My 4,200 word investigative package about how Bernie Madoff fooled his customers for decades hit the street last week in Securities Industry News (SIN). Primary sources for the 3,000 word main bar include two IT managers who worked for Bernard L. Madoff Investment Services and myriad untapped legal documents in the ongoing Madoff case.
My conclusion is that Madoff and his right-hand man Frank DiPascali Jr. used an isolated and aging IBM AS/400 installed around 1993 to generate phony customer statements, trade confirmations and IRS 1099 dividend forms. Clients didn’t have a clue he was taking their money and putting it into his personal piggy instead of buying stocks, treasuries and options as he was telling them.
I also did two sidebars: one about a victim’s attempt to get some restitution and about the field of data forensics which was instrumental in figuring out how the AS/400 functioned a printing press. One irony is that the expert I spoke with had the same name as me. The actual data forensics investigator for Madoff’s AS/400, Joseph Looby, would not speak to me given the ongoing investigation. The three arrested in the giant Ponzi scheme – Madoff, DiPascali and accountant David Friehling – have pled guilty, but it’s likely more will be charged.
Let me know your thoughts on my work. It is certainly one of the bigger packages I have done in recent memory. The story got picked up by the Huffington Post, ProPublica.org, Dodgeretort.com and CIO.com as well as other Sourcemedia publications (SIN is one of several Sourcemedia pubs about the financial industry).
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5 comments On Bernie Madoff: how low tech helped him get away with his Ponzi Scheme
Hi John, I thought your investigative piece was well done. I posted my thoughts on it on my Madoff thread: http://www.rdwrites.com/forums/viewtopic.php?t=3875&start=135
I know the AS/400 programmers were hired in 1993, but is your statement that House 17 was the original AS/400 installed in 1993 based on more than that? You have info that no upgrades to newer models were done since 1993?
Surely the House 5 AS/400 doing the FTP communications with exchanges was newer? Did anyone ever mention an actual model number, OS release number, or anything to indicate it as still the original 1993 AS/400?
I found the technical analysis by the FBI in the arrest warrant to be particularly well done.
regards,
Ralph
Liked the report, and it is good summary of the Looby affidavit.
Looby also notes:
“Of its thousands of customers, BLMIS provided customer statements in electronic form to only two customers, with six accounts between them.
Even though they were electronic, the statements consisted of merely data files.
No customer had real time access to its account information and trading data because there was no such data or information to be had in light of the fact that no trading was conducted.”
You cannot tell me that everyone thought that this was ok.
More arrests to follow, I’m sure….following the arrests of AS/400 programmers Jerry O’Hara and George Perez. When I started out reporting my piece, those were the two I wanted to talk to most. Couldn’t locate them, but I am sure they would not talk to me. Here’s my follow-up story in which SEC investigator told me they are cooperating w authorities..
http://www.securitiesindustry.com/issues/21_21/-24259-1.html
I milked every document I could get my hands on and extensively interviewed two BLMIS IT guys…nothing about upgrades. Not sure investigators care as long as they can get to the information they get to bring as many to justice as possible. Particulars on which model etc. were not available to me when I was reporting the story. The FBI doc you mention became public two weeks after my story broke. My story took the Madoff’s tech much. much further than anything previously.
or anything since. yes, John, I read the FBI doc when it came out and it had nothing beyond what you reported. Just wanted to emphasize that a 1993 AS/400 is obviously an aging computer, but the AS/400 isn’t. A new model comes out every year or two (and IBM keeps changing the name, iseries, i, etc.) It runs many multi-billion dollar companies and can do anything online, real-time desired. Only House 17 was low tech in the sense of being kept offline and used only for printing bogus statements.
A 1993 AS/400 still running and generating tens of thousands of statements would be quite remarkable. But the ROI of the AS/400 is so legendary it’s believable.
Ralph
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