Madoff was arrested earlier this month by FBI agents and charged with criminal securities fraud by federal prosecutors in Manhattan. The complaint states that he used "manipulative and deceptive practices." The complaint also cites two senior employees describing how Madoff kept his client records "under lock and key" and how he left them in the dark about how he managed the private client funds. One of those employees, in interviews with the FBI, said that Madoff was "cryptic" in his statements. This, according to clients, is in keeping with the aura that Madoff cultivated among his clients, some of whom have kept funds under management with him for generations.
But by the first week of December, when clients began clamoring for redemptions -- to the tune of $7 billion -- the complaint states that Madoff began a struggle to obtain the necessary liquidity. The stress began to show, employees said.
In a meeting at their boss's Manhattan apartment -- held there following a confrontation in the office because Madoff wasn't sure "he would be able to "hold it together" if the conversation took place in the office -- the employees came away believing that Madoff was "saying, in substance, that he had for years been paying returns to certain investors out of the principal received from other, different investors."
The next day, Dec. 11, Madoff spoke with FBI agent Theodore Cacioppi and invited the agent and another agent to his apartment. Cacioppi stated in the complaint that he told Madoff he came by to see if "there's an innocent explanation."
"There is no innocent explanation," Madoff replied, according to the sworn complaint.
Madoff's lawyer, Dan Horwitz, a partner at Dickstein Shapiro in New York, has said his client is cooperating fully with the federal investigation.
"Bernie Madoff is a long-standing leader in the financial services industry and he is cooperating fully with the government investigation into this unfortunate set of events," Horwitz said.
Madoff was released on $10 million bond following a court appearance in Manhattan and is expected back in court today.