Updated, 10:30 p.m. | Federal authorities, broadening their investigation of Bernard L. Madoff’s multibillion-dollar Ponzi scheme five years after the fraud was uncovered, unveiled criminal charges on Thursday against Paul J. Konigsberg, a longtime accountant in Mr. Madoff’s inner circle.
The indictment accuses Mr. Konigsberg of assisting Mr. Madoff in doctoring the false account statements that were central to carrying out the fraud. Prosecutors say Mr. Konigsberg performed services for more than 300 accounts invested with Bernard L. Madoff Securities, including those held by some of the firm’s earliest and wealthiest clients.
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Document: Charges for Madoff's Accountant“In order to keep his scheme hidden for so long, Madoff needed the assistance of certain willing outsiders that could be trusted to handle otherwise suspicious activity,” the government said. “Madoff directed many of his clients — including some of his most important customers, in whose accounts Madoff executed the most glaring fraudulent transactions — to use Paul J. Konigsberg, the defendant, as their accountant.”
On Wednesday night, Mr. Konigsberg was on the East End of Long Island, in the Hamptons, having dinner with friends at Bobby Van’s Steakhouse. An avid golfer, he and his friends played 18 holes at Sebonack Golf Club earlier in the day and planned another round for Thursday at the Atlantic Golf Club. But those plans were scuttled after Mr. Konigsberg received a late-night call from his lawyer telling him that he had been indicted. He drove back to New York to surrender.
Agents of the Federal Bureau of Investigation arrested him at 7 a.m. Thursday at his lawyers’ Park Avenue offices. In the afternoon, he appeared in Federal District Court in Manhattan and pleaded not guilty to conspiracy and falsifying records and statements. Magistrate Judge Debra Freeman released him on a $2 million bond.
Reed Brodsky, a lawyer for Mr. Konigsberg, attacked the government’s case. He said his client was an innocent victim of Mr. Madoff, and the fake account statements fooled Mr. Konigsberg along with everybody else. He also said Mr. Konigsberg lost $10 million of his own money in the fraud.
“In their witch hunt arising out of the largest Ponzi scheme in history, the government conveniently ignores that Bernie Madoff deceived everyone around him — from the most sophisticated investors to the S.E.C. itself,” said Mr. Brodsky, a partner at Gibson Dunn & Crutcher. “He looks forward to clearing his good name at trial.”
A founding partner of Konigsberg Wolf & Company, a midsize New York accounting firm that is now shuttered, Mr. Konigsberg had close business ties to Mr. Madoff dating to at least 1992, the government said. He was the only person outside the family to own an interest in Mr. Madoff’s business, holding a small stake in his London unit.
The government faces a December deadline to bring additional charges connected to the Madoff case. When Mr. Madoff was arrested on Dec. 11, 2008, after confessing to his sons the night before, it started the clock ticking on a five-year statute of limitations to bring securities fraud accusations.
Federal prosecutors asked Mr. Konigsberg’s lawyers to grant them an extension of the legal deadline, but they refused, leading to the government’s indictment, said a person briefed on the case.
Mr. Madoff, 75, now serving a 150-year prison sentence, says he acted alone. Yet Mr. Konigsberg is the 15th individual criminally charged in the case; nine people, including Mr. Madoff, have pleaded guilty.
On Oct. 7, five of Mr. Madoff’s former employees are scheduled to stand trial on charges that they aided the fraud. Each of the five — Daniel Bonventre, Annette Bongiorno, Joann Crupi, Jerome O’Hara and George Perez — worked at the firm for more than 15 years in a variety of low-level roles but ones the government said were crucial to carrying out Mr. Madoff’s long-running fraud.
The trial is likely to last several months, and the defendants are expected to argue that they were manipulated and deceived by their boss.
Prosecutors are weighing additional criminal charges. Among those still under scrutiny is Shana Madoff Swanson, Mr. Madoff’s niece and a former senior lawyer at the firm. Ms. Swanson’s father, Peter Madoff, was Mr. Madoff’s second in command and is serving a 10-year sentence after admitting that he falsified documents and lied to regulators.
The government is also examining the role of JPMorgan Chase. Mr. Madoff moved billions of dollars of investors’ cash in and out of Chase bank accounts until his crimes were uncovered. Investigators are focused on whether the bank failed to conduct adequate due diligence and properly alert regulators, said people with knowledge of the investigation.
A JPMorgan spokesman declined to comment.
Cash losses from the Madoff fraud are estimated at about $17.5 billion, but the paper wealth that was wiped out across about 4,000 investment accounts was more than $64 billion. Irving H. Picard, a bankruptcy trustee, has recovered about $9.4 billion and continues to trace the victims’ money.
Many of those victims were clients of Mr. Konigsberg’s. Trained as a lawyer, Mr. Konigsberg, 77, received a degree from Brooklyn Law School and a master’s in taxation from New York University School of Law. Mr. Konigsberg and his wife, Judith, live in Greenwich, Conn., and have a home in Palm Beach Gardens, Fla. The Konigsbergs socialized with Mr. Madoff and his wife, Ruth, once taking a ski vacation to the Swiss Alps with a group of Madoff associates.
In addition to the lucrative fees he received from his Madoff clients, Mr. Konigsberg also earned compensation directly from Mr. Madoff’s firm, according to the indictment. Mr. Madoff paid him a monthly retainer of $15,000 to $20,000 for providing accounting services to one of his most important clients, the government said.
He worked for a number of Mr. Madoff’s biggest investors, including Carl Shapiro, a Boston businessman, and Mr. Shapiro’s son-in-law, Bob Jaffe, who recruited many Madoff investors in Palm Beach, Fla. In 2010, Mr. Shapiro, Mr. Jaffe and their family members, who held much of their money at JPMorgan Chase, agreed to forfeit $625 million in Madoff profits to the trustee and the Justice Department.
The indictment highlights instances of Mr. Konigsberg working with Mr. Madoff’s firm to illegally backdate trades and create fictitious account activity to minimize his clients’ tax burden.
In addition, the government said that Mr. Konigsberg arranged a no-show job at Mr. Madoff’s firm for a relative who earned more than $320,000 over 17 years without ever working there, plus health benefits.
Mr. Konigsberg is the second outside accountant charged in the Madoff case. David G. Friehling, the longtime auditor for Mr. Madoff’s firm, who worked out of a Rockland County strip shopping mall, has pleaded guilty but has yet to be sentenced.