Latest Guilty Plea in Madoff Case Suggests Prosecutors Focusing on Peter Madoff

A former employee of Bernard Madoff's now defunct brokerage has pled guilty to federal charges related to his obstruction of the criminal investigation following the scheme's collapse.  Craig Kugel, who oversaw the budget for the firm's market-making operation and employee benefits, pled guilty to five charges, including conspiracy to obstruct or impede the Internal Revenue Service, making false statements in relation to documents required by Employment Retirement Income Security Act and filing false tax returns.  He continued to deny that he had nothing to do with Madoff's Ponzi scheme, which bilked thousands of investors out of billions of dollars and remains the largest financial fraud in history.  Kugel is also the son of David L. Kugel, a longtime Madoff employee and former supervisory trader in Madoff's proprietary-trading operation.  The elder Kugel pled guilty to six charges in November 2011 and is currently cooperating with authorities.

Kugel's guilty plea resulted from his filing of false forms that attested to the employment of certain individuals at Madoff's firm when, in reality, they were not employed.  Additionally, Kugel failed to declare as income certain personal expenses that were charged to a corporate credit card.  In the plea, prosecutors detailed an instance in which the wife of an unnamed Madoff employee allegedly received salary and benefits even though she was never employed at the firm.  The revelation is significant, as the court-appointed trustee, Irving Picard, alleged in a 2010 lawsuit that Peter Madoff's wife received approximately $1.5 million from 1996 to 2008 for an unspecified managerial position.  The unnamed employee, denoted as "CC-1" in the court papers, is also said to have supervised Kugel and approved the non-disclosure to the IRS of Kugel's use of his corporate credit card to pay for personal expenses.  

While many have speculated that Madoff's children must have known of their father's fraudulent scheme, no charges have been brought to date, and many speculate that none will be filed.  However, should "CC-1" turn out to be Peter Madoff, prosecutors could bring charges related to false tax returns or conspiracy to obstruct or impede the IRS. According to prosecutors, "CC-1" and others abused the corporate credit card similar to Kugel.

A copy of correspondence sent to the sentencing judge outlining the charges and possible prison sentences is here.