SEC Charges Longtime Madoff Employee with Falsifying Documents to Deceive Regulators

December, 2011:

The Securities and Exchange Commission recently charged a longtime Bernie Madoff employee with falsifying books and records in order to hide Madoff’s fraudulent investment advisory operations from regulators.

The SEC alleges that Enrica Cotellessa-Pitz, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for more than 30 years, assisted in falsifying BMIS’s internal accounting records in order to misclassify hundreds of millions of dollars of income purportedly generated by BMIS’s investment advisory operations. Cotellessa-Pitz also falsified financial statements filed with the SEC and other regulators as well as materials that were prepared to deceive SEC staff examiners, federal and state tax auditors, and other external reviewers.

“To keep his massive fraud alive, Madoff had to hide as many facts about his advisory operations as possible,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Cotellessa-Pitz along with other senior BMIS personnel played a critical role in this effort by creating false documents to deceive federal and state regulators.”

The SEC previously charged BMIS’s Director of Operations David Bonventre with falsifying books and records to hide and obfuscate Madoff’s advisory operations. According to the SEC’s complaint against Cotellessa-Pitz filed in U.S. District Court for the Southern District of New York, she played a central role in falsifying these records as directed by Madoff and Bonventre. Madoff used the false records to artificially improve the firm’s reported revenue and income as well as to deceive regulators who sought to review the firm’s operations and financial results.

The SEC alleges that Madoff instructed employees to transfer hundreds of millions of dollars from bank accounts holding investor funds to the firm’s operating bank accounts. Madoff’s goal was as simple as it was misleading – to use stolen investor funds to hide the significant losses incurred by BMIS’s market-making and proprietary trading operations. Cotellessa-Pitz joined this effort after she was promoted to controller at the firm in 1998, when Madoff and Bonventre instructed her to falsely account for these transfers of investor funds as adjustments to certain securities positions on BMIS’s stock record.

According to the SEC’s complaint, Cotellessa-Pitz then used these figures to calculate and overstate the trading income purportedly generated by Madoff’s market-making and proprietary trading operations. Cotellessa-Pitz included these bogus figures on BMIS financial statements, which she then filed with the SEC and other regulators. Cotellessa-Pitz and other BMIS personnel then falsified documents provided to regulators to obscure the firm’s advisory operations and the transfer of investor funds to the operating bank accounts.

The U.S. Attorney’s Office for the Southern District of New York today announced parallel criminal charges against Cotellessa-Pitz, who has pled guilty and also consented to the entry of a partial judgment in the SEC’s civil case against her. Subject to court approval, the proposed partial judgment will impose a permanent injunction against Cotellessa-Pitz and require her to disgorge ill-gotten gains and pay a fine in amounts to be determined by the court at a later date.

The SEC’s complaint against Cotellessa-Pitz alleges that by engaging in this conduct, she aided and abetted violations of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3, 17a-4, and 17a-5 thereunder, and Section 204 of the Investment Advisers Act of 1940 and Rule 204-2 thereunder.