A former senior aide to Bernard Madoff had an active role in calming the concerns of a corporate client whose executives asked questions about the Ponzi scheme mastermind's business operations, a government complaint shows.
Frank DiPascali served as a central contact between Madoff and the Fairfield Greenwich Group, which had invested $7.2 billion with the now-convicted financier, according to the complaint filed last week by Massachusetts Secretary of State William Galvin's office.
DiPascali participated in two due-diligence sessions at which Fairfield executives asked questions about Madoff's trading records, strategy and issues, the complaint shows.
He also issued a letter that outlined the purported procedure used to vote proxies on securities Madoff listed as being held on Fairfield's behalf, the complaint said. DiPascali is also portrayed as alerting Fairfield about Madoff's purported trading moves.
The complaint, which offers one of the first detailed accounts of DiPascali's work, accused Fairfield of fraud for allegedly misleading investors about its due-diligence oversight of Madoff. The company insisted it conducted "vigorous and robust monitoring" of what Fairfield and other clients thought was a large Madoff trading business.
Madoff, however, didn't make any trades. During his March 12 guilty plea, the former Nasdaq chairman confessed he instead used money from new investment clients to pay earlier ones.
Madoff has insisted he acted alone in fleecing charities, trusts, pension funds, hedge funds, celebrities and average investors around the world in crimes he said dated to the early 1990s.
But as Madoff awaits a June sentencing and possible 150-year prison term, investigators have focused on others who worked with him, including relatives and DiPascali. Apart from Madoff and his firm's former accountant, no one has been charged.
Marc Mukasey, DiPascali's defense attorney, declined to comment on the Massachusetts complaint. Galvin, however, said Fairfield executives told his investigators DiPascali had a key role in what was billed as Madoff's secret trading system.
"DiPascali was the only other person who was doing things to implement Madoff's so-called split-strike conversion strategy," said Galvin.
According to the complaint, Fairfield co-founder Jeffrey Tucker visited Madoff's headquarters in 2001 after a Barron's story raised questions about Madoff's record of reporting uncannily positive investment returns.
Madoff and DiPascali showed Tucker a purported blotter that listed trading data, said the complaint, adding that one of the two men also activated a screen that showed other trade records.
In October 2003, Amit Vijayvergiya, Fairfield's chief risk officer, asked DiPascali how Madoff's firm voted proxies on stocks bought in the trading strategy. DiPascali sent him a Nov. 6 letter that outlined what appeared to be a newly drafted policy in which the company would "act prudently in voting proxies."
E-mails obtained by Massachusetts investigators show Fairfield contacted Madoff's offices on Sept. 15, 2008, the day the Lehman Bros. bankruptcy jolted trading markets. Vijayvergiya alerted Fairfield executives that he checked with DiPascali about the turmoil.
According to a Vijayvergiya message, DiPascali said he and Madoff "do not want to sell into (market) weakness today and are looking for an exit opportunity."
That was just one example of what the complaint described as routine DiPascali calls alerting Fairfield that Madoff was entering or exiting his purported strategy.
Last Nov. 4, for instance, Gordon McKenzie, Fairfield's Bermuda controller, e-mailed Vijayvergiya that it "looks like we may be getting in the (Madoff trading) strategy this week." He explained that DiPascali had called and said "they have their buying hats on."
DiPascali also participated at what the complaint showed was a Nov. 8 due-diligence meeting Madoff held with Fairfield executives. DiPascali explained that Fairfield "does not have any direct c/p (counterparty) exposure" under Madoff's trading strategy, according to notes filed with the complaint.