NEW YORK — The way Frank DiPascali tells it, Bernard Madoff planted the seeds of deception for his $17 billion Ponzi scheme back in the 1970s, when his firm was in a small office at 110 Wall Street.
Madoff "would very loudly proclaim" that he had made a killing on an investment in Europe, DiPascali recalled. DiPascali, a longtime Madoff employee, later began to suspect the words were calculated to give the impression the business was "somehow backed up by his deals and investments overseas."
Whether Madoff's inner circle actually believed that lie has become central to a trial in federal court in Manhattan in which DiPascali is the government's star witness.
DiPascali, who started working for Madoff in the mid-1970s, took the stand Monday. He began his testimony, which is expected to last for days, by discussing how business was done then.
Part of his behind-the-scenes account was previewed last year in sections of FBI reports that were turned over to the defense. The reports, based on initial interviews of DiPascali, at times appear to support the contention that the defendants were unwitting dupes led astray by a devious boss.
But the reports also suggest the five had doubts about Madoff and his investment wizardry. DiPascali says two became convinced it was all a scam — and even confronted Madoff about it — but ultimately did nothing to stop it.
Defense attorneys have already attacked DiPascali's credibility, calling him equal partners in crime with Madoff.
"The evidence will show DiPascali is a pathological liar, and the government's case relies on you believing DiPascali," Andrew Frisch said in opening statements. "And now instead of Madoff, DiPascali's bosses are the government lawyers at this table."
His testimony represents a turnabout for DiPascali, who kept Madoff's secrets for decades until he agreed to cooperate with the FBI in early 2009 following Madoff's arrest in 2008.
Madoff, 75, admitted that accounts he had told investors were worth nearly $68 billion only days earlier actually held only a few hundred million dollars. He pleaded guilty to fraud charges a few months later and was sentenced to a 150-year prison term in Butner, N.C.
DiPascali, 57, who is out on bail but facing substantial prison time, carries his own baggage as the beneficiary of a bank account filled with investors' money that amounted to a slush fund for Madoff's family and top employees. Authorities say he withdrew more than $5 million from the account between 2002 and 2008 to fund personal expenses, including the purchase of a new boat.
In a guilty plea in 2009, DiPascali described himself as unsophisticated "kid from Queens" who began working for Madoff in 1975 and stayed until the bitter end.
"I was loyal to him," DiPascali said. "I ended up being loyal to a terrible, terrible fault."
In the late 1980s and early 1990s, DiPascali said he realized investments that Madoff was making for thousands of clients were fake. But he claimed he, like others, believed Madoff had other assets that would cover claims by investors who wanted their money back.
Prosecutors have accused Madoff's secretary, Annette Bongiorno, and JoAnn Crupi, an account manager, of using old stock tables to fabricate account statements so they would show steady returns even during economic downturns. They say Daniel Bonventre, his director for operations, cooked the books to throw off regulators.
According to the FBI reports, when Bongiorno first began working at the firm, DiPascali heard Madoff feed her his cover story "about deals he had going on Europe." He believed Crupi had likewise "convinced herself over the years that Madoff had a vast array of assets all over the world." He also "surmised that Madoff was probably telling Bonventre the same lies" as the others.
While others kept quiet, the remaining defendants — computer programmers Jerome O'Hara and George Perez — grew increasingly restless during the mid-2000s after they were tasked with maintaining programs that helped conceal the fraud, DiPascali told the FBI. During a boozy dinner at a Greek restaurant in Manhattan, the pair asked him whether Madoff's business was legitimate — a suggestion he laughed off but privately wondered why it took them so long to ask, the reports say.
DiPascali told the FBI that O'Hara and Perez finally demanded a meeting with Madoff. With DiPascali listening from a couch in Madoff's office, they told their boss that his business was illegal and that he should shut it down.
Madoff at first listened politely, reminding the men that he had been a successful investor for 40 years and that they didn't understand he was making his money overseas. Then, according to DiPascali, he blew up.
"You are not going to tell me how to run my business," Madoff said.
Prosecutors allege that at a later closed-door meeting, O'Hara and Perez demanded — and received — hush money. Another Madoff secretary has told investigators, "Jerry and George looked smug when they came out."
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