Federal prosecutors revealed in a Wednesday court filing that Peter Madoff, brother of convicted swindler Bernard Madoff, is expected to plead guilty on Friday to several fraud charges relating to his involvement in the scheme and has agreed to a ten-year prison sentence. Mr. Madoff worked under his brother since 1965, and was the former head of compliance for his brother's now-defunct brokerage firm when the scheme unraveled in December 2008. Court papers signed by a Manhattan federal judge on Wednesday indicate that Mr. Madoff will enter a guilty plea to a single charge of conspiracy to commit securities fraud and a single count of falsifying records of an investment adviser. Madoff has agreed to a ten-year prison sentence, which represents the total maximum punishment he faced under the charges. Additionally, Madoff has agreed to a criminal forfeiture of approximately $143.1 billion, representing the total dollar amount of funds that passed through his brother's scheme.
The move, while not unexpected, is surprising in terms of the seriousness of the allegations and conduct assumedly to be admitted. Recently, Craig Kugel, an employee supervised by Madoff, pled guilty to several charges relating to the improper use of a corporate credit card and obstructing an IRS investigation. Many viewed Kugel's guilty plea as an indication that he would cooperate with federal authorities and participate in buttressing a criminal case against Mr. Madoff. The conduct for which Mr. Kugel pled guilty was unrelated to the fraud Bernard Madoff masterminded, and suggested that Mr. Madoff might face similar charges. However, by pleading guilty to conspiracy to commit secures fraud, Mr. Madoff will likely admit to conduct supporting the belief of prosecutors (and a skeptic public) that Mr. Madoff was not an innocent victim of his brother's fraud. Rather, while prosecutors are unlikely to allege that Mr. Madoff had direct knowledge of his brother's fraud, it was Mr. Madoff's dereliction of his duties as chief compliance officer that allowed the Ponzi scheme to continue to operate. Up until Mr. Kugel's conviction, a criminal prosecution of Mr. Madoff was considered unlikely, even though it had not yet been ruled out by prosecutors.
The announcement that Mr. Madoff and prosecutors had agreed to a ten-year prison sentence suggests the use of a type of plea agreement known as an 11(c)(1)(C) plea. Under such a plea agreement, a sentencing judge is given the discretion only to decide whether to accept or reject the terms of the proposed agreement. Should the judge deem the agreement acceptable, he is then powerless to depart from the suggested prison sentence, and is instead bound by the agreement between the parties. The pleas are more popular among corporations, especially in the field of Federal Corrupt Practices Act ("FCPA") litigation, where settlements often represent the result of drawn-out and strenuous negotiations. The plea will also contain a proffer of facts surrounding the charges, the veracity of which Mr. Madoff will attest to.
Several of Madoff's immediate and extended family members served in various capacities with their father's firm. His son, Mark, was employed at the firm's proprietary trading unit, and continued to deny any involvement in the scheme until his suicide on December 9, 2010, two years to the date of his father's confession. Another son, Andrew, served as co-head of trading along with Mark. Peter Madoff began working for the firm in 1965, rising through the ranks to become chief compliance officer. While court-appointed bankruptcy trustee Irving Picard has filed suit against the family for $200 million, there have been no other indications of an imminent criminal case against Andrew Madoff or any other family members. However, Peter Madoff's daughter, Shana Madoff, also worked in the business as in-house counsel and compliance director. A recent Wall Street Journal article suggests that prosecutors are now expected to shift their focus to her.
Along with the prison sentence, Mr. Madoff also agreed to a criminal forfeiture order of $143.1 billion representing the total amount of investor funds that passed through the operation. This forfeiture will include all of Mr. Madoff's real and personal property, and will also include claims to any income Mr. Madoff earns after he is released. It is likely that any funds recovered will be added to a fund representing government recoveries of Madoff-related assets that have not been claimed by Mr. Picard. This fund presumably includes the $2,206,157,717 provided to the Justice Department by the estate of Jeffrey Picower, which made the payment as part of a larger $7.2 billion settlement with Picard and the government. In addition to his position as bankruptcy trustee, Picard has also been appointed by the DOJ as Special Master to oversee the process by which the funds will be distributed back to the victims, known as remission. Picard, who has recovered nearly $10 billion thus far as trustee, has not yet announced a timetable for the separate remission process.