 about how long I wanted to be out in maturity; so if it was

22 December of 2013, I would look at a February or March 2014

23 treasury bill. I'd go to Bloomberg and ascertain the price and

24 give it to Annette.

25 Q. And when you would go to Bloomberg, would you look at

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1 backdated prices?

2 A. Depending on the date that she asked me that she needed the

3 bill for.

4 Q. And was any treasury bill ever purchased?

5 A. Never.

6 Q. I'll ask you a question. Did the market making part of

7 Madoff Securities make a market in treasury bills?

8 A. No.

9 Q. So could you go to the market making part of the business

10 and get a treasury bill to put in an IA account?

11 A. No.

12 Q. From time to time did you get real treasury bills?

13 A. Yes.

14 Q. And what were those real treasury bills for?

15 A. To invest the excess cash in the IA checking account.

16 Q. And when you say to invest the excess cash in the IA

17 checking account, for what reason did you get a treasury bill

18 to do that?

19 A. So as to provide safety and an enhanced yield to what the

20 checking account interest rate was.

21 Q. So it would be fair to say it would be a way of getting

22 interest on the checking account?

23 A. More or less, yes.

24 Q. And when you bought those real treasury bills to earn

25 interest on the Madoff checking account, what did you have to

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1 do?

2 A. I had to call my broker.

3 Q. And after you called your broker, was there a process to

4 going out and buying the treasury bill?

5 A. Yeah, I would tell the broker how much dollars I wanted to

6 commit to treasury bills and typically which one I wanted to

7 buy, and he would take down that information and call me back

8 and typically give me a report that I bought X amount of

9 treasury bills at this price.

10 Q. And then that would -- you would actually get a real

11 treasury bill?

12 A. Yeah.

13 Q. Now, for on the IA side, when you had to provide -- when

14 you would provide the fake information, what would you do

15 there?

16 A. I'd look at a pricing service of historical prices of

17 treasury bills, ascertain the price on the date that I needed

18 and write a ticket and put it into the AS/400.

19 Q. And when you would go out and buy the real treasury bills,

20 was Ms. Crupi near you?

21 A. We worked in the same office.

22 Q. And when you were talking on the phone buying real treasury

23 bills, was she in the vicinity where she could overhear what

24 you were saying?

25 A. Yes.

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1 Q. And would she be able to observe you, how you were on the

2 phone and what you were doing?

3 A. Certainly.

4 Q. Now, what was your understanding of what Ms. Bongiorno

5 would do with the treasury information that you gave to her?

6 A. She would put through a buy ticket that was approximately

7 equal to the cash credit balance reflected in the account she

8 was working on, and it would produce a confirmation and an

9 entry on the customer statement that he was now -- owned

10 treasuries.

11 Q. And as with the other trading that was on those accounts,

12 was any of it real?

13 A. No.

14 Q. Now, did Madoff family members have accounts on the IA side

15 of the business?

16 A. Some.

17 Q. Who were some of the Madoff family members that had

18 accounts in the investment advisory business?

19 A. Peter Madoff, Marion Madoff, Ruth Madoff, Andy Madoff, Mark

20 Madoff, Shana Madoff, Charlie Wiener. I might have missed a

21 nephew somewhere, yeah.

22 Q. Who, again, was Charlie Wiener?

23 A. Bernie's nephew.

24 Q. Now, who managed the accounts for the Madoff family

25 members?

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1 A. Most of which were managed by Annette. Ruth Madoff's

2 account for a time was managed by me.

3 Q. Now, did Ms. Bongiorno also manage IA accounts for certain

4 Madoff Securities employees?

5 A. Yes.

6 Q. Who were some of the Madoff Securities employees who

7 Ms. Bongiorno managed account for?

8 A. David Kugel, Irwin Lipkin, Dan Bonventre. I'm drawing a

9 blank on the rest of the names.

10 Q. Now, from time to time, did Ms. Bongiorno ask you questions

11 about stocks that could be used in the accounts that she was

12 overseeing?

13 A. Yes.

14 Q. What sorts of questions would she ask you?

15 A. Things like, are there any stocks that you know that are up

16 this month or that are down this month, or what did the market

17 do this month, so she can get an understanding of where the

18 market was vis-a-vis what she needed to do.

19 Q. And when you say a stock was up this month, would that be a

20 forward-looking analysis or would that be looking at historical

21 information from that?

22 A. Historically.

23 Q. And when you were trying to determine if a stock was up in

24 a month, would you look forward or backward?

25 A. Backwards.

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1 Q. And did you ever hear the phrase story stock?

2 A. Yes.

3 Q. Who did you hear that phrase from?

4 A. Bernie and Annette.

5 Q. And what was your understanding of what a story stock was?

6 A. It's a stock that was up because there had been some news

7 published about that stock.

8 Q. What does that mean, that there had been some news

9 published about that stock?

10 A. There might have been an announcement of a takeover of that

11 security or a merger of that security or some other corporate

12 event that was -- that sparked a big gap in the price of the

13 stock. So the stock was trading at, let's say, 12 or 13 and

14 then a news announcement came out regarding a takeover of that

15 security at 22, and the stock would immediately the next day

16 open at maybe 21. So it would go from 13 to 21 not based on

17 the normal market conditions of supply and demand, but supply

18 and demand caused by a specific news event. Hence the name

19 story stock.

20 Q. And how were -- how, if at all, did story stocks play into

21 stocks that were picked or not picked for the IA business?

22 A. I was never to give Annette story stock when she asked me

23 what stocks were up this month.

24 Q. And did someone tell you why you were never to give Annette

25 a story stock if stocks were up?

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1 A. Bernie.

2 Q. And for what reason were you never to give a story stock as

3 a stock that was up?

4 A. Because he didn't want to get his customers in trouble for

5 insider information possibly.

6 Q. Okay. And can you describe what you mean by that?

7 A. When someone trades on information that the public doesn't

8 know about and got that information in some notorious way and

9 acted on it and then the story comes out that causes the stock

10 to rise to a higher level, those profits, based on the

11 regulations in this industry, are deemed to be illegally

12 gained. You basically made money trading on insider

13 information, information that no one else knew about or only a

14 limited amount of people knew about. It puts all others at a

15 disadvantage.

16 Picture yourself being the guy that sold that stock

17 right before the story came out and it went from 13 to 30.

18 Well, the guy that bought it from you at 13 might or might not

19 have had some inside dope. If he had inside dope, he acted

20 illegally. So a story stock was not a particularly good thing

21 to be in a customer position because it could trigger an

22 inquiry.

23 Q. Mr. DiPascali, in the real world, is inside information

24 known -- does inside information exist before or after the

25 event that the inside information relates to?

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1 A. It happens before.

2 Q. And in real life, if you know inside information before the

3 relevant event happens, is it illegal to trade on that

4 information?

5 A. Yes.

6 Q. At Madoff Securities, was the -- when was that information

7 known?

8 A. Well after it happened.

9 Q. And it was known after because you were looking at news

10 that had already been announced, right?

11 A. Sure.

12 Q. So was the -- what was the concern about picking event

13 stocks based on -- well, strike that.

14 So when you're looking back in history, can you

15 actually be insider trading?

16 A. No.

17 Q. But if someone were to look at an account where a stock was

18 picked from the past, could that have the appearance of being

19 insider trading?

20 A. It would certainly have the appearance of insider trading.

21 That's why he was trying to avoid it.

22 Q. Now, in addition to all that, was a stock actually even

23 purchased?

24 A. Never.

25 Q. It was just on paper?

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1 A. Correct.

2 Q. Now, did you ever hear the phrase deal stock while working?

3 A. Yeah.

4 Q. Who did you hear the phrase deal stock from?

5 A. Bernie, Annette.

6 Q. And what did you understand Bernie and Annette to mean by

7 deal stock?

8 A. It was a more specific definition of a story stock. It was

9 a story that involved a specific deal, like a merger or an

10 acquisition.

11 Q. And what was your understanding about the use of deal

12 stocks in connection with the IA business trading?

13 A. They were also prohibited.

14 Q. And for what reason were you told that they were

15 prohibited?

16 A. For the exact same reason I gave before, which is, it would

17 give the appearance that the client knew information because

18 he's -- he has a buy ticket or she has a buy ticket on her

19 statement immediately before a major news announcement came out

20 and then possibly a subsequent sale. And if you looked at that

21 scenario on paper and you were a regulator, it would jump off

22 the page that there's a possibility that this client knew this

23 merger was going to happen illegally and acted on it.

24 So Bernie could not afford to have any one of the

25 clients in Annette's area, which are typically high net worth

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1 clients with big portfolios of massive dollars, have an entry

2 on the statement that was going to be something that could open

3 this box.

4 Q. And, again, did any of those clients actually buy the

5 stocks?

6 A. No.

7 Q. Stocks were completely fake, right; so there couldn't be

8 insider trading?

9 A. It was physically impossible for it to be insider trading.

10 Let's just say the customer would have skated on the insider

11 trading allegations because the securities never existed, the

12 trade never existed. It just was a scenario that on paper, if

13 you looked at it, you say, wow, the guy bought it at 10 and the

14 next day it was 40 and he sold it at 41 and five-eighths, the

15 guy had to know something.

16 So since there's a possibility that some of these

17 statements would to get into the hands one day of a regulator,

18 you are never to buy a story or a deal stock for these

19 accounts, my instructions.

20 Q. Let's change topics. Let me show the witness, Judge Swain,

21 defense counsel what has been marked for identification as

22 Government Exhibit 105-D28. Now, first, I'd like to ask you,

23 do you recognize the fax line at the top of this document, yes

24 or no?

25 A. Yes.

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1 Q. Let's go to the next page. Do you recognize this type of

2 document?

3 A. Yes.

4 Q. Do you recognize the handwriting on this document?

5 A. It's Annette's.

6 MR. ZACH: Your Honor, the government offers 105-D28.

7 THE COURT: Any objection?

8 MR. RIOPELLE: No objection.

9 MR. FRISCH: No objection.

10 MR. BRESLIN: No objection.

11 MR. KRANTZ: No objection.

12 THE COURT: Government Exhibit 105-D28 is admitted in

13 evidence and may be shown.

14 MR. ZACH: Thank you, your Honor.

15 (Government's Exhibit 105-D28 received in evidence)

16 MR. ZACH: Can we please publish that to the jury.

17 BY MR. ZACH:

18 Q. So my first question about this document, Mr. DiPascali, is

19 do you recognize what the fax line at the top is?

20 A. I do.

21 Q. What is it?

22 A. It appears to be coming from a fax machine in Florida

23 belonging to Annette.

24 Q. And does the words Annette and Rudy appear on there?

25 A. They do.

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1 Q. And who was Rudy?

2 A. Annette's husband.

3 Q. What is this document dated?

4 A. March 21, '07.

5 Q. And how do you know that this is coming from Florida?

6 A. It's got a 516 area code.

7 Q. Is that, to your understanding, a Florida area code?

8 A. Yes, it is.

9 Q. Could you please read just the typewritten text that's on

10 this first page?

11 A. Jerry, please cancel three trades in the Charles and

12 Carolyn Wiener account, 1W001630/70, and correct the 1099B.

13 October 6 sale for Apollo, $1,981,100 in the 30 account.

14 December 6 sale for Abercrombie, $6,666,500 in the 30 account.

15 November 6th sale for Apple, $1,039,500 in the 70 account.

16 Allie, please give -- excuse me. Allie will give you the

17 copies of these canceled trades for your records. Also, please

18 fix the 1099 DIVS for this account. The correct total should

19 be a million five. Thanks, Jer. See you soon, Annette.

20 Q. Okay. So the first thing I'd like to follow up on is,

21 Ms. Baskin, can you highlight the October 06 sentence. What

22 does October 06 stand for?

23 A. In this context? October 06, 2006.

24 Q. And you see below that there's a December 06? What does

25 that stand for?

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1 A. December 6th, 2006.

2 Q. And November 6?

3 A. November 6, 2006, or it could be October '06 as a generic

4 terminology for the year. It's hard to tell.

5 Q. And when was this fax sent?

6 A. March 21st, '07.

7 Q. Now, do you see there's some handwriting on this document,

8 on the top right?

9 A. It's not legible to me.

10 Q. Okay. Can we blow that up. Can you recognize that

11 handwriting one way or the other?

12 A. It's Jerry O'Hara's.

13 (Continued on next page)

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1 Q. Can we pull back out. You say Jerry O'Hara's. Who is this

2 addressed to, this fax?

3 A. Jerry.

4 Q. Before we move on on this document, who, again, is Charlie

5 Weiner?

6 A. Bernie's nephew.

7 Q. Let's turn to page 4, if we can. Do you recognize, Mr.

8 DiPascali, what type of document we are looking at here on the

9 fourth page?

10 A. It's two confirmations.

11 Q. Why don't we take the first one and blow that up. Whose

12 account is this referencing?

13 A. Charlie and Carolyn Weiner.

14 Q. Do you see the trade date and settlement date?

15 A. I do.

16 Q. What are those trade date and settlement date?

17 A. November 2, '06, and November 7, '06.

18 Q. These are trade dates that are before the March 2007 that

19 we saw on the fax?

20 A. They are.

21 Q. Do you see where it says "cancel" that's been written?

22 A. Yes.

23 Q. What does "cancel" indicate to you on the comp ticket?

24 A. That there was a previous trade that was on a different

25 comp issued in November of '06, and this confirmation is

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1 confirming that that previous trade was canceled.

2 Q. Now let's go down and highlight that. Whose account this

3 comp in?

4 A. Charlie and Carolyn Weiner.

5 Q. What security is being traded?

6 A. Apollo Group.

7 Q. Is that one of the stocks that was referenced in the prior

8 note to Mr. O'Hara?

9 A. I think it was.

10 Q. What are the trade dates here?

11 A. October 26, '06, and the settlement date was October 31,

12 '06.

13 Q. Do you see the same "cancel" here?

14 A. I do.

15 Q. Do you see there is some handwriting? Can you read what

16 that says?

17 A. "Record number 1," either a 6 or a zero, 4259.

18 Q. Do you recognize whose handwriting that is?

19 A. Jerry's.

20 Q. What is a record number?

21 A. It's a string of digits in some digital file that

22 identifies the record by a numeric number.

23 Q. Is that similar to the number that we looked at with that

24 handwritten sheet in Ms. Bongiorno's handwriting, all those

25 numbers?

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1 A. Those were transaction numbers.

2 Q. How do these two relate, or not at all?

3 A. In my mind, not at all.

4 Q. Let's pull out of this. Can you read what the security is

5 at the top.

6 A. Apple Computer.

7 Q. Is that one of the stocks that is referenced in the

8 typewritten letter to Mr. O'Hara from Ms. Bongiorno?

9 A. I think it was.

10 Q. Do you see is there a rack number on this as well?

11 A. There is.

12 Q. Whose handwriting is that in?

13 A. Jerry's.

14 Q. Ms. Baskin, can we now go to page 2. What are we looking

15 at here?

16 A. Looking at an IRS form 1099.

17 Q. What is the purpose generally of that type of form?

18 A. This form is specifically a 1099/B, and it is a form that a

19 broker is required to issue to its customers that sum totals

20 all the sales that that customer made in securities that year.

21 This document gets mailed to the customer, and there is a total

22 on it which says gross proceeds of sale, which is exactly what

23 it means. It is the gross or total amount of sales in all

24 securities in that account for the entire year.

25 Q. Do you see there is an X through a number there?

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1 A. Yes.

2 Q. What is X'd out?

3 A. I can't read the box.

4 Q. We can blow it up.

5 A. I know this document. It's stocks and bonds. Stocks,

6 bonds, etc. That is the total amount of gross proceeds. You

7 will see that there is a little box X'd out to the right of the

8 figure and it says "gross proceeds." That number would be

9 4,370,350. That is the total dollar amount of stocks and bonds

10 that were told in the account that's referenced on this 1099

11 for the year 2006.

12 Q. That amount is $4,370,350?

13 A. I can't make out the third digit from the right, but yes.

14 Q. Can we pull out of that, Ms. Baskin. Do you see there is a

15 new, a different number written at the bottom?

16 A. Yes.

17 Q. Whose handwriting is that?

18 A. Annette's.

19 Q. What number is written there?

20 A. $683,250.

21 Q. This also has the fax thing of March 21, 2007?

22 A. It does.

23 Q. Can we go to page 3. What is page 3?

24 A. It's another 1099, this time a 1099/DIV, which stands for

25 dividend.

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1 Q. Is that another form that is sent to the IRS, meant to the

2 sent to the IRS?

3 A. These forms are meant to be sent to the client.

4 Q. For the record, we redacted out some personal information.

5 Do you see there is another X?

6 A. I do.

7 Q. What is X'd out here?

8 A. I think it says $6350.

9 Q. Below the X there is another number that is written out?

10 A. Yes.

11 Q. What is that number?

12 A. $1500.

13 Q. That's bigger or smaller than the amount that's X'd out?

14 A. Smaller.

15 Q. Can we go back to the first page. On the first page you

16 see it is written to Jerry?

17 A. Yes.

18 Q. You said that the handwriting there is Jerry O'Hara?

19 A. Yes.

20 Q. Going back here, does that confirm that the X'd out or the

21 canceled confirmation statements were for stocks that are

22 listed on this cover letter to Mr. O'Hara from Ms. Bongiorno?

23 A. The Apollo and the Apple are there, yes.

24 Q. Those were from 2006, right?

25 A. Yes.

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1 Q. This is dated March of 2007?

2 A. Correct.

3 Q. You can take that document down. From time to time, we

4 talked a little about this before, did IA customers send in

5 bonds and other securities to the firm?

6 A. Yes.

7 Q. You previously testified that those bonds and other

8 securities were used to get loans on occasion?

9 A. On occasion.

10 Q. Was one of the individuals that would provide bonds and

11 other securities Mr. Norman Levy?

12 A. Yes.

13 Q. Did you ever hear Mr. Bonventre refer to the accounts that

14 housed Mr. Levy's stocks and bonds?

15 A. Yes.

16 Q. What did Mr. Bonventre refer to those accounts as?

17 A. Levy accounts, Norman's account.

18 Q. What type of account were they?

19 A. Trading accounts in the trading room.

20 Q. Trading room where?

21 A. In the market-making operation of the trading room.

22 Q. That's what you talked about earlier?

23 A. Correct.

24 Q. What was supposed to be in the trading accounts?

25 MR. FRISCH: Objection.

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1 THE COURT: Please consult.

2 (Counsel conferred.)

3 Q. Do you have an understanding of whose securities were meant

4 to be in those trading accounts?

5 A. The firm's positions.

6 Q. By "the firm's positions," what do you mean?

7 A. Positions bought by the individuals in the trading room for

8 Bernie.

9 Q. What was Madoff Securities reflecting as the owner of the

10 stock that was provided by Mr. Levy?

11 A. They were reflecting that they owned it.

12 Q. "They" being who?

13 A. The firm.

14 Q. Who in fact owned Mr. Levy's securities?

15 A. Mr. Levy.

16 Q. Was it accurate to say that the firm owned those

17 securities?

18 A. It was not.

19 Q. From time to time did Madoff Securities also receive stocks

20 and other securities from an individual named Carl Shapiro?

21 A. Yes.

22 Q. Can you describe how that would occur, generally.

23 A. Typically, Mr. Shapiro had holdings in other areas away and

24 apart from the Madoff investments. Very often he had holdings

25 in U.S. government agency securities. You heard the name

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1 Fannie Mae, Freddie Mac, Federal Home Loan. Those are agency

2 securities. For this discussion we will refer to them as

3 treasury securities, because they are essentially similar. He

4 had holdings at other brokerage accounts of treasury

5 securities.

6 In lieu of increasing the holdings at Madoff by wiring

7 to Bernie dollars, Bernie and Mr. Shapiro had an understanding

8 that Mr. Shapiro would send in treasury securities.

9 MR. FRISCH: Objection. Move to strike.

10 THE COURT: Do you want to reformulate or consult?

11 MR. ZACH: I can lay a foundation.

12 Q. Where did you gain this understanding from?

13 A. From Bernie.

14 Q. Discussions you had with Mr. Madoff?

15 A. Yes.

16 Q. Did you gain this understanding from observing how this was

17 actually done in the office?

18 A. Yes.

19 Q. Continue describing.

20 A. Mr. Madoff and Mr. Shapiro had an understanding that in

21 lieu of sending hard dollars into his investment accounts at

22 Madoff, Mr. Madoff was going to permit him to send securities

23 into his Madoff account. That's done all the time with

24 brokerage firms. What the securities that enter the brokerage

25 account accomplish is it increases the client's ability to

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1 purchase more securities, in essence the same thing that cash

2 would have done.

3 The client is at an advantage when he does something

4 like that because instead of mailing a check for a million

5 dollars to a broker who is then going to buy stock with

6 that million, he sends in bonds for a million dollars, which

7 the broker will buy stock for that million, and he still

8 collects the interest on the note that he owns.

9 It is a way of enhancing one's return. It happens all

10 the time, and it's in the best interest of an astute client to

11 do that, depending on interest rates and things like that. But

12 it's a common practice.

13 Q. From time to time Mr. Shapiro would send in securities that

14 would be, instead of sending in cash, to increase the value of

15 his account?

16 A. To increase the buying power of his account, exactly.

17 Q. Who were some of the people that participated in taking in

18 those securities?

19 A. The cage, Mr. Bonventre, Annette, Bernie, myself.

20 Q. Those securities belonged to Mr. Shapiro?

21 A. Oh, yes.

22 Q. Once they were at Madoff Securities, they still belonged to

23 Mr. Shapiro?

24 A. Yes.

25 Q. Did you have an understanding of how those securities were

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1 then used by Madoff Securities?

2 A. After they were posted to Mr. Shapiro's account at Madoff

3 reflecting his holdings at Madoff Securities, those very same

4 securities were left at the clearing organization and they were

5 pledged for bank loans. They were also booked into the books

6 and records of the business and wound up to be an asset.

7 Q. When you say they were pledged as bank loans, who was

8 seeking the bank loan?

9 A. Mr. Bonventre.

10 Q. On behalf of what institution?

11 A. Bernie.

12 Q. Did Madoff Securities actually own those bonds?

13 A. Not to my knowledge.

14 Q. Let me bring up what is in evidence as 105-A460. Do you

15 recognize some of the names on this document?

16 A. I do.

17 Q. Do you see there is a fax line across the top?

18 A. I do.

19 Q. Who is this fax from?

20 A. Wellsley Capital Management.

21 Q. What was Wellsley Capital Management?

22 A. That was the family office of Carl Shapiro.

23 Q. Do you see there are some names?

24 A. I do.

25 Q. What are the names?

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1 A. Carl Shapiro, Rhonda Siegel, Ellen Jaffe, Linda Strauss,

2 Jennifer Siegel Trust, Jonathan Siegel Trust.

3 Q. Next to those names do you see account numbers?

4 A. I do.

5 Q. What were those account numbers associated with? Who were

6 those account numbers associated with?

7 A. Those are not my account numbers. They are next to each

8 name. I'll assume they were associated with that name, but

9 those are not Madoff account numbers.

10 Q. Looking at the top right of the document, do you see there

11 is some handwriting?

12 A. I do.

13 Q. Do you know whose handwriting that is?

14 A. Annette's.

15 Q. There are three names, can you read those?

16 A. Bernie, Danny, Frank.

17 Q. Is the Frank you?

18 A. Yes.

19 Q. What are the securities that are on this document?

20 A. Various treasury instruments. It looks like all treasury

21 notes.

22 Q. Do you know who those notes belong to?

23 A. Yes.

24 Q. Who do they belong to?

25 A. Carl Shapiro and the related entities.

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1 Q. Do you have an understanding of what some of these

2 securities were used to get on behalf of Madoff Securities?

3 A. I don't understand the question.

4 Q. Were these the types of securities that were pledged by

5 Madoff Securities to obtain loans?

6 A. I believe they were.

7 Q. What was your understanding of why these loans were needed

8 from time to time?

9 A. To replenish the plans in the IA checking account.

10 Q. We can take that down. Now, Mr. DiPascali, I want to turn

11 again to an individual named Norman Levy. Before we leave Mr.

12 Shapiro, who managed Mr. Shapiro's accounts?

13 A. Annette.

14 Q. That was actually Ms. Bongiorno's handwriting that we just

15 saw?

16 A. Those three names?

17 Q. Yes.

18 A. Yes, it was.

19 Q. Who handled Norman Levy's accounts?

20 A. Annette.

21 Q. Did Mr. Levy have any children?

22 A. Two, I believe.

23 Q. Do you recall what their names were?

24 A. Francis and Jean, Francis being a gentleman, Jean being a

25 woman.

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1 Q. Did there come a time that you learned there were efforts

2 to make a transfer of wealth from Mr. Levy to his children?

3 A. Yes.

4 Q. How did you learn about those efforts?

5 A. Through Bernie.

6 Q. When you say through Bernie, do you mean through

7 discussions with Mr. Madoff?

8 A. Yes.

9 Q. Did Mr. Madoff describe to you how this transfer was going

10 to be made?

11 A. Yes.

12 Q. Could you tell us how this transfer of wealth was going to

13 be made from Norman Levy to his two children.

14 A. Mr. Levy had various accounts with the firm. The children

15 also had accounts. What they were going to do is they were

16 going to create two accounts, one for each of the children

17 going back in time. They were going to then backdate a

18 transfer from Mr. Levy to the first child and from Mr. Levy to

19 the second child. At that point each child's new account has

20 been funded.

21 They were going to then research securities that had

22 gone up tremendously in value and they were going to use funds

23 put into each of the children's accounts to put through

24 fictitious tickets to purchase securities that had risen. At

25 that stage you had children in long positions that have

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1 possibly doubled or even more.

2 Mr. Levy's account, and I believe they also used a new

3 account backdated, was simply going to show a transfer to each

4 of the children. Because a simple transfer to the children

5 would still be possibly a taxable event, the children needed to

6 pay their father interest so it could be shown as a loan. Each

7 statement going forward from this originating point had an

8 interest payment going from the children back to Mr. Levy.

9 At the end of the day and after time goes on, Mr. Levy

10 is basically -- well, there is one step I missed. At some

11 point in time the security positions have risen so much in

12 value, they were either sold or they simply transferred money

13 back from the kids to Mr. Levy to pay down the loan. So he has

14 funded these fictitious accounts backdated and now he has been

15 repaid. Then there was some ancillary trades that made him

16 whole economically, so he was out of the picture.

17 The net result was at the end of the day you had these

18 two accounts that had never existed before that were worth

19 hundreds of millions of dollars, in effect saving Mr. Levy the

20 transfer. If he dies, there is an estate tax. If he gives the

21 money to the kids, there is a gift tax. It is a large tax.

22 So, in an effort to not pay that tax, they backdated all of

23 this stuff and made the kids very wealthy, and there was no tax

24 consequence of that effort.

25 Q. Who was involved in setting up this transfer of wealth to

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1 these children?

2 A. Bernie and Annette.

3 Q. Were the trades that were done to make this transfer of

4 wealth to these children real?

5 A. Yes. I'm sorry. Excuse me. No.

6 Q. These trades never actually happened, right?

7 A. The trades never happened.

8 Q. Were the trades ones that were plucked from the past?

9 A. Yes.

10 Q. Was the net effect of this to make Mr. Levy avoid having to

11 pay taxes or his children pay taxes on the transfer of hundreds

12 of millions of dollars in wealth?

13 A. I'm not that well versed in the tax code, but it was done

14 to avoid the payment of taxes. I'm not sure who would be

15 responsible, the giver or the receiver. But yes.

16 Q. Did you provide any information in connection with --

17 A. I did.

18 Q. What did you provide?

19 A. I said before there was some kind of balancing act

20 ancillary trades that had to be done for Mr. Levy. When Mr.

21 Levy did the transfer to his children, it was just a book entry

22 movement of money from place A to place B. His account then

23 had a debit balance, so the firm charged him interest on that

24 debit balance. In order to make him whole, I was instructed to

25 write some option tickets that would make up that interest

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1 payment. At the end of that process, he had virtually no

2 expense of doing this shenanigans.

3 Q. Those options trades that you generated, were those real?

4 A. No.

5 Q. When you generated those to assist with this project, did

6 you know what you were doing was wrong?

7 A. Yes.

8 Q. Did you know you were committing fraud when you generated

9 those options?

10 A. Yes.

11 Q. Can you remind us who Tony Tiletnick was.

12 A. Tony Tiletnick was one of the guys in our cage, which was

13 part of our back office. I guess if he needed a title, he

14 would be like the senior delivery guy. He was Walter

15 Tiletnick's brother who was our receive guy back in the day.

16 Q. How long had Tony Tiletnick worked at Madoff Securities as

17 of the late '90s?

18 A. As of the late '90s, I guess around -- he started before

19 me. My point of reference is 1975. He was there when I got

20 there. So at least 25 years as of the late '90's.

21 Q. He had been there before you?

22 A. Yes.

23 Q. What were some of the responsibilities that Mr. Tony

24 Tiletnick had in the cage?

25 A. Dealt with the banks, dealt with the clearing

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1 organizations, dealt with other brokers.

2 Q. Sorry?

3 A. Dealt with other brokers and their back office, and was

4 also in charge or had some role in the stock borrowing stock

5 lending environment.

6 Q. Who was Mr. Tiletnick's boss?

7 A. Danny.

8 Q. Did there come a time that Tony Tiletnick, Mr. Tiletnick,

9 passed away?

10 A. Yes.

11 Q. When did he pass away?

12 A. I think it was like 2000.

13 Q. How did you learn that Mr. Tiletnick had died?

14 A. I got a phonecall from Erin Reardon.

15 Q. After you received that phonecall, did you participate in

16 any meetings?

17 A. The purpose of the phonecall was to tell me that Tony died

18 and that Bernie wanted to see me immediately.

19 Q. Did you go and meet with Mr. Madoff?

20 A. I did.

21 Q. Who was at the meeting with Mr. Madoff?

22 A. Mr. Bonventre, because the meeting was in his office.

23 Q. What was the discussion at this meeting?

24 A. Tony had a role also in investing the excess funds in the

25 IA checking account. He had access to those numbers. He

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1 worked with those numbers. And for a long period of time he

2 was working with the bank in determining what balance would be

3 a comfortable balance to have, and anything over that number

4 should be put into something that paid an interest rate higher

5 than the checking account balance. So he was investing, if you

6 will, the excess checking account balance in short-term

7 instruments.

8 MR. FRISCH: Your Honor, may I confer with Mr. Zach

9 for a moment to anticipate an objection?

10 THE COURT: Yes.

11 (Counsel conferred.)

12 MR. FRISCH: Your Honor, I think we resolved it. We

13 will see how it goes.

14 THE COURT: Thank you.

15 Q. Mr. DiPascali, at this meeting did Mr. Madoff discuss the

16 types of securities that Mr. Tiletnick had been investing the

17 703 account in to make short-term interest?

18 A. It was the topic of the meeting.

19 Q. Did Mr. Madoff have concerns about the securities that Mr.

20 Tiletnick had been investing?

21 A. My understanding was that Tony was buying some short-term

22 CDs issued by our bank. However, a lot, if not all, of the

23 paper that was in place at that time when Tony died was in fact

24 not issued by the core banking organization here in New York

25 but by offshore subsidiaries designed for banking purposes.

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1 Bernie's feeling was that that was very risky. He was upset.

2 He claimed he had not known that Tony had been doing this all

3 of these months or years.

4 Q. Just so we are clear, we are talking about the Chase 703

5 account, right?

6 A. Correct.

7 Q. The Chase 703 account was the main checking account for the

8 investment advisory business, right?

9 A. It was.

10 Q. The securities that were being purchased by Mr. Tiletnick

11 were a way of earning interest on that checking account, right?

12 A. It was.

13 Q. These were real securities that we are talking about?

14 A. These CDs were issues of offshore entities of our bank.

15 Q. Did Mr. Madoff propose a solution for how to deal with

16 this?

17 A. He either already had an account or two open or was about

18 to open a new account or a series of them, I don't recall. He

19 was basically giving that responsibility to me. He wanted

20 treasury notes, treasury bills only. As the CDs would get

21 unwound or, I don't remember, they might have unwound them

22 immediately, I'm not sure, but in short order I managed a group

23 of Bernard L. Madoff brokerage accounts that were held at other

24 brokerage firms for the purpose of purchasing short-term U.S.

25 government securities.

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1 Q. These short-term U.S. securities were real, right?

2 A. Yes.

3 Q. This was just a way of getting interest on the real cash

4 that was in the 703 account?

5 A. Yes.

6 Q. What were some of the firms that you now had responsibility

7 for that had these brokerage accounts?

8 A. Bear Stearns, Fidelity, Bank of New York, Morgan Stanley,

9 Lehman Brothers.

10 Q. We talked a little bit about this earlier, when you were

11 buying these short-term securities, what steps would you have

12 to take to buy these real securities on those brokerage

13 accounts?

14 A. I typically picked up the phone and called the broker or

15 the representative of each of those organizations and

16 communicated my needs. Then he typically got or she typically

17 got back to me and told me what I had done. Sometimes those

18 conversations occurred in the form of faxes. Most of the time

19 they were on the telephone.

20 Q. This was different than just looking at historical prices

21 and writing something up for the fake trades, right?

22 A. Yes.

23 Q. Prior to taking on this responsibility with respect to the

24 treasuries, had you had much involvement with the Chase 703

25 account?

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1 A. No.

2 Q. Had you, in working there, observed who was responsible for

3 the Chase 703 account?

4 A. Yes.

5 Q. Who had you observed was in charge of overseeing the Chase

6 703 account?

7 A. At what point of time?

8 Q. How far back do you remember?

9 A. 1975.

10 Q. Start at 1975.

11 A. There was no Chase 703 account. There was a National Bank

12 of North America. Without going into the gory details, banks

13 started to swallow up each other. At one point, and I think it

14 was in the '80s, we might have had six or seven banks, and I'm

15 not sure who was in charge of what. Then eventually Chase,

16 JPMorgan Chase, was the last man standing. They had swallowed

17 Manny Hanny, they swallowed up Chemical, and so on.

18 The IA checkbook, ever since I was 19, was always

19 referred to Annette's checkbook. So whatever specific bank

20 account was the IA checkbook, Annette was in control of it.

21 There came a time where Jodi assumed that responsibility and it

22 became Jodi's checkbook. In the normal, what is the term,

23 colloquialism, it would be Jodi's checkbook. Some people even

24 still referred to it as Annette's checkbook, but that's who was

25 in charge of it.

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1 Q. Who was it that reconciled the checkbook?

2 A. Ruth Madoff and Dan Bonventre.

3 Q. In working there at Madoff Securities, did you observe who

4 would get copies of the 703 account checking statements?

5 A. Dan.

6 Q. So we are clear, even though it is a big checking account,

7 would those be checking statements just like an individual

8 would get from their bank?

9 A. Yes, exactly the same.

10 Q. Did you observe where Mr. Bonventre kept those statements?

11 A. The canceled checks were enclosed in a rubber band. They

12 used to wrap the 4, 5, 6, 42 pages of statement around those

13 canceled checks, put on a couple of rubber bands, and they were

14 in the drawer in his credenza behind his desk.

15 Q. How long do you remember him getting copies of those

16 statements?

17 A. He wasn't getting the copy. He had the original.

18 Q. How far back was he getting them?

19 A. For as long as I can remember.

20 Q. This is the Chase 703 account for the IA business?

21 A. Correct.

22 Q. Mr. DiPascali, after you started managing the treasury

23 securities for the 703 account, did you get requests from time

24 to time about taking money out of the 703 account and moving it

25 elsewhere in the business?

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1 A. Yes.

2 Q. Who would approach you with those requests?

3 A. Enrica Cotellessa-Pitz.

4 Q. What was Ms. Cotellessa-Pitz's position at the firm?

5 A. Controller.

6 Q. How often would you get these requests from Ms.

7 Cotellessa-Pitz?

8 A. We would communicate on that topic every month.

9 Q. What would those discussions be like?

10 A. Hey, can you give me money? Or I'm going to need money

11 this month. Or Bernie said to do this. Or I'd like to be able

12 to do that. Or I just took a look at this and I think I'm

13 going to need. She was trying to get a feel for whether I had

14 funds available that I could give her.

15 Q. Where was that 703 money being transferred to?

16 A. Funds that I event usefully gave her each month or some

17 months?

18 Q. Yes.

19 A. Moved to the business.

20 Q. When you say business, were there some accounts that were

21 associated with the business?

22 A. Bank of New York operating account was the business

23 account.

24 Q. Did you have an understanding of the relationship between

25 the 703 account and the BONY account?

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1 A. Yes.

2 Q. How you get that understanding?

3 A. Through Tony and Bernie and Danny and everyone else who had

4 an understanding of what I understood.

5 Q. What was your understanding of the relationship between the

6 703 account, the IA business, and the BONY account?

7 A. They could never talk to each other.

8 Q. What did you understand it to mean, that they could never

9 talk to each other?

10 A. We could never have an entry on the statement or avoid at

11 all costs an entry on the business statement that said that

12 money was being transferred into from the IA account checkbook.

13 That would have been a real bad no-no.

14 Q. What was your understanding of why that would be a real bad

15 no-no?

16 A. Because he wasn't showing anything that checkbook.

17 Q. Who wasn't showing anybody?

18 A. Bernie.

19 Q. Overtime did you work with others at the firm to develop

20 ways to transfer money from the 703 IA account to the BONY

21 business account that hid those transfers?

22 A. Yes.

23 Q. Who did you work with over that time to develop ways of

24 doing that?

25 A. Bernie, Danny, Enrica, my London office or Bernie's London

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1 office, and I utilized some people on my staff.

2 Q. When you worked on developing ways to do that, did you know

3 that what you were doing was wrong?

4 A. Yes.

5 Q. Did you know that you were committing a fraud?

6 A. Yes.

7 Q. Are you familiar with the term "CP adjustment"?

8 A. Somewhat.

9 Q. Where did you hear that term being used around the firm?

10 A. It was a phrase I heard from people in the back office that

11 had access to or were somehow responsible for the books and

12 records of the firm.

13 Q. Who were some of those people?

14 A. Danny, Enrica, Irwin Lipkin, Bernie.

15 Q. Did you have an understanding, Mr. DiPascali, of how Madoff

16 Securities was organized to pay its taxes?

17 A. Yes.

18 Q. What did you understand that to be, briefly?

19 A. For a number of years, I think since its inception, Bernie

20 was a sole proprietor. Then he became what is known as an LLC.

21 More importantly, he was a single-member LLC. In effect, he

22 owned the whole shooting match. I think the way his taxes were

23 handled was the income or the profit or loss of the business,

24 since he owned entirely the whole thing, would simply be a

25 couple of line items on his personal joint tax return. That

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1 was my understanding.

2 Q. Did you learn of any tax audits that were being done from

3 time to time of Mr. Madoff and of the firm?

4 A. Yes.

5 Q. When you learned of those, did you ever have discussions

6 with Mr. O'Hara about those tax audits?

7 A. Yes.

8 Q. Do you recall when you spoke to Mr. O'Hara about those tax

9 audits?

10 A. In the 2000s, but I don't recall exactly when.

11 Q. When these tax audits occurred, what was your understanding

12 of the number of years that the audits were for?

13 A. I don't remember.

14 Q. Do you recall where you had the conversation with Mr.

15 O'Hara about the tax audits?

16 A. His office.

17 Q. Can you describe how the topic came up.

18 A. I had given the boys, or Jerry and George, certain things

19 that needed to be done, and I think I was checking on the

20 status of it. He had gotten sidetracked by having to handle

21 something for Danny, and he explained, I'll get to it when I'm

22 done with this happy crap I'm doing for Danny.

23 Q. When he said he would get to it, are you talking about the

24 work you wanted to give to him?

25 A. He was going to get to my work after he finished up

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1 whatever he was doing for Danny.

2 Q. Did you have a discussion about what Mr. O'Hara was doing

3 for Mr. Bonventre?

4 A. Yes.

5 Q. Were there papers on the desk when that discussion took

6 place?

7 A. There were always papers on Jerry's desk.

8 Q. What did Mr. O'Hara say he was doing for Mr. Bonventre in

9 connection with these tax audits?

10 A. Making adjustments to the general ledger of the business.

11 Q. For what purpose?

12 MR. MEHLER: Objection.

13 THE COURT: Reformulate to specify what, if anything,

14 was said.

15 MR. ZACH: I can rephrase, your Honor.

16 BY MR. MEHLER:

17 Q. What did he say that he was doing?

18 A. He said he was making adjustments to the general ledger for

19 Danny.

20 Q. Did he show you anything?

21 A. I don't recall if he showed me the general ledger.

22 Q. Did you observe any of the documents that were out in front

23 of him?

24 A. It was the general ledger and there was handwritten notes

25 on it.

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1 Q. Could you read the notes?

2 A. I don't remember if I read them then.

3 Q. Could you recognize whose handwriting they were?

4 A. Could I?

5 Q. Yes.

6 A. Sure.

7 Q. Did you at the time recognize the handwriting?

8 A. I never made mental note of that's Jerry's handwriting. I

9 don't know.

10 Q. Were you involved in the tax audits?

11 A. No.

12 Q. Did you have an understanding of some of the folks that

13 were involved in dealing with the tax audits?

14 A. Yes.

15 Q. Who were some of those folks?

16 A. Dan Pennachio was how I found out there was a tax audit

17 occurring.

18 Q. Who was Dan Pennachio?

19 A. He was one of the fellows up on the 18th floor that was in

20 charge of accounts payable.

21 Q. Who did he work for?

22 A. Dan Bonventre.

23 Q. Now I would like to turn to a different topic. In the late

24 1990s and in the early 2000s did Madoff Securities maintain

25 trade blotters and other records for the IA business?

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1 A. Yes.

2 Q. Could you describe what a trade blotter is.

3 A. It's a set of books and records that illustrates the

4 specifics of a particular transaction. The way these blotters

5 were set up, you had information pertaining to a trade: The

6 trade date, the settlement date, the transaction number, the

7 security name, the CUSIP number. The price, there might be

8 some other notations on this line item. Each line item was a

9 separate and distinct trade from the one below it.

10 Q. Were there other records that were maintained for the IA

11 business that were similar to the trade blotter or the books

12 and records?

13 A. Yes, there were books and records of the IA. I don't know

14 if any of them were similar to a trade blotter.

15 Q. Just generally the types of other documents that were

16 maintained, could you say what they were?

17 A. There is a customer ledger, which is in essence the

18 information that feeds the customer statement. Again, there

19 are the trade blotters, there are stock records. There's all

20 sorts of different edit lists that come in and out so you can

21 balance.

22 For the IA business there was the portfolio management

23 report and the reports that fed that document, and there was a

24 thing called a long position report, which was a pricing

25 mechanism and a way to keep track of who owned what without

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1 actually pulling the statement.

2 Q. All of those records of the IA business, were any of the

3 securities reflected on these documents real?

4 A. No.

5 Q. Let's look at an example of one of these. Can we pull up,

6 Ms. Baskin, Government Exhibit 102-572. Looking at the top

7 left of this document, what is the title of it?

8 A. Trade date blotters House 17.

9 Q. House 17 is what?

10 A. That's the computer house that the IA business was resident

11 in.

12 Q. What was the computer house that the market-making and

13 proprietary trading business was resident in?

14 A. House 05.

15 Q. Now let's take as an example the first line. Please blow

16 up the first lines with the titles in place, Ms. Baskin. Go

17 down. That's great. Thank you.

18 Can you tell us what the first date is on the left-

19 hand side.

20 A. It's the trade date.

21 Q. That's underneath the T/DZ?

22 A. That's trade date, yes.

23 Q. What is the next date?

24 A. The next date is the settlement date, which is the same

25 because of the security type.

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1 Q. What is the security type listed here?

2 A. It's a money market instrument of Fidelity.

3 Q. Do you see there is a similar entry below it?

4 A. Yes.

5 Q. Do you see at the top it says "clearing bank"?

6 A. Yes.

7 Q. What is a clearing bank?

8 A. I don't know.

9 Q. What was your understanding of why the term "clearing bank"

10 was on this document?

11 A. My understanding is that the computerization of the firm

12 which occurred in the late '70s was the backbone for the

13 computerized records that were produced or the software that

14 was written for the IA business. In the real world, when a

15 broker does a trade, he records it as what he did. That would

16 be that top group of information, in this case what you did for

17 a customer.

18 There would be another side to that. You would see

19 that if you bought 600X, you bought them from Smith Barney, if

20 you sold 500Y, you sold them to Merrill Lynch, there would be

21 the reference of your counterparty, if you will, on your

22 blotter. Since these blotters were designed for the IA

23 business and since there were no counterparties, because the

24 trades never existed, the term "clearing bank" I believe was

25 just a filler. It was a place to put something for the

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1 accounting to balance.

2 These blotters are showing you on the top block that

3 the customer AHT Partners transacted a money market instrument

4 on 12/31. It is saying the opposite side of that trade, or the

5 counterparty, is this nebulous thing called clearing bank. I

6 don't know where that term came from. This was written into

7 software before my time, or when I wasn't paying attention, in

8 the late '70s.

9 THE COURT: Mr. DiPascali, can you back off the mic

10 just a little bit. Not too far away.

11 THE WITNESS: I'm sorry.

12 THE COURT: Thank you.

13 Q. Mr. DiPascali, in the real world you would have a trans-

14 action and its counterparty, right?

15 A. Your counterparty needs to be on your blotter.

16 Q. Since there is no counterparty here, "clearing bank" was a

17 filler term used for certain versions of these blotters as sort

18 of a placeholder?

19 A. I believe so.

20 Q. We can take that down. Now, over time going into the

21 2000s, did you work to make multiple different versions of

22 these trading blotters?

23 A. Too many to count.

24 Q. When you made these different versions, were they meant to

25 sort of satisfy the eyes of various different auditors and

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1 regulators?

2 A. Yes.

3 Q. What individuals did you work with to make those multiple

4 different versions of the blotters as you went into the 2000s?

5 A. Bernie, Jodi, Jerry, George.

6 Q. When you say Jerry and George, who are you referring to?

7 A. Jerry O'Hara and George Perez.

8 MR. ZACH: Your Honor, it is 5 to. This would be a

9 good stopping place.

10 THE COURT: Very well. Thank you. We will begin our

11 lunch break at this time and we will resume at 2 o'clock for

12 further testimony. Members of the jury, thank you for your

13 attentive work this morning. Please continue to keep your

14 thoughts to yourselves and stay away from outside information

15 and enjoy your lunch break.

16 All rise. Ms. Ng, would you escort the jury out,

17 please. Mr. DiPascali, you may step down. Thank you. See you

18 at 2:00.

19 (Jury not present)

20 THE COURT: Mr. Jackson.

21 MR. JACKSON: Judge, I don't have a real application.

22 I just wanted to ask if I could confer with defense counsel

23 before everyone left for lunch for about 45 seconds in the

24 corner after we are dismissed.

25 THE COURT: Assuming there is no objection from the

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1 defense.

2 MR. KRANTZ: I don't think he needs Court permission

3 for that, Judge.

4 MR. JACKSON: I didn't want everyone to run out. I

5 also thank the Court for its kind words to the students.

6 THE COURT: In my business it is always wise to tell

7 the truth.

8 (Luncheon recess)

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1 A F T E R N O O N S E S S I O N

2 2:07 P.M.

3 THE COURT: Good afternoon. Please be seated.

4 Ms. Ng, would you bring the jury in, please.

5 MR. BRESLIN: Is the no-jacket rule still in effect?

6 THE COURT: Yes. It so varies, anytime you need to,

7 don't worry about asking.

8 (Jury enters)

9 Good afternoon, members of the jury. Please take your

10 seats. Please be seated, everyone. Mr. Zach.

11 MR. ZACH: Thank you, your Honor.

12 BY MR. ZACH:

13 Q. Mr. DiPascali, we were speaking about blotters right before

14 we broke for lunch, right?

15 A. Yes, sir.

16 Q. I want to actually take a quick step back to the discussion

17 that -- the testimony you provided about Norman Levy and the

18 transfers to his to children. Do you recall that?

19 A. I do.

20 Q. And that was a transfer of hundreds of millions of dollars

21 from Mr. Levy to his children in order to avoid paying certain

22 taxes; do you recall testifying about that?

23 A. Yes, I do.

24 Q. And you said that you participated by providing certain

25 options and securities to go into that transaction?

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1 A. I think so, yes.

2 Q. I'd like to show you what's in evidence as Government

3 Exhibit 105-B25.

4 MR. RIOPELLE: What was that letter, again?

5 MR. ZACH: B, as in boy.

6 Q. First, just looking at this document, do you recognize the

7 handwriting?

8 A. I do.

9 Q. And whose handwriting is it?

10 A. Annette's.

11 Q. And can you read what the names are at the very top of the

12 page?

13 A. It says M. Levy, 101; Francis Levy, 102; Jean, 103.

14 Q. And that's in Ms. Bongiorno's handwriting?

15 A. Correct.

16 Q. And, Ms. Baskin, can we blow up from the "in February '96"

17 all the way down to the "3." There we go. And do you

18 recognize that handwriting?

19 A. It is also Annette's.

20 Q. Mr. DiPascali, can you read what Ms. Bongiorno wrote there?

21 A. In Feb '96, Bernie's -- I think that word would be

22 instruction -- i-n-s-t, Norman will lend F and J 200 million

23 each. One, open three new accounts January 1, 1995. Two,

24 transfer 200 million to F and 200 million to J. Three, kids

25 pay monthly loan interest to N at a half percent higher than

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1 margin on 200 million. I think that is, constant figure, in

2 brackets. Norman gets -- or Norman get regular, or reg, margin

3 interest charged to his account.

4 Q. So stopping there, what were the initials of Mr. Levy's two

5 children?

6 A. F and J.

7 Q. Do you see initials like that on this document?

8 A. I do.

9 Q. Is that where it says Norman will lend F and J 200 million

10 each?

11 A. That's correct.

12 Q. Ms. Baskin, can we pull out and now blow up the bottom part

13 of this. Mr. DiPascali, you see there is more writing next to

14 the four, five and six?

15 A. Yes.

16 Q. Whose handwriting is that?

17 A. Annette's.

18 Q. And can you read what Ms. Bongiorno wrote there?

19 A. Kids make enough gains to cover loan interest by -- I can't

20 make out that next work -- some positions near year end, in

21 brackets. Five, kids pay Norman back full loan 12-31-95 and

22 end up with a debit balance. Frank does option gains to offset

23 margin interest for kids and option loss to offset loan

24 interest for Norman.

25 Q. Now, pulling out of that, can we go to the next page. Do

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1 you recognize generally whose handwriting is on there?

2 A. It's Annette's.

3 Q. And going back to the first page, having read those points,

4 how does that relate to what your understanding was of this

5 transaction?

6 A. It's virtually identical.

7 Q. For the "Frank does options gains," did you, in fact, put

8 those through as part of this process?

9 A. I think I did.

10 Q. And who did you give them to?

11 A. Annette.

12 Q. And were those fake trades?

13 A. Yes.

14 Q. And the rest of this description, does this match up with

15 your recollection of how this transfer of wealth through fake

16 trading was discussed among Mr. Madoff, Ms. Bongiorno and

17 yourself at this time?

18 A. Yes.

19 Q. We can take that down. Now, returning to discussion of

20 blotters, in the early 2000s did you have conversations with

21 Mr. Madoff about the need to produce new -- or to produce

22 blotters that reflected the activities of the investment

23 advisory?

24 A. Yes.

25 Q. When did you have those discussions?

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1 A. In the early 2000s.

2 Q. And what was the substance of those discussions?

3 A. Bernie was very uncomfortable with the formatting of the

4 blotters that were historically produced. Trade blotters were

5 produced automatically in our system every time a fictitious

6 ticket went through and you processed the trading of that

7 ticket, certain support documents were created. Trade blotters

8 being one of them.

9 The trade blotters that were -- the software for the

10 trade blotter production that was in the system prior to the

11 early 2000s was not in a format anywhere near what he could

12 ever show someone because it had those entries on it, as we saw

13 before, called clearing banks which would, obviously, bode the

14 question, who is clearing bank? And there's no answer to that.

15 So he was starting to get really anxious about having

16 me create support documentation in case someone came in the

17 door, where he could show a set of books and records that were

18 believable, and instructed me to start looking into what we

19 should start to do.

20 Q. And as -- based on those discussions, did you set about

21 working on different sets of blotters to meet that request?

22 A. Yes.

23 Q. Who did you work with on that?

24 A. George Perez and Jerry O'Hara.

25 Q. So let's start with -- let's call back up 102-572,

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1 Ms. Baskin. And can we kind of do what we did last time, where

2 we're blowing up maybe the first three or so? That's great.

3 Thank you. So this is what we looked at before lunch, right?

4 A. That is correct.

5 Q. And what's the year on this version?

6 A. 2006.

7 Q. Now, I'd like to show -- and does this have that clearing

8 bank that you've been discussing?

9 A. It does.

10 Q. Ms. Baskin, can we highlight the clearing bank. Now, I'd

11 like to pull up what's in evidence as Government

12 Exhibit 102-570. Now, do you recognize what this document is?

13 A. Yes.

14 Q. What is it?

15 A. It's another version of a trade blotter.

16 Q. Can we do the same thing that we'd done with the prior one,

17 and blow up the first -- maybe one more down. So first, when

18 is this blotter dated?

19 A. It's dated 5-27-03.

20 Q. And as we discussed about this, did you guys have multiple

21 versions of the blotters running all the time?

22 A. Too many to remember.

23 Q. So you didn't just stick with one blotter, you had a whole

24 different series of versions that were being produced?

25 A. There were multiple versions being produced at the same

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1 time, and over the years, there were many different versions of

2 those multiple versions.

3 Q. So let's spend a little while looking at 102-570. This one

4 is dated what, sir?

5 A. 5-27-03.

6 Q. Can we highlight that, Ms. Baskin. Now, let's look at the

7 first entry on this blotter. Do you see the entry numbered

8 6928?

9 A. I do.

10 Q. What -- and that's going across the first row, right?

11 A. That's correct.

12 Q. What does this -- well, let's start at the very left. What

13 does the 5/27 represent?

14 A. The trade date of May 27th, 2003.

15 Q. And after that, is there a settlement date?

16 A. Yes.

17 Q. And what is the settlement date?

18 A. May 30th, 2003.

19 Q. And what type of purchase does this reflect?

20 A. Which entry, the top one?

21 Q. Yeah, the -- well, who's the -- what individual's named

22 there or what is the name there?

23 A. James Cable and Company.

24 Q. And what is that?

25 A. It's a dealer in London, I believe.

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1 Q. And if you look, what kind of security has been purchased?

2 A. Oracle Corporation.

3 Q. Now, this is not a real purchase, right?

4 A. No.

5 Q. It's just for purposes of being listed on here? It's a

6 false entry on this document?

7 A. That's correct.

8 Q. Now, previously, we saw the counterparty was a clearing

9 bank, right?

10 A. That's correct.

11 Q. What is the counterparty listed on this version?

12 A. On this version what you're looking at, where you see James

13 Cable, and what you see Burns Frye, the fourth entry down, they

14 are the theoretical counterparties. The two entries, which

15 would be No. 2 and No. 4, say M-S-I-L, slash, M-a-d-o-f-f.

16 Those would be the primary broker-dealer business.

17 Q. So can you describe first how the counterparties -- where

18 those counterparties come from?

19 A. They came from a list of dealers that we were dealing with

20 in London and other dealers that Bernie liked the name of. He

21 gave me a list of people when we got to the point of assigning

22 counterparties randomly to my blotters, and we worked off his

23 list. Some of which came from some Lotus notes database in

24 London, some of it came from his phone book directory, some of

25 it came from names that he had just know -- that he knew did

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1 business of the nature that we were trying to present in

2 London.

3 Q. Okay. And so how is it that these count -- so let's

4 highlight those names if we can, Ms. Baskin. The James -- how

5 do you say that?

6 A. Cable.

7 Q. And another counterparty is Burns Fry, LTD, London?

8 A. That is correct.

9 Q. And what does the MSIL/Madoff represent?

10 A. Well, it can represent anything you want it to represent.

11 It could be Madoff Securities International in London, it could

12 be Madoff in New York, or it could be some bizarre combination

13 of both.

14 Q. And how was it that the foreign counterparties, the Cable

15 and the Burns Fry, how is it that they are -- how are they

16 entered onto this document?

17 A. Randomly.

18 Q. When you say randomly, what randomly inserts it into there?

19 A. A software program designed to pick out of a barrel a list

20 of names we gave it that had account numbers associated with

21 it.

22 Q. And who wrote the programs to randomly put in those

23 counterparties?

24 A. I believe George did.

25 Q. When you say George, you're referring to Mr. Perez?

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1 A. Correct.

2 Q. Now, in the real world, if the stock was really being

3 purchased, there would be a transaction between Madoff and a

4 real entity in the world, right?

5 A. Sure.

6 Q. And on a real record, that real transaction would work its

7 way -- they're matched together because the transaction

8 actually happened, right?

9 A. You would have the finite data at the point the trade was

10 done.

11 Q. And did you have -- Because these trades were all fake, was

12 that available?

13 A. No.

14 Q. So what had to be instituted instead?

15 A. You needed to create it. You needed to pick at random a

16 counterparty that you were going to place on the blotter to

17 give the impression that the trade actually existed.

18 Q. Now, I'd like to take this down. Well, keep that up,

19 actually. I just want to compare this to -- and split screen,

20 Ms. Baskin -- to 102-572, if we can.

21 So Mr. DiPascali, just taking the transaction 6928 at

22 the top and transaction 16732 at the bottom --

23 A. Mmm, hmm.

24 Q. -- can you just explain to us how they're different?

25 A. Well, on the bottom document, AHT Partners is a client of

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1 Madoff. We put through a fictitious ticket where he transacted

2 or this entity transacted 16,732 shares of Fidelity; so that's

3 the line item that you see there in that block of information

4 for AHT partners. It shows the money and it shows the trade

5 date.

6 Automatically, in our system when that is entered, the

7 computer was taught to simply create another side, and that's

8 the entry called clearing banks. You'll notice that AHT

9 Partners has a typical alphanumeric Madoff account number

10 beginning 1A, and clearing bank will always have 290000-3.

11 It's the account number they assigned to the term clearing bank

12 because when trades were manually entered into the system back

13 in the day, I believe the screen asked the clerk for the

14 counterparty, and she or he was instructed to simply type in

15 2-000-3, and the name counterparty would come up on all the

16 records there for.

17 So what you're looking at on the bottom is a very

18 rudimentary set of blotters that were created because blotters

19 needed to be created when the original software programs that

20 were designed to do the bookkeeping for House 05 were then

21 piggybacked to do the bookkeeping for House 17, and again,

22 since there were no counterparties because there were no

23 trades, that was the mechanism they used to apply the blotter

24 logic.

25 Q. Pausing for a second, Ms. Baskin, can you highlight, first

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1 of all, the -- looking at the lower one, the 29-003, next to

2 the clearing bank. And, Mr. DiPascali, that's the number you

3 said was given to this sort of meaningless concept of a

4 clearing bank for purposes of the blotters, right?

5 A. Exactly.

6 Q. And above that, Ms. Baskin, can you highlight the 1-A3013

7 and the AHT Partners. Now, Mr. DiPascali, that 1-A number,

8 that is a actual Madoff Securities account number, right?

9 A. That is correct.

10 Q. And AHT Partners was a real client, right?

11 A. Yes, they were.

12 Q. Now, again, all of these tradings -- all of this trading is

13 fake, but this is -- this blotter shows a version of -- a false

14 version of how it might exist, right?

15 A. Yes.

16 Q. Now, going up to the different version, where there is the

17 MSIL/Madoff, do we see that 29-0003 number again?

18 A. You do.

19 Q. And where do we see that?

20 A. On the second and the fourth entries.

21 Q. Can you highlight the first one of that, Ms. Baskin,

22 please. Now, what is the 29-000-3 number meant to represent on

23 this version of the blotter?

24 A. In this version, what literally happened was that we went

25 into the customer maintenance file, the computer file, and told

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1 the machine, for the specific purpose of creating this version

2 of blotters, to override clearing banks, literally write over

3 in the system with the words MSIL/Madoff. So that when the

4 normal process of a fictitious trade going through the blotter

5 cycle automatically creating a 29 account number, which used to

6 be clearing bank, will now say MSIL/Madoff.

7 Q. And who was it that went in and made that change from

8 something that had been clearing banks to something completely

9 different called MSIL/Madoff?

10 A. Probably one of the operators.

11 Q. Now, looking up the James Cable, do you see there's a

12 number there?

13 A. I do.

14 Q. What number does that represent?

15 A. FN378 was not a live account in the Madoff customer base

16 because -- well, when Bernie gave us this list of

17 counterparties he wanted to use for blotter purposes, machines

18 understand numbers; so the data entry for James Cable and

19 Company needed an account number. So we assigned FN numbers to

20 the various parties on the counterparty list that Bernie gave

21 us. So that account is not an account in our system anywhere.

22 It is just a -- it's a counterparty designed to fill space on a

23 fictitious blotter.

24 Q. Now, stepping back, we'll get into more detail on this.

25 Who helped you -- who was it that picked some of these foreign

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1 counterparties to be used randomly in this version, the names

2 of these foreign accounts?

3 A. I'm not quite certain which version this is. This could be

4 the version where Bernie gave me all the names. I can't

5 identify the version; so I can't tell you who picked the names

6 for this version.

7 Q. Were there different versions with different sets of random

8 counterparties over time?

9 A. Yes.

10 Q. Taking all of the different versions, with all of the

11 different sets of random counterparties, who were the folks

12 that helped you select all of the random different

13 counterparties?

14 A. Primarily Bernie with information he had gotten from

15 various sources, including our London office. There was one

16 version of counterparties where I went to Mark Madoff and David

17 Kugel and got counterparties.

18 Q. Now, sort of wrapping this up, I'm going to go back to the

19 bottom version. The bottom version shows a Madoff customer

20 with this meaningless concept called a clearing bank for the

21 two sides of the transaction, right?

22 A. Yes, sir.

23 Q. And the version at the top shows something completely

24 different, right?

25 A. It does.

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1 Q. And the version at the top shows a randomly selected

2 foreign counterparty with either Madoff Securities or MSIL for

3 Madoff London office?

4 A. Yes, it does.

5 Q. Let's take this -- these down, and let's go to Government

6 Exhibit 102-571. Looking at this version, can we blow up the

7 top four entries again, Ms. Baskin. Mr. DiPascali, what is

8 this one showing?

9 A. It's a different version of a trade blotter.

10 Q. And what is this one dated?

11 A. 5-1-03.

12 Q. And how is this one different than the ones that we've

13 looked at before?

14 A. In this version there are two differences. The first entry

15 of Pictet et Cie is a foreign counterparty picked by Bernie and

16 randomly placed on the document carrying an account number of

17 FN486, which does not exist in my system except for this

18 purpose. The 2930 bank used to say clearing banks, then it

19 said MSIL/Madoff. Now it simply says MSIL.

20 There is, on this document, a customer account, FN92,

21 a bona fide customer in the Madoff system which was Bank of

22 Bermuda in Luxembourg. So there are the two differences

23 between what we saw before and this is -- Madoff is no longer

24 resident here as a 2930 entity. And on this same cluster of

25 trades there's actually a Madoff customer which was not on that

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1 first one you showed me because you cut the page off.

2 Q. Oh, okay.

3 A. These things get very, very complicated.

4 Q. Let's first highlight the MSIL and let's highlight the

5 2900-3, and is that what you're referring to in terms of the

6 29003 going from MSIL/Madoff to just MSIL?

7 A. Yes.

8 Q. And looking at the Pictet et Cie?

9 A. Pictet.

10 Q. Can we highlight that? And now what did you say was the

11 nature of the number on the left of that?

12 A. It's not a viable account number in our system. It was

13 simply assigned that account number for blotter purposes only.

14 Q. And can we expand this document a little bit more,

15 Ms. Baskin. I'm sorry, can we back out and instead of blowing

16 up just the first four entries, can we blow up maybe the first

17 ten.

18 Now, Mr. DiPascali, going down the right-hand side of

19 each of these -- of this document, do you see there is an

20 amount on the second-to-the-right column?

21 A. I do.

22 Q. What is that amount?

23 A. It's the net monies on the trade.

24 Q. So for the first one there is a -- what is the amount on

25 the first one?

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1 A. 37,372.02.

2 Q. Was that a positive or a negative?

3 A. It shows negative.

4 Q. And what's the next one?

5 A. 37,372.02 positive.

6 Q. So how were those two numbers related to one another?

7 A. Well, everything has two sides. So if you were a buyer of

8 this quantity at that price for a cost of 37,372.02, the

9 counterparty would have been a seller for that amount at that

10 price for the money. It's perfectly logical that they agree.

11 Q. So in the first example, does this reflect MSIL and -- I'm

12 going to say it --

13 A. Pictet et Cie.

14 Q. -- as both sides of the transaction?

15 A. That is what it's showing, yes.

16 Q. And Pictet, the number for Pictet is made up, right?

17 A. It's a made-up number, yes.

18 Q. Now, going to the second transaction, let's look at both of

19 the amounts for that.

20 A. The second transaction or the second grouping?

21 Q. For the second grouping?

22 A. The one beginning with FN92?

23 Q. Yes.

24 A. It's a viable customer account transacting 6675 United

25 Technologies for 411,847.50.

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1 Q. With who?

2 A. With MSIL.

3 Q. We can take that down. Now, I would like to show you what

4 has been marked as Government Exhibit 102-286. So as of now

5 we've looked at three versions of the blotters, right?

6 A. Yes.

7 Q. Looking at 102-286, what are we looking at here?

8 A. You're looking at a trade blotter that is specific to

9 options.

10 Q. And what is it dated?

11 A. January 5, 2006.

12 Q. So I want to give you a moment so you can just look at it

13 and review the entries on the first page and then I will turn

14 to the second page. So tell me when you've had the opportunity

15 to review it and I'll change the pages.

16 A. I'm good.

17 Q. Can we go to Page 2, Ms. Baskin.

18 A. I'm good again.

19 Q. Okay. So going back to Page 1, Mr. DiPascali, can you

20 describe for the jury generally what this version of the Madoff

21 Securities blotter shows?

22 A. This version, quite frankly, might have been tied to one of

23 the versions that we previously saw, but it needed to be

24 treated differently because these are option transactions. Or

25 this version may be tied to a completely different fourth

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1 version that we have not yet seen.

2 That being said, what you're seeing here is if you

3 focus in on, let's say, the account numbers, for instance,

4 10P736 being the first one and so on and so on and so on, down

5 the line, they're all going to be 10P numbers. They're

6 entirely made up. The counterparties assigned to those account

7 numbers are simply a list of dealers that could conceivably do

8 index options overseas in an over-the-counter environment, a

9 list Bernie Madoff gave me.

10 Q. Now, pausing for a moment. Ms. Baskin, can you highlight

11 the first account number. And is that the OP number that you

12 were referencing?

13 A. Yes.

14 Q. And are these all S's?

15 A. They are, indeed.

16 Q. What does the S mean?

17 A. Sold.

18 Q. And, Ms. Baskin, turning to the next page, can you

19 highlight the first account number with the OP. Is that also

20 an OP?

21 A. It is.

22 Q. And that's an S?

23 A. Correct.

24 Q. And then do we hit a buy or a B?

25 A. Yes, you do.

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1 Q. What's the difference -- can we highlight the whole -- the

2 whole second transaction, Ms. Baskin. What does the B mean?

3 A. It's a purchase or bought.

4 Q. And what do all the S's mean?

5 A. Sold.

6 Q. And in the -- in this example, who was it that bought the

7 options?

8 A. The transaction referenced with the B is for a bona fide

9 Madoff client which would -- C1260, which was the American

10 Masters Broad Market Fund, a Tremont family fund.

11 Q. So would this be a fake trade that would be in the account

12 of that client?

13 A. This was a fake trade that was really booked into the

14 system, yes.

15 Q. And all of the S's, starting with the one just above that

16 and on that whole entire page, how are those S's filled in in

17 this blotter?

18 A. You want a brief description of how the blotter was built,

19 specifically speaking about that block of trades?

20 Q. Yes, if we could.

21 A. The system knew, because we told it so, that American

22 Masters Broad Market, a bona fide Madoff client, under account

23 number C1260 had already processed a fictitious trade. That's

24 what the machine understood. So it had that record in it. It

25 also, when it understood that, created that clearing bank

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1 record because it needed that balancing act we spoke about.

2 What they did was they took the clearing bank record,

3 which is the flip side of the customer record, and they sliced

4 it and diced it randomly. They spliced the quantity randomly.

5 They then spliced how many times they were going to splice it

6 randomly, and they created a bunch of theoretical counterparty

7 transactions to fill up the space on a blotter. And then they

8 went back and they filled in the blanks. They assigned

9 randomly random account numbers, which then were tied to

10 randomly picked names, and it started filling in the data.

11 Keeping in mind that all they were doing was taking

12 this core thing that the system already knew, and they were

13 breaking it into little pieces. If one took the 3668 American

14 Masters Broad Market prime transaction that the system already

15 knew, and that's the quantity it did, and it went back and

16 looked at all the little pieces that are the flip side on this

17 report of that trade, it would add up to 3668.

18 What was -- The objective of that was to have a

19 document that had a record of a customer ticket. That's a

20 given. That customer ticket is in the public domain. Clearly,

21 the customer has it. It's on his statement. He's gotten a

22 confirmation. There's a potential that a regulator may see

23 that ticket and ask the core originator of the ticket a

24 question. You need to go to a blotter to give the answer. The

25 question is typically going to be, who is the counterparty on

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1 that ticket?

2 Now, you already told American Masters they transacted

3 3668, and the logical question that someone is going to want to

4 ask potentially is, who did you do it with? This document

5 creates the who you did it with scenario. It basically says

6 3668 was done as a matter of record. Now, splice that into 12

7 pieces that add up to 3668, ran that math randomly so none of

8 those two pieces have the same quantity because that's unlikely

9 in the real world that you transact all the same quantity with

10 different dealers. Then assign random dealers to all of those

11 random quantities.

12 And when you're all done, print it. And what you get

13 is that first block of fictitious trades being then presented

14 as if there were a real counterparty on -- or series of real

15 counterparties on the other side. This document is what's

16 available in the real world. We didn't have it. We built it.

17 Q. Now, Mr. DiPascali, who was it that programmed the process

18 that made this -- these random entries possible?

19 A. George Perez was primarily responsible for it.

20 Q. Now, stepping back, we've looked at all these different

21 versions of the blotters, and we're going to get into it some

22 more, but you said earlier that generating these false blotters

23 that you were piggybacking off of the blotters that were done

24 in House 5. Do you recall testifying to that?

25 A. I do.

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1 Q. So before -- What was House 5?

2 A. The trading room operation of the business.

3 Q. And that's where the real trading in the business took

4 place?

5 A. Correct.

6 Q. And did the real part of the business have blotters?

7 A. Sure.

8 Q. And did those blotters reflect real stock transactions?

9 A. Yes.

10 Q. And real counterparties?

11 A. Yes.

12 Q. And real actual securities?

13 A. Yes.

14 Q. How was it that those blotters were used generally in

15 creating these false blotters in House 17?

16 A. Those blotters were created before I had any decent level

17 of knowledge about how the machine was programmed, but I came

18 to learn and it was explained to me that when Bernie handed me

19 the, we need customized blotter project in the late '90s, early

20 2000s, that Liz has out there a set of blotters that always run

21 in the background.

22 I didn't have any great access to these documents. I

23 don't even remember that I ever saw one for House 17 prior to

24 Bernie giving me the project, and if I did, I only glanced at

25 it. So I knew, because Bernie told me, that Liz has things out

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1 there that are trade blotters. Before you start to re-invent

2 the wheel, speak to her and see if she could help you or at

3 least put you on the right track as to how you should start

4 this project because part of it, and in Bernie's mind maybe a

5 lot of it, is already done; we just have to tweak it. He had

6 no idea, and neither did I, the magnitude of what he was asking

7 me to do.

8 So I went to Liz and I said, Bernie wants me to build

9 blotters for my special accounts. He also wants me to build

10 new blotters for all the accounts, and I didn't have a great

11 handle on the scope of what we were dealing with, but I was

12 looking to her as someone who understood what was built in the

13 '70s to see if there was anything out there to help me. And

14 she said, yeah, we have trade blotters. And I don't know who

15 she arranged to get me a sample copy of what they looked like

16 or whatever, but in relatively short order I started to

17 understand, okay, this is what they built when they

18 computerized the House 17.

19 And Liz was very clear to tell me that this was -- you

20 know, House 17 was a subset function of what they had built for

21 House 05. You know, so I started there, and it sounded like a

22 logical place to start because the head of my IT department,

23 who was involved in the original build back in the '70s, is

24 telling me, yeah, don't re-invent the wheel, take what we have

25 and just hang things on it, and that's what we attempted to do.

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1 And this is one of those versions of hanging things on

2 something the firm already had.

3 Q. And who did you then enlist to help you make these new

4 versions of the blotters?

5 A. George Perez and Jerry O'Hara.

6 Q. Now, I want to switch gears, slight. Did there come a time

7 that you learned that the SEC was looking at Madoff Securities?

8 A. Yes.

9 Q. And how did you learn that the SEC was looking at Madoff

10 Securities?

11 A. Bernie told me.

12 Q. And when was this approximately that you learned it?

13 A. Early 2004.

14 Q. What did Mr. Madoff say to you about the inquiry that the

15 SEC had started?

16 A. He gave me the impression he wasn't overly worried about it

17 because it was coming out of Washington, and he went off on

18 this whole, you know, rant about how Washington doesn't, you

19 know, run things, New York runs things, and he wasn't all that

20 concerned because he had some friends in Washington and he

21 would quickly come back with some sort of a -- he'll find out

22 what this is all about. I've got to make some phone calls.

23 Q. And did you have follow-up conversations with Mr. Madoff

24 about this SEC inquiry?

25 A. Yes.

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1 Q. In those subsequent conversations, what did you learn from

2 Mr. Madoff?

3 A. He told me he spoke to Lori Richards, the head of OC, which

4 is the Office of Compliance Inspections and Examinations in

5 Washington, which is a friend of his, or he said, and this was

6 no big deal. This guy Eric Swanson was in charge of it. Eric

7 works for Lori Richards, and we should -- we have to respond to

8 it. That was his soft shoe version of telling me not to worry.

9 My gut told me when there's a letter that comes from the

10 Securities and Exchange Commission, whether he thinks so or

11 not, I'm worried.

12 Q. And did you eventually see the letter that had come from

13 the Securities and Exchange Commission?

14 A. Yes.

15 Q. Well, let me show you what is in evidence as Government

16 Exhibit 632, and can we just sort of page through this slowly

17 and then go back to the beginning, Ms. Baskin. Do you see that

18 someone signed this letter?

19 A. Yes, sir.

20 Q. Who signed it?

21 A. Eric Swanson.

22 Q. And where did Mr. Swanson work as of January 6th, 2004?

23 A. He was a SEC employee in the Office of Examinations --

24 Compliance Examinations and Inspections, or something like

25 that, in Washington.

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1 Q. Can we go back to the first page. I mean, who is this

2 letter addressed to?

3 A. Peter Madoff.

4 Q. And was this a letter that was sent in connection with this

5 SEC audit that you learned about in 2004?

6 A. That's correct.

7 Q. What, generally, was the SEC asking to look at at this

8 time?

9 A. They were trying to get a feel for the scope of our

10 business in many different arenas.

11 Q. What types of documents were they looking to get?

12 A. They were looking for P and L spreadsheets, it said. They

13 wanted responses as to who our customers were. They wanted

14 responses as to what our schedules of commissions were, who

15 owned our firm, things of that nature. I can't remember from

16 memory. I'm literally reading it off the letter.

17 Q. Okay. But after this letter was received, were there

18 discussions at Madoff Securities about how to respond to it?

19 A. Many.

20 Q. Who was involved in the discussions about how to respond to

21 it?

22 A. Myself, Jodi, Danny, Enrica, Bernie.

23 Q. And in those discussions, what were some of the concerns

24 that were raised about this investigation?

25 A. There were a lot of holes in the picture. You know, if you

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1 lifted the hatch on that manhole, you didn't know what you were

2 going to find, literally. He was not prepared for something

3 like this. There were not a lot of things that could be easily

4 explained if the Commission recognized that we had custody of

5 securities or we're at least purporting to have custody is one

6 big issue.

7 He had huge holes in that in his opinion, and he was

8 dissecting every word, every comma, every period of this letter

9 to craft his response so that no one would -- at the

10 Commission, certainly Eric Swanson, follow up and dig deeper.

11 Q. And was that expressed in these discussions that were had

12 amongst the Madoff Securities employees that you described?

13 A. Maybe not that graphically, but yes.

14 Q. Now, what -- as these discussions progressed, did a

15 strategy develop -- you can take the document down -- did a

16 strategy develop as to how to respond to this request?

17 A. Yes.

18 Q. And who worked to craft that strategy?

19 A. Bernie came up with the idea.

20 Q. And what idea did he come up with?

21 A. He decided that he was not going to display a picture to

22 Eric Swanson on paper that we held customer securities at all

23 or that we held or controlled customer cash at all. It was a

24 very bizarre conversation when he first dropped this on me

25 because how does one do that?

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1 Q. Now, before getting into how does one do that, I think it

2 makes sense to step back. At this time, did Madoff Securities

3 advertise or promote the fact that it had this large IA

4 business?

5 A. Not at all.

6 Q. What did Madoff -- what was being done with that business

7 in terms of letting the public know about it?

8 A. The objective was not to let the public know about it.

9 Q. And at that time, were efforts made to -- like previously

10 we looked at getting rid of A and A transactions in the A and B

11 statements; do you recall that?

12 A. I do.

13 Q. And was the purpose of making those changes to hide the

14 scope of the IA business?

15 A. Absolutely.

16 Q. And as time went by, did -- were similar efforts made to

17 hide the scope of the IA business?

18 A. Yes.

19 Q. And to be clear, were there any real securities in the IA

20 business?

21 A. No.

22 Q. Was there any real trading going on --

23 A. No.

24 Q. -- in the IA business? But had the IA business told

25 customers and clients that, in fact, it was doing trades for

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1 them and that it, in fact, had their securities?

2 A. That's correct.

3 Q. And those conversations were had by Madoff Securities over

4 the phone; isn't that right?

5 A. Correct.

6 Q. And who were some of the people that would talk to

7 customers about the trading in their account over the years

8 leading up to this SEC investigation?

9 A. Bernie, myself, Annette, Jodi, Annette's staff and my

10 staff.

11 Q. And in any of the time, did you ever tell the clients that

12 their trading was not real?

13 A. No.

14 Q. Did you ever hear Annette tell the clients that the trading

15 wasn't real?

16 A. No.

17 Q. Did you ever hear Ms. Crupi tell the clients that the

18 trading was not real?

19 A. No.

20 Q. So now coming back to the SEC investigation, how was it

21 that Mr. Madoff proposed to make it appear that he did not have

22 custody of the client's securities or cash?

23 A. There's two types, basically, of a brokerage account

24 structure, what's known as a cash account and what's known as

25 an RVP DVP account. A cash account is what you're used to

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1 seeing when you have displayed these various customer

2 statements. There's an incoming amount of cash. That cash

3 gets adjusted for every transaction down the line

4 chronologically, and then there's a closing balance of cash.

5 And when you print that on a statement, it is implied and you

6 are confirming to your customer that you control that cash for

7 them. Then there's a list of securities, and it is implied and

8 understood that you control those security holdings. You are

9 holding them for a customer, which is why you reported that to

10 them on their statement. That's a cash account.

11 An RVP DVP account is an account where a customer buys

12 a security, pays for it, and the broker then, with that money,

13 pays the counterparty but then he delivers the security to the

14 client's bank. If you think about it for a second, what's left

15 in the brokerage account after that transaction is consummated?

16 Zero. Because the customer sent in $100,000, you bought

17 $100,000 worth of stock. When you used the customer's money to

18 pay for that stock with the counterparty, the 100,000 leaves

19 the customer's account. The stock shows up in the customer's

20 account and, at that point, that's all that's in the account,

21 and then you send that stock to that customer's bank. At the

22 end of the day, you have no cash. You have no security

23 positions.

24 That is the structure of a received versus payment,

25 deliver versus payment architecture. And, again, compared to a

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1 cash account, they're radically different because the cash

2 account is holding cash, the cash account is holding

3 securities, the RVP DVP account is holding no cash at the end

4 of the period and holding no securities.

5 What Bernie elected to do for Eric Swanson purposes in

6 the winter of '04 was to tell Washington he did not operate any

7 of his customer accounts, which they apparently knew about

8 because they asked him about customer accounts in the letter,

9 and he didn't know the scope of what they knew about; so he was

10 reluctant to answer. So he was going to dodge the entire

11 question of customer cash, customer securities by giving the

12 SEC in Washington a fictitious set of statements in the format

13 of RVP DVP, which I found out when he made that decision had

14 already been running in the background of the computer designed

15 by Liz Weintraub 20 years earlier, never distributed to anyone.

16 They were kind of like a safety valve in case he needed it, and

17 now he needed it.

18 And that's where we progressed -- we took that frame

19 of mind and said, okay, we are now an RVP DVP situation. And I

20 had to, in a very short order, educate myself as to what that

21 situation is because I had learned about it for the first time,

22 and then we proceeded to prepare the documents that Eric

23 Swanson in Washington needed. So that first response to

24 Swanson there were -- was a twofold trick: A, we weren't going

25 to give him the format that we actually had distributed to our

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1 clients; B, we weren't going to tell him our client list. We

2 were going to shrink it down to have a very workable number of

3 clients and their money and see where the chips landed.

4 (Continued on next page)

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1 Q. Mr. DiPascali, I want to unpack some of what you just said.

2 First, you said that under this RVP-DVP scenario, the

3 investment adviser doesn't keep custody of the securities,

4 right?

5 A. Correct.

6 Q. The investment adviser doesn't maintain an account that

7 would have cash or other assets of the client?

8 A. Correct.

9 Q. The investment adviser picks the securities but then

10 deposits them in that client's own bank?

11 A. He acts as the broker to acquire the securities from

12 somewhere else, and then he delivers those same securities to

13 the client's bank. He now has no securities in his possession.

14 Q. Prior to making this decision, where had Madoff Securities

15 been telling its clients that their securities were custodied?

16 A. At DTC and other global depositories.

17 Q. By Madoff Securities?

18 A. Yes.

19 Q. This is completely contrary to what had been being told to

20 the clients?

21 A. This is a 180 from everything.

22 Q. Just to keep perspective, all of the trading is just fake,

23 right?

24 MR. KRANTZ: Objection, your Honor.

25 THE COURT: Overruled you may answer.

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1 A. Yes, all the trading is fake.

2 Q. Mr. Madoff and Madoff Securities had been telling its

3 clients that those fake trades it maintained custody of itself?

4 A. We processed fake trades to clients. We needed to generate

5 backup support information. Those fake trades in one scenario

6 could conceivably, and we had the books and records to back it

7 up, be at DTC. That's why the DTC report we spoke about the

8 other day was created.

9 Those same fictitious trades, if the question is asked

10 a little differently by a regulator, an auditor, or somebody he

11 doesn't like, we don't hold securities at all, we transact our

12 business purely on an RVP-DVP basis, we are purely an executing

13 broker is what Bernie used to say, I don't hold money, I don't

14 hold securities, and here is the statement to prove it. We had

15 that set of phony books and records backing up that scenario

16 for the fictitious trading. He had many routes he could take

17 depending on who was asking the question.

18 Q. You said that there were these documents that were being

19 generated in the background. Do you recall that?

20 A. Yes.

21 Q. When you went to retrieve those documents, were things not

22 right for the scenario that you wanted to depict to the SEC?

23 A. When I went to retrieve it, what we tried to do is print a

24 statement of account for the select few customers Bernie was

25 going to disclose to Eric Swanson. When he first told me about

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1 this and this was how he was going to tackle it and I found out

2 that Liz Weintraub had already created all of these books and

3 records and they were resident somewhere in our system or maybe

4 even physically on paper in the warehouse or downstairs, I was

5 ecstatic. He's going to on his own pick a bunch of random

6 clients that he is comfortable with disclosing to the

7 commission and we are going to get somebody from records or the

8 computer department to print the RVP-DVP statements, staple

9 them, put them in an envelope, and mail them to D.C.

10 So I did exactly that. I don't remember if I had to

11 reprint the statements from digital records or actually pull

12 the original RVP-DVP statements from paper archives. I gave

13 him what he wanted, which was the RVP-DVP formatted statements

14 for a select few accounts, and he immediately came back and

15 said this is no damn good.

16 Q. Why was it no damn good?

17 A. Because the title block on these accounts was wrong, in his

18 opinion.

19 Q. When you say title block, what is it that you are referring

20 to?

21 A. The name of the client.

22 Q. Why don't we pull one up.

23 THE COURT: You have about five minutes to break, Mr.

24 Zach.

25 MR. ZACH: OK, your Honor. Thank you very much.

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1 I am going to introduce a subset of what is already in

2 evidence as Government Exhibit 101-57. That subset is 101-57H.

3 THE COURT: H as in Harold?

4 MR. ZACH: Yes, your Honor.

5 THE COURT: Any objection to 101-57H?

6 MR. KRANTZ: No objection.

7 MR. MEHLER: No objection.

8 MR. FRISCH: No objection.

9 MR. BRESLIN: No objection.

10 MR. RIOPELLE: No objection.

11 THE COURT: Government Exhibit 101-57H is admitted in

12 evidence.

13 (Government's Exhibit 101-57H received in evidence)

14 MR. ZACH: May I publish it?

15 THE COURT: Yes, you may.

16 MR. ZACH: Can we make this so it is readable.

17 Q. Do you recognize what kind of document this is?

18 A. It's either a screenshot of a statement or a customer

19 ledger.

20 Q. What would the title block be on this document?

21 A. Upper left-hand corner, says Kesagami Limited, 16/F Silver

22 something Plaza, 1 Kelsington Street possibly, Central Hong

23 Kong. That's the title block. The title would be Kesagami

24 Limited, and it goes on to express the address of that entity.

25 That is a title block.

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1 MR. ZACH: I think I can read it a little bit better

2 here. K-E-S-A-G-A-M-I.

3 Q. Mr. DiPascali, was this similar to the type of title block

4 that Mr. Madoff thought was wrong?

5 A. Yes.

6 Q. What did he say was wrong with it?

7 A. In an RVP-DVP scenario, once again you get in funds from

8 your client, you buy stock with that money, and you deliver

9 those stocks to a custodian bank that represents that client,

10 an outside bank that's going to hold the securities in their

11 vault for that client.

12 When the RVP-DVP formatted statement for Kesagami and

13 others was retrieved by myself and given to Bernie, the title

14 block looked like this, which was the existing title block of

15 the account. He started throwing himself around that it

16 doesn't reference the bank, there should be a title like

17 "Citicorp for the Exclusive Benefit of Kesagami," which would

18 indicate that we are transacting business for Kesagami by

19 delivering securities for Citicorp for Kesagami's benefit.

20 The title blocks of RVP-DVP type accounts, he

21 explained to me, should have a bank on the top line and then

22 some verbiage that said this bank is operating for the benefit

23 of, and then the client. These title blocks simply had the

24 client's name, with no reference to a custodial bank, and he

25 didn't think they were worth sending out. He was very

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1 perturbed: I can't send something like this out, it's a very

2 big red flag?

3 Q. Who was present when Mr. Madoff was saying these things

4 about the title blocks?

5 A. Everyone in my office.

6 Q. Did this include Ms. Crupi?

7 A. Yes.

8 Q. Then was there a project to find banks to insert in the

9 title blocks?

10 A. Yes.

11 Q. Who was it that helped pick those banks?

12 A. Myself and Jodi.

13 Q. Did you observe how Ms. Crupi was able to find those banks

14 to insert on these statements?

15 A. Yes.

16 Q. How did she do it?

17 A. She locked up companies on the Internet that had some

18 remote synergism to the name of the stock, the name of the

19 client. Bernie was saying, well, when he brought this to my

20 attention that these are no damn good, he was insisting banks

21 have to be part of this title, we have to have a bank to

22 deliver the securities to, the bank should be holding

23 securities for the benefit of the customer.

24 My response was, where the hell do I get these banks

25 from? His response was, well, just make 'em up. How are we

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1 going to do that? Well, and he started rambling off the names

2 of major international banks. You could put Chase, you could

3 put BankAmerica, you could put JPMorgan, you could put this,

4 you could put that. He then, as he was speaking, preferred to

5 put foreign banks because he's going to deliver the stuff to

6 Washington.

7 A lot of these projects with Bernie Madoff were very,

8 very fluid. He would change his mind as he thought things out

9 loud. One of the things he thought of out loud was, well, if

10 I'm going to put Citibank to be the custodian of Kesagami, that

11 doesn't make a whole lot of sense, because Washington could

12 just call Citibank and maybe there is somebody at Citibank or

13 maybe there is someone in Washington that knows someone in the

14 custody department of Citibank, and they are obviously not

15 going to know this customer.

16 But if I give them a foreign bank, there is much less

17 likelihood that Eric Swanson at the commission is going to call

18 someplace in Hong Kong or Tokyo or Luxembourg. It is just not

19 in his pay grade. He is probably not allowed to make an

20 international call. He is a government SEC employee. So we

21 will get over by bearding this with a foreign bank.

22 During that discussion, hearing that he is simply

23 willing to randomly put foreign banks in the title block of

24 Madoff consumers to produce an RVP-DVP formatted statement, we

25 started rattling off foreign banks that had some relationship

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1 to the existing title block. There was research done quickly

2 on Google and on the Internet and names were popping up in the

3 room. Those names eventually became part of the title block of

4 our customers.

5 MR. ZACH: I think that is a good place to break, your

6 Honor.

7 THE COURT: Thank you. We will begin our afternoon

8 break now of 15 minutes. Members of the jury, please be ready

9 in the jury room shortly after 3:30. Enjoy your break.

10 Continue to keep your thoughts to yourselves. All rise. Ms.

11 Ng will escort the jury out. Mr. DiPascali, you may step down.

12 (Recess)

13 THE COURT: Mr. Zach.

14 MR. ZACH: Thank you, your Honor.

15 BY MR. ZACH:

16 Q. Mr. DiPascali, before the break you were testifying about

17 how you and Ms. Crupi picked banks using the Internet. Do you

18 recall that?

19 A. Yes.

20 Q. Did Mr. Madoff instruct you all as to how to match up a

21 given bank with a given account title?

22 A. Yes.

23 Q. What sort of instruction was given to you and Ms. Crupi?

24 A. It had to make sense. For instance, if the customer that

25 he had chosen to be part of his special list of customers was

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1 domiciled in a particular country, it would make sense to have

2 a bank from that country, was one of his instructions.

3 Some of the clients on the list -- Fairfield, for

4 example, was on the list, a big New York City-based hedge fund.

5 But Fairfield used a custody agent in Amsterdam to handle some

6 of its business. Their title block had already said Citco,

7 which is this bank in Amsterdam, financial service company, it

8 says "Citco for the Benefit of Fairfield."

9 So he decided to structure the other titles of the

10 other accounts that did not have these custody banks in the

11 title block similarly to the way Fairfield was. If it was a

12 domestic entity, we would use a domestic bank. If it was a

13 foreign entity, we would use a foreign bank, and more

14 specifically a bank domiciled in that country. Then we

15 proceeded from there.

16 Q. Were you and Ms. Crupi able to amass banks to put on these

17 statements using the Internet?

18 A. And other sources.

19 Q. Let me now show you what is in evidence as government

20 600-10. And can we go to page 67. Thank you, Ms. Baskin.

21 Now, Mr. DiPascali, can you tell us what we are

22 looking at here.

23 A. I don't know if your screen is jumping the way mine is, but

24 it is difficult to read.

25 THE COURT: Do you think it would help if he turned

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1 his screen on and off?

2 THE WITNESS: It's just flashing.

3 A. What was the question again? Sorry.

4 Q. Do you recognize the document that we are looking at here?

5 A. I do.

6 Q. What are we looking at?

7 A. You're looking at a RVP-DVP structured statement.

8 Q. We previously looked at a statement for Kesagami. Do you

9 recall that?

10 A. I do.

11 Q. What is different between the statement that we looked at

12 earlier and this statement.

13 A. Again, this is in RVP-DVP format but the title block has

14 now been altered.

15 Q. Ms. Baskin, on the PDF can we highlight? That's fine. Can

16 we move the cursor to where the title block is, maybe a little

17 bit above.

18 Ms. Baskin has just highlighted part of the document.

19 Is that the title block?

20 A. It is.

21 Q. What indicates to you that this is in an RVP-DVP statement?

22 A. There is a bunch of stuff. In the body of the transaction

23 portion, there is no balance forward. I think if you looked at

24 the other statement, you would find an incoming money balance,

25 cash balance. The rest of the information, at least on this

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1 page, is probably similar because it represents the

2 transactions for the month of June, which were consistent on

3 both statements. The title block has been changed, as we

4 mentioned. That would pretty much do it on this page.

5 Q. Can you describe what is different about the title block

6 here.

7 A. Kesagami had the name on top and their address in Hong

8 Kong. Now this title block reflects that HSBC Bank of

9 Lichtenstein is the custodian for Kesagami, which is absolutely

10 not true. They have probably never heard of Kesagami.

11 Q. Previously you said the reason for taking the RVP-DVP

12 format was because it makes it look like the securities are

13 kept at the client's bank. Do you recall that testimony?

14 A. I do.

15 Q. Does this title block have that effect to someone that

16 would be observing it?

17 A. Yes.

18 Q. What is the name of the bank again?

19 A. HSBC.

20 Q. When the says custodian, does that mean that HSBC has

21 custody of or suggest that HSBC has custody of the securities

22 listed on this statement?

23 A. It doesn't suggest it. It says it. They are the custodian

24 for the benefit of Kesagami.

25 Q. You pointed out on the first line, where it says "balance

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1 forward," that there is no balance forward there?

2 A. That's correct.

3 Q. I may be pressing my luck, but can we highlight that? Is

4 that the area that you are talking about?

5 A. Yes.

6 Q. I'm sorry, Ms. Baskin. Can we take this down for a second

7 and bring up 101-57H, which we looked at earlier. Blow it up.

8 Looking at the top left, this is what we looked at

9 earlier, right, Mr. DiPascali?

10 A. Yes, it is.

11 Q. This just says "Kesagami Limited" and has the address,

12 right?

13 A. That's correct.

14 Q. Do you see there is a balance forward there?

15 A. Yes, I do.

16 Q. Is there a balance forward in the Kesagami Limited

17 statement that is not in the RVP-DVP format?

18 A. That would be this one, and there is a balance.

19 Q. How much is that balance?

20 A. 1,029,257.50.

21 Q. Can you explain to the jury why there is a balance forward

22 on the account statement we see here, the type that went to the

23 client, and there is not a balance forward statement on the

24 revised statement that was sent to the SEC?

25 A. Because the RVP-DVP style of statement indicates that the

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1 broker carries no cash for the customer, nor does he carry any

2 security positions in custody for the customer. It is designed

3 to reflect a trade the customer did. You saw on that first

4 statement of RVP-DVP format there were a list of trades. But

5 it will go on to show that the stock purchased was delivered

6 out.

7 That stock purchase was funded with the customer

8 money. Again, $100,000 comes into the account and pays for

9 $100,000 worth of securities; therefore, the balance with that

10 customer on that statement would be zero. Then those

11 securities get delivered to that customer's custodian bank, in

12 this scenario HSBC. You will naturally not find any closing

13 cash balance on an RVP type statement, and therefore you would

14 have no incoming balance, because your incoming balance is

15 simply a repetition of what your closing balance was the prior

16 month.

17 Q. Ms. Baskin, can we go back to 600-10, and can we go to the

18 next page.

19 Looking briefly at this page, Mr. DiPascali, what

20 types of securities do you see here?

21 A. All stocks.

22 Q. Can we go to the next page. At the end, at the very

23 bottom, do you see where it says "new balance"?

24 A. That is correct.

25 Q. What is the new balance?

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1 A. Zero.

2 Q. Why is the new balance in the RVP-DVP statement zero?

3 A. Because in this format it is understood the broker carries

4 no money for the client. It's the same explanation I just gave

5 why there was no opening balance. There is activity in

6 between, all of which has been accounted for and netted to

7 zero, and therefore your new balance after that activity would

8 again be zero.

9 Q. Ms. Baskin, can we go back to 101-57H. Can we skip ahead

10 four pages, please. Blow that up.

11 This is the prior Kesagami Limited statement. Do you

12 see where it says "new balance" here?

13 A. I do.

14 Q. Is there a new balance moving forward?

15 A. There is.

16 Q. Is there a balance here for the same reasons that you have

17 been talking about?

18 A. Exactly.

19 Q. Can we highlight those, Ms. Baskin.

20 I have one more question to ask you. Do you see right

21 above the new balance where it says Fidelity Spartan?

22 A. Yes.

23 Q. What is Fidelity Spartan?

24 A. It is a money market instrument issued by Fidelity.

25 Q. What purpose did it serve -- let me ask this. Is that a

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1 real security? Is that an actual Fidelity Spartan security in

2 this account?

3 A. No.

4 Q. This is fictitious as well, right?

5 A. Yes.

6 Q. But in the real world, putting aside the Madoff statements,

7 what is Fidelity Spartan?

8 A. It's a money market instrument of the Fidelity Corporation.

9 Q. For what reason was Fidelity Spartan included in account

10 statements in the IA accounts?

11 A. To reduce the available cash balance of the accounts at the

12 end of a particular period. In this case you will see that

13 trade went through on June 30th, the end of the June 30th, '03

14 period. It was used as a balancing act for cash.

15 Q. Would that money market, in theory or real, earn some

16 interest?

17 A. It would.

18 Q. Would we find Fidelity money market shares on the RVP-DVP

19 statements?

20 A. No.

21 Q. Let's go back to 600-10. You see the new balance at zero,

22 and above it we don't see any Fidelity Spartan, do we?

23 A. You won't.

24 Q. Can you explain why that is.

25 A. Because it is illogical in an RVP-DVP for a broker to

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1 transact in a money market instrument of another brokerage

2 firm. It doesn't happen in the real world, so it couldn't

3 happen on our fake statements that were intended to present the

4 scenario as if it was the real world.

5 Bernie recognized that you couldn't have certain

6 things on an RVP-DVP formatted statement. For instance, you

7 couldn't have dividends, either, because dividends are

8 collected by the broker that's holding the stock. We just

9 painted a picture that we are not holding the stock, HSBC is

10 holding the stock. So it would be very irregular for Madoff to

11 credit the customer the dividend. The dividend is going to get

12 mailed to HSBC because they are holding the stock.

13 In an RVP-DVP environment there are certain

14 transactions that are resident on a cash statement that can't

15 possibly be resident in the real world on an RVP-DVP statement,

16 so you don't put them there. If you did, you would be tipping

17 your hand that that is not a real document.

18 Q. Was part of the process in preparing these statements to go

19 to the SEC to remove things like that Fidelity money market

20 share that we saw?

21 A. There were certain things, I don't know if Fidelity was one

22 of them, that might have been removed in the original

23 architecture of Liz Weintraub's RVP-DVP. I don't remember

24 which items were removed. But there were items that were not

25 removed in the original Liz Weintraub version of that document

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1 that needed to be removed, yes.

2 Q. Did you have discussions with Mr. Madoff about the fact

3 that things like the Fidelity money market needed to be

4 removed?

5 A. He told me.

6 Q. You can take that down, Ms. Baskin.

7 Another aspect of this SEC preparation that was being

8 done at Madoff you said was to limit the number of customers

9 that was disclosed to Mr. Swanson and the SEC, is that right?

10 A. That is correct.

11 Q. Stepping back for a moment, at this point in 2004

12 approximately how many customers did Madoff Securities have in

13 its investment advisory business?

14 A. Thousands.

15 Q. How many were ultimately disclosed to Mr. Swanson,

16 approximately?

17 A. Couple of dozen at best.

18 Q. What was the purpose of keeping from the SEC the fact that

19 you had these thousands of clients?

20 A. He couldn't disclose to the SEC the scope of his customer

21 business.

22 Q. Were there discussions about which clients to provide to

23 the SEC?

24 A. Yes.

25 Q. Who was involved in those discussions about picking and

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1 choosing these clients?

2 A. He spearheaded that effort. He stated that there were

3 certain clients that everyone knows we trade for, Fairfield for

4 instance, a huge Greenwich-New York based hedge fund that had

5 previously issued an offering circular to its shareholders or

6 their potential shareholders, and, if not mentioned him by

7 name, gave a description of the money manager that was going to

8 run the funds that was so close to Bernie Madoff that they

9 might as well have mentioned his name.

10 He always, when constructing a special group of

11 accounts to show anyone, included Fairfield, because he was

12 confident that the intelligent immediate world knew that he was

13 doing that business anyway, so how could he leave it off. So

14 Fairfield was the first account that had to be there.

15 If Fairfield is there, then their New York subsidiary

16 hedge fund, Greenwich Century, had to be there as well. And

17 there were discussions about who had to be on this list.

18 Q. Who was present for those discussions?

19 A. Everyone in my area.

20 Q. Was Ms. Crupi present?

21 A. Yes.

22 Q. Were you present?

23 A. Yes.

24 Q. Who were some of the other people that were present?

25 A. Eric Lipkin, Robert Cardille, Rick Flores, Erin, obviously

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1 myself, and Jodi Crupi.

2 Q. These were discussions about which clients to pick to put

3 on the SEC disclosure, right?

4 A. That's correct.

5 Q. Were there discussions about who the world or the public at

6 large knew Madoff did business with? Was that part of those

7 discussions as well?

8 A. Yes. A lot of these discussions he was having with himself

9 out loud.

10 Q. What do you mean by that?

11 A. He did that all the time. He would come in and throw

12 something at me and then talk about --

13 Q. You mean literally throw something at you?

14 A. No. He would throw an idea or thought or bounce something

15 off me: Hey, I've been thinking about this. He was never,

16 ever, ever, except on few occasions, private about it. It was

17 not let's call Frank into a meeting, light a cigar, close the

18 door, and go on to commit this crime. It was an open

19 environment. And at times he didn't know when to shut the hell

20 up, in my opinion.

21 Q. What do you mean by he didn't know when to shut the hell

22 up, in your opinion?

23 A. There were times where I cringed over things that came out

24 of his mouth regarding this fraud, things that I know that

25 people that I believed had no clue there was a fraud would now

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1 be tipped off that there possibly was. I literally told him

2 shut up or walked him out in the hallway and said, would you

3 just please stop, you cannot continue to talk out loud like

4 this, this is not right. And he'd go, oh, OK, OK, I got you, I

5 got you, but I need you to do this, this, and this. He was a

6 frantic lunatic sometimes.

7 There were many times where he would debate in his own

8 head out loud as to which plan of attack he was going to take

9 and occasionally turn for input or put someone on a project

10 over here that was gathering some information for him and then

11 turn and talk to me about something and then go back and forth.

12 It was a big room with a six-man desk, and he worked the room

13 and he talked out loud a lot.

14 Q. That sort of talking occurred here?

15 A. Exactly that.

16 Q. Based on those conversations and your discussions with Ms.

17 Crupi, you and Ms. Crupi went and looked on the Internet to

18 find some of these banks, right?

19 A. That's correct.

20 Q. As part of this process, did you require the assistance of

21 Mr. Perez and Mr. O'Hara?

22 A. Yes.

23 Q. What did you need their help with?

24 A. If I remember right, we already had like some special

25 blotters that were being produced in the background but not for

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1 a specific purpose. They were for everyone. Every time any

2 client in this whole client list did any transaction, a blotter

3 was created, a blotter in a format that was created by Liz

4 Weintraub and then in an alternative format. The MSIL thing we

5 saw might have been part of that format at that time. But that

6 was for everyone.

7 A blotter is in a binder, so you can't -- if you're

8 going to only give the SEC a couple of dozen accounts and say

9 here, here is my client list, if they ask for a blotter, you

10 can't open up this 3,000-page binder and just rip off the

11 clients that they are looking at. You need to print a new

12 binder, in essence.

13 The first order of business when he started to go with

14 this RVP-DVP format, he needed to have internal books and

15 records that now for the first time were specific to this

16 specific list of special clients. I needed new blotters. I

17 don't remember if I needed blotters in the same configuration,

18 I'm not sure. But we certainly needed blotters that were

19 specific to this special group, so they had to be run.

20 Q. Stepping back, the blotters that you said had been being

21 run sort of in the background had all of or many of the Madoff

22 clients in the paperwork, is that fair?

23 A. Correct.

24 (Continued on next page)

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1 Q. And the blotters that you needed had to be just of that

2 limited subset that was decided to be provided to the SEC,

3 right?

4 A. That is correct as well.

5 Q. Now, when you enlisted the help of Mr. Perez and Mr. O'Hara

6 in connection with making these blotters, did you tell them the

7 full truth about what you were doing?

8 A. No.

9 Q. Now, with respect to the number of accounts that you needed

10 to provide data for, what did you tell them needed to be

11 provided?

12 A. I told them it was standard practice in the industry that

13 when the SEC asks a group of specific questions about a

14 specific group of clients, you basically give them what they're

15 asking for and you don't need to give them anything more.

16 Q. And you told them that the SEC only requested information

17 for these specific clients?

18 A. Yes.

19 Q. Now, with respect to the trading data that was going to be

20 put on those blotters, what did you tell them about that?

21 A. In what regard? Because there were many, many, many

22 discussions about how those blotters were eventually going to

23 be put together.

24 Q. But what are some of the things that you told them about

25 what information was going to -- where the information was

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1 going to come from to be put on the blotters?

2 MR. MEHLER: Objection, your Honor. May I confer with

3 Mr. Zach?

4 THE COURT: Yes, please.

5 (Counsel conferring)

6 THE COURT: You may continue.

7 MR. ZACH: Could you read back my question, please.

8 (Record read)

9 A. What had to be done was once we established the -- who

10 these special customers are, I think a set of blotters was

11 produced with those special customers, which I then delivered

12 to Bernie for his review. And they were nowhere near what he

13 had envisioned we should be doing. So he explained to me that

14 no, no, no, no, these blotters had to have counterparties on

15 them that I'm transacting with in London or in Europe.

16 And the way an RVP and DVP scenario works is we're

17 going to say that MSIL buys stock from Credit Suisse, and then

18 MSIL flips it to Madoff and Madoff flips it to the customer.

19 When I say flip, a transaction has occurred so that Credit

20 Suisse is the counterparty that sells to London. London then

21 flips it to New York. New York flips it to the client. So the

22 eventual Fairfield ownership of stock, if you go to the root of

23 the trade, the seller was Credit Suisse, a foreign

24 counterparty.

25 Once I understood the concept, we adjusted how the

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1 blotters were displayed and tweaked them along the way, and the

2 conclusion I came up with was just to try to get it as random

3 as possible. So I think the question was what methods were

4 used or --

5 Q. My question was what -- what did you -- or where did you

6 tell Mr. Perez and Mr. O'Hara that the trades were coming from?

7 A. I implied that they were being done in Europe.

8 Q. And in terms of constructing -- and in terms of

9 constructing the blotters, what did you tell them was the way

10 that this should be produced?

11 A. I represented a scenario that, look, these trades are being

12 done in Europe. London's got all of this information. I'm new

13 at this game. I can't -- I don't like the guys in London. I

14 don't like dealing with the guys in London. I don't know what

15 system they have. I don't even know where to get this

16 information, but the blotters that we have in-house now for

17 this purpose are not complete.

18 They don't know the full picture, and we got to show

19 the full picture. And I can't deal with London, and I don't

20 know what format they have their information in. I don't want

21 to start a whole process here. He has to respond. So what I'm

22 going to do is we're just going to fudge it.

23 We're just going to use a bunch of brokers that we

24 typically deal with in London and, quote, call them our

25 counterparty and lay them out there in a file somewhere. And

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1 then we're going to take the root trade that Fairfield has on

2 their statement and we're going to reverse engineer that trade

3 by slicing it and dicing it a bazillion ways so that it

4 displays that the root sale occurred by various brokers in

5 London that we typically do business with anyway. You've got

6 to throw that in if you're trying to fool your computer guy.

7 So I led them to believe that these shares were all

8 being transacted in some other platform, but for ease of

9 purpose, because we're under the gun and because Bernie was,

10 you know, climbing all over me to get this document right so he

11 could deliver it to the SEC, we're going to fudge it. We were

12 just going to give them a set of documents that is made up but,

13 in essence, is what we do anyway.

14 Q. So to be clear, did you tell them that the SEC was looking

15 for documents related to Madoff Securities?

16 A. Yeah, they knew that.

17 Q. And did you tell them that these documents that you,

18 Mr. Perez and Mr. O'Hara were working on might ultimately be

19 provided to the SEC?

20 A. That was the intent of printing the documents.

21 Q. And the scenario of the trading that you presented to them

22 was that the trading was happening in Europe --

23 A. Correct.

24 Q. -- fair? But instead of actually getting the trading stuff

25 in Europe, you guys were just going to make up random trades to

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1 put in these blotters?

2 MR. MEHLER: Objection.

3 MR. KRANTZ: Objection.

4 MR. MEHLER: Leading.

5 THE COURT: Sustained.

6 MR. ZACH: I can rephrase.

7 THE COURT: As you should. Yes, please.

8 BY MR. ZACH:

9 Q. So what -- instead of getting the information from London,

10 what did you tell them, or what did you do to provide the

11 trading information that was -- could ultimately go to the SEC?

12 MR. KRANTZ: Objection, your Honor. Could I consult?

13 THE COURT: Yes, please.

14 (Counsel conferring)

15 MR. KRANTZ: Your Honor, perhaps instead of going into

16 the robing room, I could state my objection in three words.

17 THE COURT: Yes.

18 MR. KRANTZ: Asked and answered.

19 THE COURT: I -- That is sustained, but a further

20 problem is it's compound, and so I will let Mr. Zach

21 reformulate with a non-compound question.

22 MR. ZACH: Thank you.

23 Q. What did you discuss with them about the nature of the

24 information that was going to be on these blotters that were

25 ultimately perhaps going to go to the SEC?

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1 A. I inferred that the trades were happening --

2 MR. KRANTZ: Same objection, your Honor. Sorry.

3 THE COURT: Asked and answered is overruled. You may

4 answer that question.

5 A. I inferred that the trades were happening, but that we were

6 going to create a set of books and records to satisfy the SEC's

7 request from basically, approximately, almost accurate data of

8 counterparties that we were trading with, and then we were

9 going to shuffle all of that up and produce a report that would

10 maybe be close to what we actually do, maybe not. But what it

11 would be is a blotter that illustrates that we trade with

12 foreign counterparties.

13 THE COURT: We have about four minutes until the end

14 of the day.

15 MR. ZACH: Sure. Thank you, your Honor.

16 Q. So keeping with what you told Mr. Perez and Mr. O'Hara the

17 records that were ultimately going to go to the SEC would be,

18 was that your understanding that those type of records were

19 improper?

20 MR. KRANTZ: Objection.

21 MR. MEHLER: Objection.

22 THE COURT: Sustained.

23 Q. Did you think -- Mr. DiPascali, was it your understanding

24 that you could create blotters using random information and

25 provide that to the SEC?

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1 MR. KRANTZ: Objection.

2 MR. MEHLER: Objection.

3 THE COURT: Overruled. You may answer.

4 A. Are you asking me if I could create a document that

5 randomizes what I already know to be fictitious junk? Yes.

6 Q. I'm asking you a different question. The question I'm

7 asking you is, the SEC provided a document request to Madoff

8 Securities?

9 A. They did.

10 Q. Right?

11 A. Yes.

12 Q. And the response that -- the version of -- setting aside

13 that all of this was fictitious, the version of the documents

14 that were being created that might go to the SEC were being

15 made using random assignment of trades and parties --

16 understand that?

17 A. I do.

18 Q. So providing that random -- what was your understanding of

19 whether or not providing that random, manufactured information

20 to the SEC, whether that was wrong?

21 MR. KRANTZ: Objection, your Honor. Could --

22 THE COURT: Sustained as to form.

23 Q. Did you think you could provide the type of information

24 that you described to Mr. Perez and Mr. O'Hara to the SEC?

25 MR. KRANTZ: Objection, your Honor.

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1 MR. MEHLER: Objection.

2 MR. KRANTZ: Could we be heard, your Honor?

3 THE COURT: We have two minutes. So bear with us for

4 five minutes, members of the jury. Come to the back, counsel.

5 (Continued on next page)

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1 (In robing room)

2 MR. KRANTZ: Sorry, your Honor.

3 THE COURT: It's all right.

4 MR. KRANTZ: Your Honor, respectfully, what's relevant

5 is what Mr. Perez and O'Hara thought was true or false or could

6 be submitted to the SEC or couldn't be submitted to the SEC.

7 Mr. DiPascali is wholly differently situated from

8 Mr. Perez and Mr. O'Hara. He has knowledge of the entire scam,

9 and so his internal view of whether what he was giving to the

10 SEC was proper or not has no relevance to whether Mr. Perez and

11 O'Hara shared a similar view. He's so dissimilarly situated.

12 THE COURT: I understand the argument.

13 MR. MEHLER: And it's an unnecessary question,

14 completely unnecessary. It's a submission.

15 THE COURT: I understand the argument.

16 MR. ZACH: Your Honor?

17 THE COURT: You can respond.

18 MR. ZACH: Sure. The question that I'm trying to ask

19 that in the scenario that he painted, even that scenario,

20 whether or not those documents, if they were submitted to the

21 SEC, if it was Mr. DiPascali, that that still would have been

22 wrong? Granted, I did a bad job of articulating, but that was

23 the simple question I was trying too ask.

24 THE COURT: I will permit a question that specifically

25 asks whether Mr. DiPascali himself believed that the submission

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1 of those sorts of documents was legal or compliant with the

2 law. And it is not directly probative of the charges as

3 against Mr. O'Hara and Mr. Perez, but we have issues here of

4 the credibility of this witness and the consistency with other

5 testimony and that sort of thing; so I will permit it.

6 MR. KRANTZ: Your Honor, I would then just ask for an

7 appropriate instruction that that's being admitted on the issue

8 of Mr. DiPascali's credit. It is not being admitted for the

9 purpose of inferring the state of mind of Mr. Perez or

10 Mr. O'Hara.

11 MR. MEHLER: That's my request, as well, your Honor.

12 THE COURT: The request for a specific instruction to

13 that respect is denied, but once again, Mr. Zach, you have to

14 make very clear in your question as you ask it, that you are

15 asking only what was in Mr. DiPascali's mind.

16 MR. ZACH: So as not to get anything thrown at me, why

17 don't I articulate the question that I intend to ask when we go

18 back out there?

19 MR. KRANTZ: Good idea.

20 MR. ZACH: I'm going to ask, given the scenario

21 described -- Let me strike that. What was your understanding

22 of whether or not the documents you were going to provide to

23 the SEC was wrong?

24 THE COURT: How about, did you personally believe that

25 supplying documents to the SEC with randomly generated, fudged

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1 information was legal?

2 MR. ZACH: Perfect.

3 THE COURT: Okay. You can ask that question.

4 MR. ZACH: Thank you, Judge.

5 (Continued on next page)

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1 (In open court)

2 THE COURT: You may continue.

3 MR. ZACH: Thank you, your Honor.

4 BY MR. ZACH:

5 Q. Mr. DiPascali, did you personally think that supplying the

6 SEC with blotters that were fudged and who had randomly created

7 information was legal?

8 A. No.

9 THE COURT: Thank you. Ladies and gentlemen, this

10 concludes our presentation of evidence for this week. Thank

11 you so very much for your dedicated and careful work with us

12 this week. We will resume on Monday morning, and so we will

13 need you ready in the jury room at 9:15 on Monday morning.

14 Here are your end-of-the-day instructions,

15 end-of-the-week instructions. Do not speak or communicate in

16 any way, in person, telephonically or electronically, with

17 anyone else about the case or anything or anyone having

18 anything to do with it.

19 Do not read or listen to any media coverage or

20 anything anyone writes or says outside of this courtroom about

21 the case or anything or anyone having anything to do with it.

22 If anyone is speaking about these matters in your

23 presence, politely move away, and if anyone tries to speak to

24 you about the case, politely tell them that I have instructed

25 you not to do so.

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1 Do not do any research or investigation on your own.

2 And I repeat these instructions every day because, as you know,

3 they are crucially important to your ability to perform your

4 job well, and we are grateful for the way that you are doing

5 your job.

6 You must leave your notes in the jury room in the

7 envelopes provided. You must leave your access cards with

8 Ms. Ng and sign for them. And as I said, please be ready in

9 the jury room Monday morning at 9:15. Have a good weekend.

10 Get some rest, and we'll look forward to seeing you on Monday.

11 All rise. Ms. Ng will escort the jury out.

12 (Jury exits)

13 THE COURT: Mr. DiPascali, you may step down. We'll

14 see you Monday.

15 THE WITNESS: Thank you, your Honor. Enjoy your

16 weekend.

17 (Witness temporarily excused)

18 THE COURT: Monday at 9:00 it is. Actually, I have

19 one question. Have you figured out timing on the letters

20 regarding the additional exhibits yet? I need to figure out

21 what my next couple of weeks is like.

22 MR. FRISCH: Your Honor, with regard to the portion

23 that we're responding to, we have a draft that we're working

24 on. I expect to get that to your Honor on or before Monday.

25 MS. LUM: Your Honor, we also have a draft of the

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1 portion that we're responding to, and I don't know when, early

2 next week?

3 MR. KRANTZ: One second, your Honor.

4 THE COURT: How many letters am I getting back?

5 MR. BRESLIN: I think the thrust is, we don't have an

6 interest in the remaining exhibits. The ones we had an

7 interest in have been resolved.

8 MR. RIOPELLE: That's the same for us, your Honor.

9 THE COURT: Okay. So there will be two letters, and

10 they'll come by early next week?

11 MR. FRISCH: Yes.

12 THE COURT: And when they come, the government will

13 let me know when the government's -- let's see, wait a minute.

14 You started; so yes, I imagine you'll want to make a reply and

15 so you'll let me know?

16 MR. SCHWARTZ: Yes, I'll take a look at the letters

17 and see if a reply is necessary.

18 THE COURT: All right. Thank you all very much. Keep

19 well. See you on Monday.

20 (Adjourned to December 9, 2013, at 9:00 a.m.)

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1 INDEX OF EXAMINATION

2 Examination of: Page

3 FRANK DIPASCALI

4Direct By Mr. Zach ...... 4873

5 GOVERNMENT EXHIBITS

6 Exhibit No. Received

7 101-57H ...... 5013

8 105-F27 ...... 4906

9 105-D28 ...... 4940

10 300-4A ...... 4927

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Exhibit 10-05286-smb Doc 202-3 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 3 Pg 2 of 3 10-05286-smb Doc 202-3 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 3 Pg 3 of 3 10-05286-smb Doc 202-4 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 4 Pg 1 of 3

Exhibit 10-05286-smb Doc 202-4 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 4 Pg 2 of 3 10-05286-smb Doc 202-4 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 4 Pg 3 of 3 10-05286-smb Doc 202-5 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 5 Pg 1 of 3

Exhibit 10-05286-smb Doc 202-5 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 5 Pg 2 of 3 10-05286-smb Doc 202-5 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 5 Pg 3 of 3 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 1 of 19

Exhibit 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 2 of 19 ȱ ȱ ȱ ȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ

UNITEDȱSTATESȱBANKRUPTCYȱCOURTȱ ȱȱȱȱ SOUTHERNȱDISTRICTȱOFȱNEWȱYORKȱ SECURITIESȱINVESTORȱPROTECTIONȱ ȱ CORPORATION,ȱ Adv.ȱPro.ȱNo.ȱ08Ȭ01789ȱ(SMB)ȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱPlaintiffȬApplicant,ȱ ȱ v.ȱ SIPAȱLIQUIDATIONȱ ȱ ȱ BERNARDȱL.ȱMADOFFȱINVESTMENTȱ (SubstantivelyȱConsolidated)ȱ SECURITIESȱLLC,ȱ ȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱDefendant.ȱ ȱ ȱ ȱ Inȱre:ȱ ȱ BERNARDȱL.ȱMADOFF,ȱ ȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱDebtor.ȱ ȱ ȱ ȱ IRVINGȱH.ȱPICARD,ȱTrusteeȱforȱtheȱLiquidationȱ ȱ ofȱBernardȱL.ȱMadoffȱInvestmentȱSecuritiesȱLLC,ȱ ȱ ȱ ȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱPlaintiff,ȱ ȱ v.ȱ Adv.ȱPro.ȱNo.ȱ10Ȭ05286ȱ(SMB)ȱ ȱ ȱ ȱ ȱ LEGACYȱCAPITALȱLTD., ȱ ȱ ȱ ȱ ȱ Defendant.ȱ ȱ ȱ ȱ ȱ ȱ ȱ EXPERTȱREPORTȱOFȱ LISAȱM.ȱCOLLURA,ȱCPA,ȱCFE,ȱCFFȱ ȱ ProofȱofȱTransfersȱ ToȱtheȱDefendantȱ ȱ Februaryȱ20,ȱ2017ȱ ȱȱ ȱ ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 3 of 19 ȱȱ ȱ ȱ

TABLEȱOFȱCONTENTSȱ ȱ I. PROFESSIONAL BACKGROUNDȱ...... ȱ2 II. SCOPE OF ASSIGNMENTȱ...... ȱ2 III. METHODOLOGYȱ...... ȱ4 IV. SUMMARY OF FINDINGSȱ...... ȱ5 V. RECONCILIATION OF CASH TRANSACTIONS FOR ALL BLMIS CUSTOMERSȱ...... ȱ7 A. OVERVIEWȱ 7 B. BLMIS BANK ACCOUNTSȱ 7 C. RESULTS OF RECONCILIATIONȱ 11 VI. RECONCILIATION OF CASH TRANSACTIONS FOR THE LEGACY CAPITAL ACCOUNTȱ...... ȱ12 A. OVERVIEWȱ 12 B. BLMIS BANK ACCOUNTSȱ 12 C. BLMIS CUSTOMER FILESȱ 13 D. RESULTS OF RECONCILIATIONȱ 14 VII. TRACING CASH WITHDRAWALS FROM THE LEGACY CAPITAL ACCOUNTȱ...... ȱ14 A. OVERVIEWȱ 14 B. RESULTS OF TRACINGȱ 15 VIII. SIGNATURE AND RIGHT TO MODIFYȱ...... ȱ16 IX. LIST OF EXHIBITSȱ...... ȱ17ȱ ȱȱ

ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 4 of 19

I.ȱPROFESSIONALȱBACKGROUNDȱ ȱ 1. IȱamȱaȱSeniorȱManagingȱDirectorȱinȱtheȱForensicȱandȱLitigationȱConsultingȱpracticeȱ ofȱFTIȱConsulting,ȱInc.ȱ(“FTI”),ȱwithȱmoreȱthanȱ20ȱyearsȱofȱexperienceȱinȱaccounting,ȱauditingȱ andȱlitigationȱconsultingȱservices.ȱȱIȱspecializeȱinȱprovidingȱforensicȱaccountingȱandȱfinancialȱ fraudȱinvestigativeȱservicesȱinȱconnectionȱwithȱinternalȱinvestigationsȱonȱbehalfȱofȱtrustees,ȱ boardsȱofȱdirectorsȱandȱauditȱcommitteesȱofȱcompanies.ȱ

2. IȱhaveȱextensiveȱexperienceȱinȱconductingȱlargeȬscale,ȱfactȬfindingȱinvestigationsȱintoȱ fraudulentȱfinancialȱtransactions,ȱincludingȱtracingȱsignificantȱflowsȱofȱfundsȱbetweenȱaccountsȱ andȱentities.ȱȱDuringȱmyȱcareerȱatȱFTI,ȱIȱhaveȱassistedȱinȱtheȱinvestigationȱofȱseveralȱofȱtheȱ largestȱfraudȱcasesȱinȱtheȱUnitedȱStates.ȱ

3. IȱamȱaȱCertifiedȱPublicȱAccountantȱ(CPA),ȱaȱCertifiedȱFraudȱExaminerȱ(CFE),ȱaȱ memberȱofȱtheȱAmericanȱInstituteȱofȱCertifiedȱPublicȱAccountantsȱ(AICPA)ȱandȱamȱCertifiedȱinȱ

FinancialȱForensicsȱ(CFF)ȱbyȱtheȱAICPA.ȱȱMyȱcurriculumȱvitae,ȱattachedȱasȱExhibitȱ1ȱtoȱthisȱ report,ȱfurtherȱdescribesȱmyȱprofessionalȱcredentials,ȱexperienceȱandȱqualifications,ȱincludingȱ myȱtestimonyȱinȱtheȱlastȱfourȱyears.ȱ ȱ

II.ȱSCOPEȱOFȱASSIGNMENTȱȱ ȱ 4. BernardȱL.ȱMadoffȱInvestmentȱSecuritiesȱLLCȱ(“BLMIS”)ȱwasȱanȱinvestmentȱfirmȱ ownedȱandȱoperatedȱbyȱBernardȱL.ȱMadoffȱ(“Madoff”).ȱȱOnȱDecemberȱ11,ȱ2008,ȱMadoffȱwasȱ arrestedȱforȱviolatingȱmultipleȱsecuritiesȱlawsȱinȱconnectionȱwithȱrunningȱaȱPonziȱscheme.ȱȱȱOnȱ

Decemberȱ15,ȱ2008,ȱIrvingȱH.ȱPicardȱwasȱappointedȱasȱtheȱTrusteeȱforȱtheȱliquidationȱofȱtheȱ businessȱofȱBLMIS,ȱandȱBakerȱ&ȱHostetlerȱLLPȱwasȱretainedȱasȱhisȱcounsel.ȱȱShortlyȱthereafter,ȱ

FTIȱwasȱretainedȱbyȱBakerȱ&ȱHostetlerȱLLP,ȱonȱbehalfȱofȱtheȱTrustee,ȱtoȱanalyze,ȱamongȱotherȱ things,ȱtheȱfinancialȱaffairsȱofȱBLMISȱandȱtoȱassistȱtheȱTrusteeȱwithȱtheȱliquidationȱofȱBLMIS.ȱȱAsȱ partȱofȱourȱengagement,ȱFTIȱwasȱtaskedȱwithȱtheȱexerciseȱofȱreconstructingȱtheȱbooksȱandȱ recordsȱofȱBLMIS,ȱincludingȱallȱrecordsȱofȱtheȱ“cashȱin/cashȱout”ȱtransactionsȱrelatedȱtoȱtheȱ

BLMISȱcustomerȱaccountsȱasȱfarȱbackȱasȱtheȱrecordsȱallow.ȱ

2ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 5 of 19

5. MatthewȱB.ȱGreenblatt,ȱalsoȱaȱSeniorȱManagingȱDirectorȱatȱFTI,ȱandȱaȱteamȱofȱ professionalsȱworkingȱunderȱhisȱsupervision,ȱwasȱspecificallyȱtaskedȱwithȱcreatingȱ chronologicalȱlistingsȱofȱallȱcashȱandȱprincipalȱtransactions,ȱincludingȱcashȱdepositȱandȱ withdrawalȱtransactions,ȱforȱeveryȱBLMISȱcustomerȱaccount,ȱasȱsetȱforthȱmoreȱfullyȱinȱtheȱ

ExpertȱReportȱofȱMatthewȱB.ȱGreenblattȱregardingȱtheȱMethodologyȱforȱtheȱPrincipalȱBalanceȱ

Calculationȱ(theȱ“PrincipalȱBalanceȱCalculationȱReport”).ȱȱ

6. TheȱsourcesȱofȱcashȱdepositȱandȱwithdrawalȱtransactionsȱrelatedȱtoȱBLMISȱcustomerȱ accountsȱincludeȱcustomerȱstatementsȱandȱotherȱrelevantȱinformationȱavailableȱwithinȱBLMIS’sȱ records,ȱincludingȱPortfolioȱManagementȱReports,ȱPortfolioȱManagementȱTransactionȱReports,ȱ spiralȬboundȱnotebooks,ȱandȱaȱdataȱtableȱfromȱBLMIS’sȱcomputerȱsystemȱreferredȱtoȱasȱtheȱ

“CheckbookȱFile,”ȱwhichȱisȱtheȱonlyȱavailableȱBLMISȱrecordȱofȱcashȱtransactionsȱforȱtheȱtimeȱ periodȱfromȱDecemberȱ1,ȱ2008ȱthroughȱDecemberȱ11,ȱ2008.ȱȱSeeȱPrincipalȱBalanceȱCalculationȱ

Reportȱforȱfurtherȱdiscussionȱregardingȱtheseȱsources.ȱȱForȱpurposesȱofȱmyȱreport,ȱIȱuseȱtheȱtermȱ

“customerȱstatements”ȱtoȱreferȱtoȱtheseȱsourcesȱcollectively.ȱ

7. I,ȱalongȱwithȱaȱteamȱworkingȱunderȱmyȱsupervision,ȱwasȱspecificallyȱtaskedȱwithȱ performingȱforensicȱanalysesȱtoȱdetermineȱtheȱfollowing:ȱ

x Whetherȱtheȱcashȱdepositȱandȱwithdrawalȱtransactionsȱasȱreflectedȱonȱtheȱcustomerȱ

statementsȱ(asȱdefinedȱinȱparagraphȱ6)ȱforȱallȱBLMISȱcustomersȱreconciledȱ(asȱfurtherȱ

explainedȱinȱparagraphȱ8)ȱtoȱavailableȱBLMISȱbankȱrecords;ȱ

x Whetherȱtheȱcashȱdepositȱandȱwithdrawalȱtransactionsȱreflectedȱonȱtheȱcustomerȱ

statementsȱforȱtheȱDefendant’s1ȱcustomerȱaccountȱatȱBLMISȱthatȱisȱatȱissueȱinȱthisȱ

matterȱ(theȱ“LegacyȱCapitalȱAccount”2)ȱreconciledȱtoȱavailableȱdocumentation;ȱandȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 1ȱTheȱdefendantȱinȱthisȱmatterȱisȱLEGACYȱCAPITALȱLTD.ȱ(theȱ“Defendant”).ȱ 2ȱTheȱDefendantȱmaintainedȱBLMISȱcustomerȱaccountȱ1FR071ȱunderȱtheȱnameȱ“LEGACYȱCAPITALȱLIMITEDȱC/Oȱ LEEDȱMANAGEMENT.”ȱ

3ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 6 of 19

x Whether,ȱbasedȱonȱmyȱreviewȱofȱavailableȱbankȱrecords,ȱtheȱcashȱwithdrawalsȱ(i.e.,ȱ

transfersȱfromȱBLMIS)ȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱ

AccountȱduringȱtheȱperiodȱbetweenȱandȱincludingȱDecemberȱ11,ȱ2006ȱandȱDecemberȱ

11,ȱ2008ȱ(theȱ“TwoȱYearȱPeriod”)ȱcouldȱbeȱtracedȱ(asȱfurtherȱexplainedȱinȱparagraphȱ

8)ȱtoȱbankȱaccountsȱheldȱby,ȱorȱforȱtheȱbenefitȱof,ȱtheȱDefendant. ȱ

8. Forȱpurposesȱofȱthisȱreport,ȱIȱuseȱtheȱtermȱ“reconciled”ȱtoȱindicateȱwhenȱIȱhaveȱ matched,ȱagreedȱand/orȱdeterminedȱconsistencyȱbetweenȱcashȱdepositsȱandȱwithdrawalsȱ reflectedȱonȱBLMISȱcustomerȱstatementsȱtoȱinformationȱorȱdataȱperȱanotherȱsourceȱ(e.g.,ȱ amountsȱonȱBLMISȱbankȱrecords,ȱorȱcorrespondenceȱbetweenȱtheȱcustomerȱandȱBLMISȱ regardingȱincomingȱdepositsȱand/orȱrequestsȱforȱwithdrawalsȱrelatedȱtoȱtheȱLegacyȱCapitalȱ

Account).ȱȱForȱpurposesȱofȱmyȱreport,ȱIȱuseȱtheȱtermȱ“traced”ȱtoȱindicateȱwhenȱIȱhaveȱfollowedȱ theȱflowȱofȱfundsȱfromȱoneȱbankȱaccountȱ(e.g.,ȱBLMIS’sȱbankȱaccount)ȱtoȱanotherȱbankȱaccountȱ

(e.g.,ȱtheȱDefendant’sȱbankȱaccount).ȱȱ

9. ThisȱreportȱhasȱbeenȱpreparedȱinȱconnectionȱwithȱtheȱaboveȬcaptionedȱlitigationȱandȱ isȱtoȱbeȱusedȱonlyȱforȱtheȱspecificȱpurposesȱofȱthisȱlawsuit.ȱȱItȱisȱnotȱtoȱbeȱusedȱforȱanyȱotherȱ purposeȱwithoutȱtheȱexpressȱwrittenȱconsentȱofȱFTI.ȱȱIfȱcalledȱuponȱtoȱtestifyȱinȱthisȱmatter,ȱIȱ intendȱtoȱprovideȱtestimonyȱregardingȱmyȱanalysesȱandȱconclusionsȱconsistentȱwithȱthisȱreport.ȱ

10. FTIȱisȱbeingȱcompensatedȱatȱaȱrateȱofȱ$637ȱperȱhourȱforȱmyȱprofessionalȱtimeȱ incurredȱinȱperformingȱtheȱworkȱnecessaryȱtoȱprepareȱthisȱreport.ȱȱFTI’sȱfeesȱareȱnotȱcontingentȱ onȱtheȱconclusionsȱreachedȱinȱthisȱreportȱorȱtheȱoutcomeȱofȱtheȱaboveȬcaptionedȱlitigation.ȱ ȱ

III.ȱMETHODOLOGYȱȱ ȱ 11. Toȱdetermineȱwhetherȱtheȱcashȱdepositȱandȱwithdrawalȱtransactionsȱreflectedȱonȱtheȱ customerȱstatementsȱforȱallȱBLMISȱcustomersȱreconciledȱtoȱavailableȱBLMISȱbankȱrecords,ȱI,ȱ usingȱmyȱexperienceȱasȱaȱforensicȱaccountantȱandȱinvestigator,ȱalongȱwithȱmyȱstaff,ȱfirstȱ identifiedȱandȱgatheredȱtheȱrelevantȱandȱavailableȱrecordsȱrelatedȱtoȱtheȱBLMISȱbankȱaccounts.ȱȱ

Weȱthenȱperformedȱtheȱfollowingȱprocedures:ȱ

4ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 7 of 19

x ReviewedȱhundredsȱofȱthousandsȱofȱpagesȱofȱrecordsȱrelatedȱtoȱBLMIS’sȱbankȱ

accounts,ȱincludingȱmonthlyȱbankȱstatements,ȱcancelledȱchecksȱandȱdepositȱslips,ȱ

obtainedȱfromȱBLMIS’sȱfilesȱand/orȱproducedȱbyȱthirdȬpartyȱfinancialȱinstitutions,ȱ

whichȱcoverȱaȱtenȬyearȱperiodȱfromȱDecemberȱ1998ȱtoȱDecemberȱ2008;ȱ

x Analyzedȱcloseȱtoȱ150,000ȱtransactionsȱreflectedȱwithinȱtheseȱbankȱrecords;ȱandȱ

x Reconciledȱtheȱcashȱdepositȱandȱwithdrawalȱtransactionsȱreportedȱinȱtheȱavailableȱ

BLMISȱbankȱrecordsȱtoȱtheȱcashȱtransactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱ

relatedȱtoȱallȱBLMISȱcustomerȱaccounts.ȱ

12. Next,ȱtoȱdetermineȱspecificallyȱwhetherȱtheȱcashȱtransactionsȱreflectedȱonȱtheȱ customerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccountȱreconciledȱtoȱavailableȱdocumentation,ȱIȱ usedȱtheȱresultsȱofȱtheȱforensicȱanalysisȱofȱtheȱavailableȱBLMISȱbankȱrecordsȱasȱdescribedȱabove.ȱȱ

Inȱaddition,ȱIȱreviewedȱandȱanalyzedȱotherȱdocumentsȱandȱrecordsȱmaintainedȱatȱBLMIS,ȱ includingȱdocumentsȱcontainedȱinȱBLMISȱcustomerȱfilesȱrelatedȱtoȱtheȱLegacyȱCapitalȱAccount.ȱȱ

Basedȱonȱmyȱreviewȱandȱanalysisȱofȱtheseȱmaterials,ȱIȱidentifiedȱtheȱcashȱtransactionsȱrelatedȱtoȱ theȱLegacyȱCapitalȱAccountȱthatȱreconciledȱtoȱtheseȱdocuments.ȱ

13. Finally,ȱtoȱdetermineȱwhetherȱtheȱcashȱwithdrawalsȱ(i.e.,ȱtransfersȱfromȱBLMIS)ȱ reflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccountȱduringȱtheȱTwoȱYearȱ

Periodȱcouldȱbeȱtracedȱtoȱbankȱaccountsȱheldȱby,ȱorȱforȱtheȱbenefitȱof,ȱtheȱDefendant,ȱIȱagainȱ usedȱtheȱavailableȱinformationȱfromȱtheȱBLMISȱbankȱrecordsȱasȱdescribedȱabove.ȱȱInȱaddition,ȱIȱ reviewedȱrecordsȱproducedȱtoȱtheȱTrusteeȱbyȱaȱthirdȬpartyȱfinancialȱinstitution.ȱȱUsingȱtheseȱ availableȱrecords,ȱIȱidentifiedȱtheȱrecipientsȱofȱtheȱtransfersȱfromȱBLMIS.ȱ

14. TheȱdocumentsȱandȱdataȱthatȱIȱconsideredȱinȱconnectionȱwithȱthisȱreportȱareȱlistedȱinȱ

Exhibitȱ2.ȱȱIȱreserveȱtheȱrightȱtoȱsupplementȱmyȱreportȱbasedȱonȱanyȱadditionalȱdocumentsȱorȱ informationȱreceived.ȱ ȱ

IV.ȱSUMMARYȱOFȱFINDINGSȱ ȱ 15. Basedȱonȱtheȱforensicȱanalysesȱperformed,ȱasȱdescribedȱaboveȱandȱthroughoutȱthisȱ report,ȱasȱwellȱasȱmyȱskills,ȱknowledge,ȱexperience,ȱeducationȱandȱtrainingȱthatȱIȱappliedȱtoȱtheȱ

5ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 8 of 19

documentsȱandȱinformationȱavailableȱtoȱmeȱasȱofȱtheȱdateȱofȱthisȱreport,ȱmyȱfindingsȱareȱ summarizedȱasȱfollows:ȱ

x MyȱteamȱandȱIȱreconciledȱ99%ȱofȱtheȱapproximatelyȱ225,000ȱcashȱdepositȱandȱ

withdrawalȱtransactionsȱreflectedȱonȱallȱBLMISȱcustomerȱstatementsȱduringȱtheȱtimeȱ

periodȱofȱDecemberȱ1998ȱtoȱDecemberȱ2008ȱtoȱtheȱavailableȱBLMISȱbankȱrecordsȱforȱtheȱ

sameȱtimeȱperiod.ȱȱTheȱremainingȱ1%ȱthatȱweȱwereȱunableȱtoȱreconcileȱconsistsȱprimarilyȱ

ofȱwithdrawalȱtransactionsȱforȱwhichȱcopiesȱofȱtheȱrelatedȱcancelledȱchecksȱwereȱnotȱ

available.ȱȱBasedȱonȱtheȱresultsȱofȱourȱreconciliationȱofȱ99%ȱofȱtheȱcashȱtransactions,ȱIȱcanȱ

reasonablyȱinferȱthatȱmyȱteamȱandȱIȱwouldȱhaveȱbeenȱableȱtoȱreconcileȱtheseȱwithdrawalȱ

transactionsȱhadȱcopiesȱofȱtheȱrelatedȱcancelledȱchecksȱbeenȱavailable.ȱȱOnlyȱ13ȱ

transactionsȱofȱthisȱremainingȱ1%ȱ(representingȱlessȱthanȱ0.006%ȱofȱtheȱapproximatelyȱ

225,000ȱcashȱtransactions)ȱwereȱreflectedȱonȱtheȱcustomerȱstatements,ȱbutȱcouldȱnotȱbeȱ

reconciledȱtoȱavailableȱBLMISȱbankȱrecords.ȱ

x Forȱmyȱreconciliationȱanalysis,ȱIȱanalyzedȱtheȱcashȱtransactionsȱduringȱtheȱentireȱperiodȱ

forȱtheȱLegacyȱCapitalȱAccount,ȱfromȱOctoberȱ2000ȱtoȱDecemberȱ2008.ȱȱDuringȱthisȱtimeȬ

period,ȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccountȱreflectedȱ15ȱcashȱdepositȱ

andȱwithdrawalȱtransactions.ȱȱIȱreconciledȱ100%ȱofȱtheȱ15ȱcashȱtransactionsȱreflectedȱonȱ

theȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccountȱtoȱavailableȱBLMISȱbankȱ

recordsȱand/orȱdocumentationȱcontainedȱinȱBLMISȱcustomerȱfilesȱrelatedȱtoȱtheȱLegacyȱ

CapitalȱAccount.ȱȱInȱaddition,ȱbasedȱonȱmyȱreviewȱofȱdocumentsȱcontainedȱinȱtheȱ

customerȱfileȱmaintainedȱatȱBLMISȱforȱtheȱLegacyȱCapitalȱAccount,ȱIȱhaveȱnotȱfoundȱanyȱ

instanceȱofȱtheȱDefendantȱcommunicatingȱtoȱBLMISȱanyȱdisagreementȱwithȱrespectȱtoȱ

theȱaccuracyȱofȱanyȱcashȱtransactionȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱ

CapitalȱAccount.ȱ

x Forȱmyȱtracingȱanalysis,ȱIȱanalyzedȱtheȱcashȱwithdrawalsȱfromȱtheȱLegacyȱCapitalȱ

AccountȱduringȱtheȱTwoȱYearȱPeriod.ȱȱBasedȱonȱavailableȱbankȱrecordsȱfromȱBLMISȱandȱ

recordsȱproducedȱtoȱtheȱTrusteeȱbyȱaȱthirdȬpartyȱfinancialȱinstitution,ȱIȱtracedȱ50%ȱofȱtheȱ

totalȱamountȱofȱcashȱwithdrawalsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱ

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CapitalȱAccountȱduringȱtheȱTwoȱYearȱPeriodȱtoȱaȱbankȱaccountȱheldȱbyȱtheȱDefendantȱ

andȱtheȱremainingȱ50%ȱtoȱaȱbankȱaccountȱheldȱbyȱBNPȱParibasȱ(Dublin)ȱatȱtheȱrequestȱofȱ

theȱDefendant.ȱ ȱ

V.ȱRECONCILIATIONȱOFȱCASHȱTRANSACTIONSȱFORȱALLȱBLMISȱCUSTOMERSȱ ȱ A. OVERVIEWȱ

16. AsȱsetȱforthȱinȱtheȱPrincipalȱBalanceȱCalculationȱReport,ȱaȱteamȱfromȱFTIȱworkingȱ underȱMr.ȱGreenblatt’sȱsupervisionȱcreatedȱchronologicalȱlistingsȱofȱallȱcashȱandȱprincipalȱ transactions,ȱincludingȱcashȱdepositȱandȱwithdrawalȱtransactions,ȱforȱeveryȱBLMISȱcustomerȱ account.ȱȱIȱwasȱtaskedȱwithȱreconcilingȱtheȱcustomerȱcashȱdepositȱandȱwithdrawalȱtransactionsȱ toȱavailableȱBLMISȱbankȱrecordsȱtoȱassistȱinȱtheȱdeterminationȱofȱwhetherȱtheȱcashȱtransactionsȱ reflectedȱonȱtheȱcustomerȱstatementsȱforȱallȱBLMISȱcustomersȱwereȱfairlyȱandȱaccuratelyȱ represented.ȱȱ

B. BLMISȱBANKȱACCOUNTSȱ

17. MyȱteamȱandȱIȱreviewedȱavailableȱbankȱrecordsȱforȱmoreȱthanȱ90ȱbankȱandȱ brokerageȱaccountsȱinȱtheȱnameȱofȱeitherȱBLMISȱorȱBernardȱL.ȱMadoff,3ȱandȱfoundȱthat,ȱ primarily,ȱtheȱfollowingȱthreeȱbankȱaccountsȱwereȱusedȱbyȱBLMISȱforȱcustomerȱdepositsȱandȱ withdrawalsȱduringȱatȱleastȱtheȱtenȬyearȱperiodȱfromȱDecemberȱ1998ȱtoȱDecemberȱ2008:ȱ

x JPMorganȱChaseȱaccountȱ#xxxxx1703ȱ(theȱ“703ȱAccount”)4ȱ

x JPMorganȱChaseȱaccountȱ#xxxxxxxxx1509ȱ(theȱ“509ȱAccount”)ȱ

x BankersȱTrustȱaccountȱ#xxȬxx0Ȭ599ȱ(theȱ“BTȱAccount”)ȱ

18. Recordsȱforȱtheseȱthreeȱaccountsȱconsistȱofȱmonthlyȱbankȱstatements,ȱcopiesȱofȱ depositedȱchecks,ȱdepositȱslipsȱandȱcancelledȱchecks.ȱȱRecordsȱrelatedȱtoȱtheȱ703ȱAccountȱandȱ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 3ȱSeeȱExhibitȱ3ȱforȱaȱlistingȱofȱknownȱbankȱaccountsȱheldȱbyȱBLMISȱand/orȱBernardȱL.ȱMadoff.ȱ 4ȱPersonalȱIdentifyingȱInformationȱhasȱbeenȱredactedȱthroughoutȱthisȱreportȱandȱtheȱaccompanyingȱexhibits.ȱ

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theȱ509ȱAccountȱwereȱavailableȱfromȱDecemberȱ1998ȱtoȱDecemberȱ2008ȱandȱwereȱobtainedȱfromȱ

BLMIS’sȱfilesȱasȱwellȱasȱfromȱJPMorganȱChaseȱ&ȱCo.ȱ(“JPMC”).5ȱȱȱInȱadditionȱtoȱhardȱcopyȱ documents,ȱJPMCȱproducedȱanȱelectronicȱfileȱthatȱprovidesȱdetailsȱofȱwireȱtransfersȱinȱandȱoutȱ ofȱtheȱ703ȱAccountȱfromȱJanuaryȱ1,ȱ2002ȱtoȱDecemberȱ11,ȱ2008ȱ(theȱ“JPMCȱWireȱFile”).6ȱȱRecordsȱ relatedȱtoȱtheȱBTȱAccountȱwereȱavailableȱfromȱDecemberȱ1998ȱtoȱMayȱ1999ȱandȱwereȱobtainedȱ fromȱBLMIS’sȱfiles.7ȱ

19. Inȱtheȱaggregate,ȱFTIȱhadȱavailableȱbankȱrecordsȱrelatedȱtoȱtheȱBLMISȱbankȱaccountsȱ usedȱforȱcustomerȱdepositsȱandȱwithdrawalsȱforȱaȱtenȬyearȱperiodȱfromȱDecemberȱ1998ȱtoȱ

Decemberȱ2008.ȱȱToȱassistȱinȱourȱanalysisȱofȱtheseȱbankȱrecords,ȱwhichȱincludedȱcopiesȱofȱ monthlyȱbankȱstatementsȱandȱcancelledȱchecks,ȱweȱcapturedȱtheȱtransactionȱinformationȱfromȱ theseȱrecordsȱandȱconvertedȱtheȱinformationȱintoȱanȱelectronicȱformatȱthroughȱtheȱuseȱofȱaȱ combinationȱofȱOpticalȱCharacterȱRecognitionȱ(OCR)ȱsoftwareȱandȱmanualȱentry.ȱȱThisȱ electronicȱdata,ȱwhichȱaccuratelyȱreflectsȱtheȱunderlyingȱrecords,ȱbecameȱtheȱbasisȱforȱourȱ reconciliationȱofȱtheȱcashȱtransactionsȱreportedȱinȱtheȱBLMISȱbankȱrecordsȱtoȱtheȱcashȱdepositsȱ andȱwithdrawalsȱreflectedȱonȱBLMISȱcustomerȱstatements.ȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 5ȱTheȱOctoberȱ1999ȱbankȱstatementȱforȱtheȱ509ȱAccountȱcouldȱnotȱbeȱlocated.ȱȱHowever,ȱIȱwasȱableȱtoȱuseȱotherȱ availableȱdocuments,ȱsuchȱasȱtheȱ703ȱAccountȱstatements,ȱtoȱestimateȱtheȱactivityȱinȱtheȱ509ȱAccountȱduringȱOctoberȱ 1999.ȱȱInȱaddition,ȱthereȱisȱactivityȱreflectedȱonȱtheȱmonthlyȱbankȱstatementsȱforȱtheȱ703ȱAccountȱandȱ509ȱAccountȱforȱ whichȱcorrespondingȱcopiesȱofȱdepositedȱchecks,ȱdepositȱslipsȱand/orȱcancelledȱchecksȱwereȱmissingȱfromȱtheȱ documentsȱproducedȱbyȱJPMCȱand/orȱcouldȱnotȱbeȱlocatedȱinȱBLMIS’sȱrecords.ȱȱAsȱreflectedȱinȱmyȱsummaryȱofȱ findingsȱandȱotherȱresultsȱdescribedȱthroughoutȱmyȱreport,ȱtheseȱmissingȱdocumentsȱhadȱaȱminimalȱimpactȱonȱmyȱ overallȱanalysisȱandȱreconciliation.ȱ 6ȱThisȱfileȱwasȱmissingȱdataȱforȱtransactionsȱdatedȱDecemberȱ11,ȱ2004ȱtoȱDecemberȱ31,ȱ2004.ȱȱHowever,ȱweȱwereȱableȱ toȱuseȱotherȱavailableȱdocuments,ȱsuchȱasȱtheȱ703ȱAccountȱstatements,ȱtoȱobtainȱtheȱnecessaryȱinformationȱtoȱ completeȱourȱanalysisȱandȱreconciliation.ȱ 7ȱStatementsȱforȱJuneȱthroughȱAugustȱ1999,ȱOctoberȱ1999,ȱDecemberȱ1999ȱandȱJulyȱ2000ȱforȱtheȱBTȱAccountȱwereȱalsoȱ foundȱinȱBLMIS’sȱrecords.ȱȱHowever,ȱMayȱ1999ȱappearsȱtoȱbeȱtheȱlastȱmonthȱofȱsignificantȱactivityȱinȱtheȱBTȱAccount.ȱ ThereȱwasȱnoȱactivityȱinȱtheȱaccountȱduringȱtheȱmonthsȱofȱJuneȱthroughȱAugustȱ1999,ȱandȱtheȱstatementsȱforȱtheseȱ monthsȱshowedȱanȱendingȱbalanceȱofȱ$26,523.ȱȱInȱOctoberȱ1999,ȱtheȱonlyȱtransactionȱinȱtheȱaccountȱwasȱtoȱtransferȱtheȱ $26,523ȱremainingȱbalanceȱtoȱtheȱ703ȱAccountȱandȱzeroȱoutȱtheȱBTȱAccount.ȱȱTheȱDecemberȱ1999ȱandȱJulyȱ2000ȱ statementsȱforȱtheȱBTȱAccountȱbothȱshowedȱaȱzeroȱbalance.ȱ

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Theȱ703ȱAccountȱ

20. BasedȱonȱmyȱreviewȱofȱtheȱavailableȱBLMISȱbankȱrecords,ȱIȱdeterminedȱthatȱtheȱ703ȱ

AccountȱwasȱtheȱprimaryȱbankȱaccountȱusedȱforȱBLMISȱcustomerȱdepositsȱandȱwithdrawals.ȱȱ

MyȱteamȱandȱIȱreviewedȱandȱanalyzedȱeveryȱoneȱofȱtheȱtransactionsȱreportedȱinȱtheȱavailableȱ monthlyȱbankȱstatementsȱforȱtheȱ703ȱAccountȱfromȱDecemberȱ1998ȱtoȱDecemberȱ2008ȱtoȱ determine,ȱamongȱotherȱthings,ȱwhetherȱtheȱtransactionsȱwereȱrelatedȱtoȱaȱBLMISȱcustomerȱ depositȱorȱwithdrawal.ȱȱȱ

21. Theȱresultsȱofȱourȱanalysisȱofȱtheȱactivityȱinȱtheȱ703ȱAccountȱfromȱtheȱavailableȱbankȱ recordsȱforȱDecemberȱ1998ȱtoȱDecemberȱ2008ȱareȱsetȱforthȱinȱanȱExcelȱspreadsheetȱtitledȱ“JPMCȱ

703ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱDecemberȱ2008”ȱwhichȱisȱattachedȱasȱExhibitȱ4.ȱ

22. Inȱconductingȱourȱreconciliationȱofȱtheȱcashȱtransactionsȱreportedȱinȱtheȱ703ȱAccountȱ bankȱrecordsȱtoȱtheȱcashȱtransactionsȱreflectedȱonȱtheȱBLMISȱcustomerȱstatements,ȱweȱfirstȱ matchedȱtransactionsȱbasedȱonȱtheȱtransactionȱdateȱandȱamount,ȱbutȱalsoȱmanuallyȱreviewedȱ thousandsȱofȱtransactionsȱtoȱconfirmȱourȱresults.ȱȱInȱaddition,ȱthereȱwereȱinstancesȱwhenȱweȱ reconciledȱmultipleȱtransactionsȱonȱtheȱBLMISȱcustomerȱstatementsȱtoȱaȱsingleȱtransactionȱonȱ theȱBLMISȱbankȱstatements.ȱȱForȱexample,ȱaȱdepositȱintoȱtheȱ703ȱAccountȱthatȱrelatedȱtoȱ multipleȱBLMISȱcustomersȱappearedȱasȱoneȱtransactionȱonȱtheȱmonthlyȱbankȱstatementȱforȱtheȱ

703ȱAccount.ȱȱInȱthatȱcase,ȱweȱreconciledȱtheȱ703ȱAccountȱtransactionȱtoȱaȱcombinationȱofȱ multipleȱBLMISȱcustomerȱtransactions.8ȱȱȱ

23. FTIȱassignedȱaȱuniqueȱidentificationȱnumberȱtoȱeachȱofȱtheȱtransactionsȱreportedȱonȱ theȱavailableȱ703ȱAccountȱbankȱstatements.ȱȱSeeȱ“703ȱID”ȱinȱtheȱfirstȱcolumnȱofȱtheȱdetailȱtabȱofȱ

Excelȱspreadsheetȱ“JPMCȱ703ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱDecemberȱ2008”ȱ(attachedȱ asȱExhibitȱ4).ȱȱȱFTIȱalsoȱassignedȱaȱuniqueȱidentificationȱnumberȱtoȱeachȱoneȱofȱtheȱcustomerȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 8ȱAsȱanotherȱexample,ȱBLMISȱwithheldȱcertainȱamountsȱfromȱforeignȱaccountȱholdersȱandȱmadeȱpaymentsȱtoȱtheȱ InternalȱRevenueȱServiceȱonȱbehalfȱofȱtheseȱcustomers.ȱȱInȱtheseȱcases,ȱweȱreconciledȱoneȱpaymentȱfromȱtheȱ703ȱ AccountȱtoȱmultipleȱrelatedȱtransactionsȱperȱtheȱBLMISȱcustomerȱstatements.ȱ

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depositȱandȱwithdrawalȱtransactionsȱforȱeveryȱBLMISȱcustomerȱaccount.ȱȱSeeȱ“CMȱID”ȱinȱaȱ separateȱcolumnȱofȱtheȱdetailȱtabȱofȱExhibitȱ4.ȱȱOnceȱaȱspecificȱtransactionȱreportedȱinȱaȱ703ȱ

Accountȱstatementȱwasȱmatchedȱtoȱaȱspecificȱcustomerȱdepositȱorȱwithdrawalȱtransactionȱ reflectedȱonȱtheȱBLMISȱcustomerȱstatements,ȱweȱrecordedȱtheȱcorrespondingȱuniqueȱCMȱIDȱinȱ theȱrespectiveȱcolumnȱofȱExhibitȱ4.ȱȱThisȱmatchingȱformedȱaȱlinkȱbetweenȱtheȱcashȱtransactionsȱ perȱtheȱbankȱrecordsȱandȱtheȱcashȱtransactionsȱperȱtheȱcustomerȱstatements.ȱȱThisȱlinkȱensuredȱ thatȱnoȱtwoȱcustomerȱcashȱtransactionsȱwereȱincorrectlyȱmatchedȱtoȱtheȱsameȱcashȱtransactionȱ perȱtheȱbankȱrecordsȱorȱviceȱversa.ȱ

24. Basedȱonȱmyȱreviewȱofȱtheȱactivityȱinȱtheȱ703ȱAccountȱfromȱDecemberȱ1998ȱtoȱ

Decemberȱ2008,ȱIȱdeterminedȱthatȱapproximatelyȱ97%ȱofȱtheȱinflowsȱintoȱtheȱaccountȱduringȱ thisȱperiodȱrelatedȱtoȱcustomerȱdepositsȱandȱapproximatelyȱ98%ȱofȱtheȱoutflowsȱfromȱthisȱ accountȱduringȱthisȱperiodȱrelatedȱtoȱcustomerȱwithdrawals.ȱȱȱȱȱȱȱ

Theȱ509ȱAccountȱ

25. Basedȱonȱmyȱreviewȱofȱtheȱavailableȱbankȱrecordsȱrelatedȱtoȱtheȱ509ȱAccount,ȱIȱ determinedȱthatȱtheȱ509ȱAccountȱwasȱaȱcheckingȱaccountȱfundedȱbyȱtheȱ703ȱAccount.ȱȱȱFromȱ

Decemberȱ1998ȱtoȱDecemberȱ2008,ȱtheȱinflowsȱintoȱtheȱ509ȱAccountȱconsistedȱsolelyȱofȱtransfersȱ fromȱtheȱ703ȱAccountȱandȱtheȱoutflowsȱfromȱtheȱ509ȱAccountȱwereȱsolelyȱinȱtheȱformȱofȱchecks.ȱȱȱ

26. MyȱteamȱandȱIȱperformedȱanȱanalysisȱofȱtheȱactivityȱinȱtheȱ509ȱAccount,ȱsimilarȱtoȱ theȱanalysisȱweȱperformedȱwithȱrespectȱtoȱtheȱ703ȱAccount,ȱtoȱdetermineȱwhetherȱtheȱoutflowsȱ fromȱtheȱ509ȱAccountȱwereȱrelatedȱtoȱBLMISȱcustomerȱwithdrawals.ȱȱHowever,ȱinȱthisȱcase,ȱourȱ analysisȱreliedȱmoreȱheavilyȱonȱourȱreviewȱofȱtheȱcancelledȱchecksȱbecauseȱtheȱstatementsȱ themselvesȱlackedȱtheȱnecessaryȱdetail.ȱȱTheȱresultsȱofȱourȱanalysisȱofȱtheȱactivityȱinȱtheȱ509ȱ

AccountȱfromȱtheȱavailableȱbankȱrecordsȱforȱDecemberȱ1998ȱtoȱDecemberȱ2008ȱareȱsetȱforthȱinȱ anȱExcelȱspreadsheetȱtitledȱ“JPMCȱ509ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱDecemberȱ2008”ȱ whichȱisȱattachedȱasȱExhibitȱ5.ȱȱȱ

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27. Basedȱonȱmyȱreviewȱofȱtheȱactivityȱinȱtheȱ509ȱAccount,ȱIȱdeterminedȱthatȱ approximatelyȱ99%ȱofȱtheȱchecksȱwrittenȱfromȱtheȱ509ȱAccountȱfromȱDecemberȱ1998ȱtoȱ

Decemberȱ2008ȱwereȱrelatedȱtoȱcustomerȱwithdrawals.ȱ

TheȱBTȱAccountȱ

28. BasedȱonȱmyȱreviewȱofȱtheȱavailableȱbankȱrecordsȱrelatedȱtoȱtheȱBTȱAccount,ȱfromȱatȱ leastȱDecemberȱ1998ȱthroughȱMayȱ1999,ȱtheȱBTȱAccountȱwasȱalsoȱfundedȱbyȱtransfersȱfromȱtheȱ

703ȱAccount.ȱȱOutflowsȱfromȱtheȱBTȱAccountȱwereȱinȱtheȱformȱofȱbothȱchecksȱandȱwireȱ transfers.ȱȱȱ

29. MyȱteamȱandȱIȱperformedȱaȱreconciliationȱanalysisȱofȱtheȱactivityȱinȱtheȱBTȱAccount,ȱ similarȱtoȱthoseȱdescribedȱabove,ȱtoȱdetermineȱwhetherȱtheȱoutflowsȱfromȱtheȱBTȱAccountȱwereȱ relatedȱtoȱBLMISȱcustomerȱwithdrawals.ȱȱTheȱresultsȱofȱourȱanalysisȱofȱtheȱactivityȱinȱtheȱBTȱ

AccountȱfromȱtheȱavailableȱbankȱrecordsȱforȱDecemberȱ1998ȱtoȱMayȱ1999ȱareȱsetȱforthȱinȱanȱ

Excelȱspreadsheetȱtitledȱ“BTȱ599ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱMayȱ1999”ȱwhichȱisȱ attachedȱasȱExhibitȱ6.ȱȱȱ

30. BasedȱonȱmyȱreviewȱofȱtheȱactivityȱinȱtheȱBTȱAccountȱduringȱthisȱperiod,ȱIȱ determinedȱthatȱoverȱ97%ȱofȱtheȱoutflowsȱfromȱtheȱBTȱAccountȱwereȱrelatedȱtoȱcustomerȱ withdrawals.ȱ

C. RESULTSȱOFȱRECONCILIATIONȱ

31. MyȱteamȱandȱIȱreconciledȱ99%ȱofȱtheȱapproximatelyȱ225,000ȱcashȱdepositȱandȱ withdrawalȱtransactionsȱreflectedȱonȱallȱBLMISȱcustomerȱstatementsȱduringȱtheȱtimeȱperiodȱofȱ

Decemberȱ1998ȱtoȱDecemberȱ2008ȱtoȱtheȱavailableȱBLMISȱbankȱrecordsȱforȱtheȱsameȱtimeȱperiod.ȱȱ

Theȱmajorityȱofȱtheȱremainingȱ1%,ȱorȱapproximatelyȱ2,200ȱtransactions,ȱconsistȱprimarilyȱofȱ withdrawalȱtransactionsȱforȱwhichȱcopiesȱofȱtheȱrelatedȱcancelledȱchecksȱwereȱnotȱavailable.ȱȱ

Basedȱonȱtheȱresultsȱofȱourȱreconciliationȱofȱ99%ȱofȱtheȱcashȱtransactions,ȱIȱcanȱreasonablyȱinferȱ thatȱmyȱteamȱandȱIȱwouldȱhaveȱbeenȱableȱtoȱreconcileȱtheseȱwithdrawalȱtransactionsȱhadȱtheȱ relatedȱcancelledȱchecksȱbeenȱavailable.ȱȱOnlyȱ13ȱtransactionsȱofȱthisȱremainingȱ1%ȱ

11ȱ ȱ 10-05286-smb Doc 202-6 Filed 03/22/19 Entered 03/22/19 14:16:03 Exhibit 6 Pg 14 of 19

(representingȱlessȱthanȱ0.006%ȱofȱtheȱapproximatelyȱ225,000ȱcashȱtransactions)ȱwereȱreflectedȱonȱ theȱcustomerȱstatements,ȱbutȱcouldȱnotȱbeȱreconciledȱtoȱavailableȱBLMISȱbankȱrecords.ȱȱTheȱcashȱ transactionsȱinȱtheȱLegacyȱCapitalȱAccountȱareȱnotȱamongȱthoseȱincludedȱinȱtheȱ1%ȱofȱcashȱ transactionsȱthatȱcouldȱnotȱbeȱreconciledȱtoȱavailableȱBLMISȱbankȱrecords.ȱ ȱ

VI.ȱRECONCILIATIONȱOFȱCASHȱTRANSACTIONSȱFORȱTHEȱLEGACYȱCAPITALȱACCOUNTȱ ȱ A. OVERVIEWȱ

32. TheȱchronologicalȱlistingsȱofȱallȱcashȱandȱprincipalȱtransactionsȱforȱeveryȱBLMISȱ customerȱaccountȱcompiledȱbyȱFTIȱincludedȱtheȱcashȱtransactionsȱforȱtheȱLegacyȱCapitalȱ

Account.ȱȱFromȱOctoberȱ2000ȱtoȱDecemberȱ2008,ȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱ

Accountȱreflectedȱ15ȱcashȱtransactions,ȱwhichȱconsistedȱofȱeightȱcashȱdepositsȱintoȱtheȱLegacyȱ

CapitalȱAccountȱtotalingȱ$78,000,000ȱandȱsevenȱcashȱwithdrawalsȱfromȱtheȱLegacyȱCapitalȱ

Accountȱtotalingȱ$212,800,000.9ȱȱIȱwasȱtaskedȱwithȱreconcilingȱtheseȱ15ȱcashȱtransactionsȱtoȱ availableȱBLMISȱbankȱrecordsȱand/orȱdocumentsȱcontainedȱinȱBLMISȱcustomerȱfilesȱrelatedȱtoȱ theȱLegacyȱCapitalȱAccount.10ȱȱSeeȱExhibitȱ7ȱforȱaȱlistȱofȱtheseȱcashȱdepositȱandȱwithdrawalȱ transactions;ȱseeȱalsoȱExhibitȱ9ȱ–ȱ“ReconciliationȱandȱTracingȱResultsȱ–ȱLegacyȱCapitalȱAccount.”ȱȱ

B. BLMISȱBANKȱACCOUNTSȱ

33. Allȱ15ȱcashȱtransactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱ

AccountȱoccurredȱinȱtheȱtenȬyearȱperiodȱforȱwhichȱthereȱwereȱavailableȱbankȱrecordsȱforȱtheȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 9ȱInȱadditionȱtoȱtheseȱ15ȱcashȱtransactions,ȱthereȱwereȱcloseȱtoȱ900ȱtransactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱ forȱtheȱLegacyȱCapitalȱAccountȱthatȱrepresentedȱpurportedȱtaxȱobligationsȱwithheldȱfromȱtheȱLegacyȱCapitalȱ Account.ȱȱBLMISȱwithheldȱcertainȱamountsȱfromȱforeignȱandȱotherȱaccountȱholdersȱandȱmadeȱcombinedȱpaymentsȱtoȱ theȱInternalȱRevenueȱServiceȱ(IRS),ȱgenerallyȱonȱaȱmonthlyȱbasis,ȱonȱbehalfȱofȱtheseȱBLMISȱcustomers.ȱȱMoreȱ specifically,ȱBLMISȱmadeȱoneȱmonthlyȱpaymentȱfromȱtheȱ703ȱAccountȱtoȱtheȱIRSȱrelatedȱtoȱmultipleȱtaxȱwithholdingȱ transactionsȱacrossȱmultipleȱBLMISȱcustomerȱaccountsȱ(includingȱtheȱLegacyȱCapitalȱAccount).ȱȱTheȱcountȱofȱtotalȱ cashȱwithdrawalsȱfromȱtheȱLegacyȱCapitalȱAccountȱexcludesȱtheseȱtaxȱwithholdingȱtransactions.ȱ 10ȱAsȱofȱtheȱdateȱofȱthisȱreport,ȱtheȱDefendantȱhasȱnotȱproducedȱanyȱdocumentsȱtoȱtheȱTrustee.ȱ

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threeȱBLMISȱbankȱaccountsȱdescribedȱabove.ȱȱIȱhaveȱreconciledȱallȱ15ȱcashȱtransactionsȱreflectedȱ onȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccountȱduringȱtheȱperiodȱDecemberȱ1998ȱtoȱ

Decemberȱ2008ȱtoȱavailableȱBLMISȱbankȱrecords,ȱincludingȱmonthlyȱbankȱstatements.ȱȱTheȱ15ȱ cashȱtransactionsȱconsistedȱofȱeightȱdepositsȱandȱsevenȱwithdrawalsȱviaȱwireȱtransfersȱandȱwereȱ reconciledȱtoȱtheȱ703ȱAccount.ȱ

C. BLMISȱCUSTOMERȱFILESȱ

34. Inȱadditionȱtoȱreconcilingȱtheȱcashȱdepositȱandȱwithdrawalȱtransactionsȱforȱtheȱ

LegacyȱCapitalȱAccountȱtoȱtheȱavailableȱBLMISȱbankȱrecordsȱasȱdescribedȱabove,ȱIȱalsoȱ reviewedȱcustomerȱfilesȱfromȱBLMIS’sȱrecordsȱtoȱidentifyȱcorrespondenceȱrelatedȱtoȱtheȱcashȱ transactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccount.ȱ

35. CustomerȱfilesȱrelatedȱtoȱcustomerȱaccountsȱwereȱmaintainedȱinȱBLMIS’sȱrecordsȱ andȱwereȱgenerallyȱorganizedȱbyȱBLMISȱaccountȱnumber.ȱȱTheseȱcustomerȱfilesȱcontainedȱ documentsȱincluding,ȱbutȱnotȱlimitedȱto,ȱcorrespondenceȱbetweenȱtheȱcustomerȱandȱBLMISȱ employeesȱregardingȱincomingȱdepositsȱand/orȱrequestsȱforȱwithdrawals,ȱcustomerȱcontactȱ information,ȱandȱcustomer,ȱtrustȱandȱotherȱagreements.ȱ

36. Asȱpartȱofȱmyȱanalysis,ȱIȱidentifiedȱtheȱcustomerȱfileȱforȱtheȱLegacyȱCapitalȱAccountȱ withinȱBLMIS’sȱrecords.ȱȱIȱreviewedȱtheȱdocumentsȱcontainedȱinȱthisȱcustomerȱfileȱtoȱidentifyȱ correspondenceȱthatȱrelatedȱtoȱtheȱcashȱtransactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱ

LegacyȱCapitalȱAccount.ȱȱIȱidentifiedȱlettersȱand/orȱotherȱcorrespondenceȱinȱthisȱcustomerȱfileȱ thatȱsupportȱeightȱofȱtheȱ15ȱcashȱtransactionsȱinȱtheȱLegacyȱCapitalȱAccount.11ȱȱOneȱofȱtheseȱ letters,ȱwhichȱisȱaȱrequestȱforȱaȱcashȱwithdrawalȱfromȱtheȱLegacyȱCapitalȱAccount,ȱisȱattachedȱasȱ

Exhibitȱ8ȱandȱisȱdescribedȱfurtherȱbelow:ȱȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 11ȱTheȱremainingȱsevenȱcashȱtransactionsȱforȱwhichȱIȱdidȱnotȱidentifyȱaȱsupportingȱdocumentȱinȱtheȱBLMISȱcustomerȱ fileȱrelatedȱtoȱtheȱLegacyȱCapitalȱAccountȱwereȱcashȱdepositȱtransactions.ȱȱIȱidentifiedȱaȱdocumentȱtoȱsupportȱeachȱofȱ theȱcashȱwithdrawalȱtransactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccount.ȱȱSeeȱExhibitȱ7.ȱ

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x ȱȱȱInȱaȱletterȱdatedȱJuneȱ3,ȱ2008,ȱThomasȱPrunty,ȱaȱManagingȱDirectorȱatȱBNPȱ

Paribas,ȱrequestsȱonȱbehalfȱofȱtheȱDefendant,ȱ“Weȱwouldȱlikeȱtoȱwithdrawalȱ[sic]ȱ

$20,000,000ȱasȱofȱJuneȱ8,ȱ2008ȱfromȱaccountȱnumbersȱ1ȬFR071Ȭ3Ȭ0ȱandȱȱ

1ȬFR071Ȭ4Ȭ0.”ȱ

37. Furthermore,ȱbasedȱonȱmyȱreviewȱofȱtheȱdocumentsȱcontainedȱinȱtheȱcustomerȱfileȱ forȱtheȱLegacyȱCapitalȱAccount,ȱIȱhaveȱnotȱfoundȱanyȱinstanceȱofȱtheȱDefendantȱcommunicatingȱ toȱBLMISȱanyȱdisagreementȱwithȱrespectȱtoȱtheȱaccuracyȱofȱanyȱcashȱdepositȱorȱwithdrawalȱ transactionȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccount.ȱ

D. RESULTSȱOFȱRECONCILIATIONȱ

38. Inȱtotal,ȱbasedȱonȱmyȱanalysesȱdescribedȱabove,ȱIȱreconciledȱ100%ȱofȱtheȱ15ȱcashȱ transactionsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccountȱtoȱavailableȱ

BLMISȱbankȱrecordsȱand/orȱdocumentationȱcontainedȱinȱBLMISȱcustomerȱfilesȱrelatedȱtoȱtheȱ

LegacyȱCapitalȱAccount.ȱȱExhibitȱ7,ȱwhichȱisȱtheȱchartȱthatȱlistsȱeachȱofȱtheȱ15ȱcashȱtransactionsȱ forȱtheȱLegacyȱCapitalȱAccount,ȱcontainsȱtwoȱcolumnsȱthatȱindicateȱtheȱresultsȱofȱmyȱ reconciliationȱtoȱeachȱofȱtheseȱsourcesȱofȱinformation.ȱ

39. Inȱaddition,ȱasȱnotedȱabove,ȱIȱhaveȱnotȱfoundȱanyȱinstanceȱofȱtheȱDefendantȱ communicatingȱtoȱBLMISȱanyȱdisagreementȱwithȱrespectȱtoȱtheȱaccuracyȱofȱanyȱcashȱtransactionȱ reflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱAccount.ȱ ȱ

VII.ȱTRACINGȱCASHȱWITHDRAWALSȱFROMȱTHEȱLEGACYȱCAPITALȱACCOUNTȱ ȱ A. OVERVIEWȱ

40. TheȱavailableȱBLMISȱbankȱrecords,ȱasȱdescribedȱabove,ȱwereȱalsoȱusedȱtoȱdetermineȱ whetherȱIȱcouldȱtraceȱtheȱfundsȱthatȱleftȱBLMIS’sȱbankȱaccountsȱtoȱaccountsȱheldȱby,ȱorȱforȱtheȱ benefitȱofȱtheȱDefendant.ȱȱToȱdetermineȱthis,ȱIȱperformedȱaȱtracingȱanalysis,ȱwhichȱtracesȱ transfersȱfromȱBLMIS’sȱbankȱaccountsȱtoȱbankȱaccountsȱthatȱreceivedȱfundsȱfromȱBLMIS.ȱȱȱ

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41. DuringȱtheȱTwoȱYearȱPeriod,ȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱ

Accountȱreflectedȱsixȱcashȱwithdrawalȱtransactionsȱtotalingȱ$174,000,000.ȱȱTheseȱcashȱ withdrawalȱtransactionsȱwereȱinȱtheȱformȱofȱwireȱtransfersȱfromȱtheȱ703ȱAccount.ȱ

42. Tracingȱofȱcashȱwithdrawalsȱfromȱtheȱ703ȱAccountȱviaȱwireȱtransfersȱwasȱbasedȱonȱ theȱtransactionȱdescriptionȱcontainedȱonȱtheȱmonthlyȱbankȱstatements.ȱȱOften,ȱtheȱdescriptionȱ onȱtheȱbankȱstatementsȱforȱtheȱ703ȱAccountȱincludedȱtheȱidentificationȱofȱbothȱtheȱbankingȱ institutionȱthatȱreceivedȱtheȱcashȱtransferȱandȱtheȱbeneficiaryȱofȱtheȱtransfer.ȱȱInȱsomeȱcases,ȱtheȱ descriptionȱalsoȱincludedȱtheȱcorrespondingȱbankȱaccountȱnumber.ȱȱTheȱJPMCȱWireȱFileȱ producedȱtoȱtheȱTrusteeȱbyȱJPMCȱdetailingȱtheȱactivityȱinȱtheȱ703ȱAccountȱcontainedȱtheȱsame,ȱ andȱinȱsomeȱcasesȱadditional,ȱdetailȱrelatedȱtoȱtheȱtransactionsȱviaȱwireȱtransfers.ȱȱTherefore,ȱIȱ alsoȱreliedȱonȱtheȱJPMCȱWireȱFileȱtoȱidentifyȱinformationȱregardingȱtheȱflowȱofȱfundsȱrelatedȱtoȱ wireȱtransfersȱinȱandȱoutȱofȱtheȱ703ȱAccount.ȱ

43. Inȱaddition,ȱtoȱtraceȱtheȱcashȱwithdrawalsȱfromȱBLMIS,ȱIȱalsoȱreviewedȱdocumentsȱ producedȱtoȱtheȱTrusteeȱbyȱBNPȱParibas.ȱȱ

B. RESULTSȱOFȱTRACINGȱ

44. Forȱmyȱtracingȱanalysis,ȱIȱanalyzedȱtheȱcashȱwithdrawalsȱfromȱtheȱLegacyȱCapitalȱ

AccountȱduringȱtheȱTwoȱYearȱPeriod.12ȱȱBasedȱonȱavailableȱbankȱrecordsȱfromȱBLMISȱandȱ recordsȱproducedȱtoȱtheȱTrusteeȱbyȱaȱthirdȬpartyȱfinancialȱinstitution,ȱIȱtracedȱ50%ȱofȱtheȱtotalȱ amountȱofȱcashȱwithdrawalsȱreflectedȱonȱtheȱcustomerȱstatementsȱforȱtheȱLegacyȱCapitalȱ

AccountȱduringȱtheȱTwoȱYearȱPeriodȱtoȱaȱbankȱaccountȱheldȱbyȱtheȱDefendantȱandȱtheȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 12ȱSeeȱExhibitȱ9.ȱ

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remainingȱ50%ȱtoȱaȱbankȱaccountȱheldȱbyȱBNPȱParibasȱ(Dublin)ȱatȱtheȱrequestȱofȱtheȱ

Defendant.13ȱ ȱ

VIII.ȱSIGNATUREȱANDȱRIGHTȱTOȱMODIFYȱ ȱ 45. Thisȱreportȱandȱtheȱexhibitsȱcontainedȱhereinȱpresentȱmyȱfindingsȱandȱtheȱbasesȱ thereof.ȱȱToȱtheȱextentȱthatȱanyȱadditionalȱinformationȱisȱproducedȱbyȱanyȱparty,ȱIȱreserveȱtheȱ rightȱtoȱincorporateȱsuchȱadditionalȱinformationȱintoȱmyȱreportȱorȱtoȱmodifyȱmyȱreportȱasȱ necessary.ȱȱȱȱ

ȱȱȱ By:ȱ

ȱȱȱ ȱ ȱȱȱ LisaȱM.ȱCollura,ȱCPA,ȱCFE,ȱCFFȱ ȱȱȱ Februaryȱ20,ȱ2017ȱ

ȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱȱ 13ȱSeeȱBNPPȬLEGACYȬ00000327ȱtoȱBNPPȬLEGACYȬ00000331.ȱȱTheseȱdocumentsȱareȱNoticesȱofȱRepaymentȱthatȱreferȱ toȱaȱCreditȱAgreementȱbetweenȱtheȱDefendant,ȱLegacyȱCapitalȱLimitedȱ(theȱBorrower)ȱandȱBNPȱParibasȱȬȱDublinȱ Branchȱ(theȱLender).ȱȱ(SeeȱBNPPȬLEGACYȬ00000111ȱtoȱBNPPȬLEGACYȬ00000193ȱforȱaȱcopyȱofȱthisȱcreditȱagreement.)ȱȱ TheseȱnoticesȱinstructȱthatȱpaymentsȱfromȱtheȱBorrowerȱ(i.e.,ȱtheȱDefendant)ȱtoȱtheȱLenderȱareȱtoȱcomeȱfromȱcashȱ withdrawalsȱfromȱtheȱLegacyȱCapitalȱAccount.ȱȱAlthoughȱtheȱnoticesȱdoȱnotȱidentifyȱaȱbankȱorȱbankȱaccountȱnumberȱ forȱtheȱLender,ȱScheduleȱBȱtoȱtheȱCreditȱAgreementȱidentifiesȱaccountȱ#xxxxxxxxxx0110ȱheldȱatȱBNPȱParibasȱ(Newȱ York)ȱbyȱBNPȱParibasȱ(Dublin)ȱasȱtheȱLenderȇsȱbankȱaccount.ȱȱSeeȱBNPPȬLEGACYȬ00000168.ȱ

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IX.ȱLISTȱOFȱEXHIBITSȱ ȱ Exhibitȱ1:ȱȱȱCurriculumȱVitaeȱ Exhibitȱ2:ȱȱȱDocumentsȱConsideredȱ Exhibitȱ3:ȱȱȱListȱofȱKnownȱBLMIS/BernardȱL.ȱMadoffȱBankȱandȱBrokerageȱAccountsȱ Exhibitȱ4:ȱȱȱExcelȱSpreadsheetȱ“JPMCȱ703ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱDecemberȱ2008”ȱ Exhibitȱ5:ȱȱȱExcelȱSpreadsheetȱ“JPMCȱ509ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱDecemberȱ2008”ȱ Exhibitȱ6:ȱȱȱExcelȱSpreadsheetȱ“BTȱ599ȱAccountȱActivityȱ–ȱDecemberȱ1998ȱtoȱMayȱ1999”ȱ Exhibitȱ7:ȱȱȱListȱofȱAllȱCashȱTransactionsȱinȱtheȱLegacyȱCapitalȱAccountȱ Exhibitȱ8:ȱȱȱLetterȱfromȱBLMISȱCustomerȱFileȱforȱtheȱLegacyȱCapitalȱAccountȱ Exhibitȱ9:ȱȱȱReconciliationȱandȱTracingȱResultsȱ–ȱLegacyȱCapitalȱAccountȱ

17ȱ ȱ