Ex-Madoff man pleads guilty

@CNNMoney June 7, 2011: 5:30 PM ET

NEW YORK (CNNMoney) -- The man who cooked the books for Bernard Madoff pleaded guilty Monday.

Eric Lipkin helped deceive investors and regulators for more than a decade by falsifying documents and records that facilitated the largest Ponzi scheme in history, according to civil and criminal complaints unsealed by the Securities and Exchange Commission and the U.S. Attorney's office in Manhattan.

Lipkin, a 37-year old New Jersey man, pleaded guilty to criminal charges of conspiracy, fraud and making false statements. He has been released on a $2.5 million bond and is scheduled to be sentenced in December.

The SEC said Lipkin agreed to bypass a civil trial without admitting or denying the agency's allegations. If the agreement is approved by the courts, Lipkin will be required to return ill-gotten gains, pay a fine and be barred from the industry.

"Eric Lipkin helped create the detailed and entirely phony trading and business records that contributed to the success of Madoff's fraud," said George Canellos, director of the SEC's New York office. "The SEC is committed to holding accountable those who helped to perpetrate and conceal Madoff's scheme."

How they failed to catch Madoff

In return for doctoring records at Bernard L. Madoff Investment Securities, prosecutors said Lipkin was paid annual bonuses and received $720,000 from Madoff to buy a house, which he never repaid.

According to his plea agreement, Lipkin is cooperating with federal investigators and has already forfeited $1.4 million as well as other assets that will be used to compensate victims of the fraud.

Lipkin started working for Madoff as a teen in the mid-1990s and was key conspirator until the multi-billion dollar scheme fell apart in December 2008, according to prosecutors.

In 1996, he began falsifying account statements that were sent to clients of Madoff's investment advisory business. He also created phony letters and statements establishing investments that never existed in reality.

To mask the fraud, Lipkin helped forge documents that were purportedly from third party auditors, including reports from the Depository Trust Company, which maintains records of securities trades and positions. Since Madoff's firm "hardly ever engaged in any trading" Lipkin had to create phony reports, according to the complaint.

In addition, Lipkin created payroll accounts and 401(k) plans for employees that never existed, according to the complaints.

The paper trail that Lipkin helped establish was instrumental in Madoff's long-running Ponzi scheme, which depended on the appearance of legitimate investment returns.

But the fraud broke down as the financial crisis took hold in late 2008, when no new investors could be found to provide the income needed to keep up the illusion.

Madoff pleaded guilty in March 2009 to orchestrating the largest Ponzi scheme in history, cheating thousands of victims out of billions of dollars. He is currently serving a 150-year sentence in federal prison in North Carolina.  To top of page

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