Bernard Madoff's top lieutenant in his Ponzi scheme is scheduled to plead guilty Tuesday to federal charges in what many legal observers believe is a cooperation deal that could lead to trouble for some major hedge fund operators.
Frank DiPascali Jr., 52, of Bridgewater, N.J., had been a key Madoff aide, working in a closely guarded office on the 17th floor of Manhattan's Lipstick Building, where the Ponzi scheme operated. It was DiPascali, investigators and defense attorneys said, who dealt with the numerous hedge funds and was involved in mailing myriad false account statements sent to thousands of defrauded clients.
In court papers filed Friday disclosing the expected plea, federal prosecutors didn't say to what charges DiPascali will plead guilty. But it is likely that he will face multiple counts of fraud, according to court records in related civil cases brought by the special trustee handling the bankruptcy of Madoff's corrupt operation.
DiPascali would be the third person - David Friehling and Madoff are the others - to be charged in the case during the expanding probe of the estimated $13 billion to $21 billion fraud. He has been rumored for months to have been cooperating with federal prosecutors. A spokesman for the U.S. attorney's office in Manhattan declined to comment, and defense attorney Marc Mukasey couldn't be reached.
Legal sources familiar with the investigation who didn't want to be identified said that DiPascali has apparently provided prosecutors with information about deals allegedly worked out with some hedge funds, which guaranteed them higher rates of returns on investments than other Madoff clients were receiving.
"I am sure a lot of people are sitting uneasily," said one of the defense attorneys.
In bankruptcy court lawsuits, special trustee Irving Picard identified a few major hedge fund players who allegedly received inordinately high investment returns. In the lawsuits, Picard has alleged that hedge fund operators and philanthropists Jeffry M. Picower, Stanley Chais, J. Ezra Merkin, as well as Fairfield Sentry Limited and its related funds, had such lucrative returns on their investments that they knew or should have known Madoff was a fraud.
Also sued by Picard are Cohmad Securities, a company closely affiliated with Madoff and run by Maurice Cohn of Manhasset. Picard charged that, for years, Cohmad representatives were compensated with tens of millions of dollars for passing along investors to Madoff.
Neither the hedge fund operators nor Cohmad have been charged in the investigation, and all, through their attorneys and court filings, have denied any wrongdoing in the case.Copyright © 2014, The Baltimore Sun