A pair of computer experts helped conceal Bernie Madoff’s $65 billion ripoff – and took the Ponzi schemer for hush money two years before his arrest, court records revealed Friday.

PREET BHARARA, the United States Attorney for the Southern District of New York, JOSEPH M. DEMAREST, JR., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), ALAN D. LEBOWITZ, the Deputy Assistant Secretary of the United States Department of Labor, Employee Benefits Security Administration (“DOL-EBSA”), and PATRICIA J. HAYNES, the Special Agent-in-Charge of the New York Field Office of the Internal Revenue Service (“IRS”), announced that JEROME O’HARA and GEORGE PEREZ—former computer programmers for Bernard L. Madoff Investment Securities, LLC (“BLMIS”)—were arrested this morning at their residences by agents of the FBI. O’HARA and PEREZ are charged in a criminal Complaint with conspiracy, falsifying books and records of a broker-dealer, and falsifying books and records of an investment adviser.

Madoff

For decades, BERNARD L. MADOFF ran an elaborate Ponzi scheme through BLMIS, purported to be an investment advisory business, that defrauded thousands of clients of billions of dollars.

O’HARA and PEREZ were employed as computer programmers at BLMIS beginning in 1990 and 1991, respectively. They primarily were responsible for developing and maintaining computer programs that supported the operation of the BLMIS IA business. Many of those programs were run on an IBM server known within BLMIS as “House 17.”

As a broker-dealer and investment adviser, BLMIS was required, under the federal securities laws and regulations, to keep certain books and records in the ordinary course of its business, including: trade blotters containing an itemized daily record of details about all of BLMIS’s purchases and sales of securities; documents reflecting each order underlying the purchases and sales of securities and the times at which the orders were received and executed; and the name and address of the beneficial owner of each account held at BLMIS. Between 2004 and 2008, BLMIS was subject to at least five reviews by the United States Securities and Exchange Commission (“SEC”) and a European accounting firm which was conducting a review of BLMIS’s operations on behalf of a European IA client. As part of a concerted effort overseen by MADOFF and his then employee, FRANK DIPASCALI, JR., to deceive both the SEC and the European accounting firm, O’HARA and PEREZ developed and maintained computer programs that generated numerous false and fraudulent books and records.

For example, O’HARA and PEREZ created special computer programs that, among other things:

Created books and records for a small subset of BLMIS IA clients to help hide the scope and nature of the IA business;

Changed the names of account holders to help explain why the SEC would not find IA client securities custodied at the Depository Trust Company (“DTC”);

Altered details about the number of shares, execution times, and transaction numbers for trades reported on BLMIS trade blotters, by employing random algorithms that produced false and random results;

Changed the names of the parties from which BLMIS bought securities and to which BLMIS sold securities;

Created false and fraudulent order entry and execution reports that included fictitious times at which orders for equities transactions purportedly were placed;

Generated false and fraudulent commission reports;

Created fraudulent IA client account statements in a format different from those sent to clients;

Produced fraudulent DTC monthly reports and other fraudulent DTC documents that were used to deceive representatives of the European accounting firm about where their client’s securities were custodied;

Generated fraudulent documents that could be used to make it appear that the IA business bought and sold securities on the London Stock Exchange in Europe; and

Allowed DIPASCALI and other BLMIS employees to alter computer programs necessary to create additional false and fraudulent books and records to respond to the European accounting firm’s requests for information in 2008.

O’HARA and PEREZ allegedly knew that the special programs they developed contained fraudulent information and that they were used in connection with the SEC and European accounting firm reviews. In April 2006, O’HARA and/or PEREZ attempted to delete 218 of 225 special programs from House 17 and also closed their own BLMIS IA accounts, withdrawing hundreds of thousands of dollars each.

In August or September 2006, O’HARA and PEREZ met with MADOFF and told him, in substance, that they would no longer lie for him. Handwritten notes found by the FBI in O’HARA’s desk stated, among other things: “I won’t lie any longer. Next time, I say ‘ask Frank.’” After MADOFF directed DIPASCALI to pay O’HARA and PEREZ whatever they wanted in order to keep them happy, O’HARA and PEREZ each received pay increases of about 25 percent and net bonuses of approximately $60,000.

O’HARA, 46, of Malverne, New York, and PEREZ, 43, of East Brunswick, New Jersey, each face a maximum sentence totaling 30 years in prison: five years on Count One (Conspiracy) and a maximum fine of $250,000 or twice the gross gain or loss from the offense; 20 years on Count Two (Falsifying Books and Records of a Broker-Dealer) and a maximum fine of $5 million or twice the gross gain or loss from the offense; and five years on count Three (Falsifying Books and Records of an Investment Adviser), and a maximum fine of $10,000 or twice the gross gain or loss from the offense.

The defendants will be presented later today before United States Magistrate Judge RONALD L. ELLIS in Manhattan federal court.

United States Attorney BHARARA said: “Jerome O’Hara and George Perez allegedly helped construct Bernie Madoff’s house of cards. The computer codes and random algorithms they allegedly designed served to deceive investors and regulators and concealed Madoff’s crimes. Today they have been charged for their roles in Madoff’s epic fraud, and the investigation remains ongoing.”

FBI Assistant Director-in-Charge DEMAREST stated: “O’Hara and Perez are charged with being instrumental in facilitating the Ponzi scheme that was the Bernard Madoff investment advisory business. Their subterfuge was designed to conceal the fraud from regulators and others, and when they told Madoff they would no longer lie for him, their continued complicity was bought for a price.”

Mr. BHARARA praised the work of the FBI in this case, as well as DOL-EBSA and the IRS for their roles in the ongoing investigation. He also thanked the SEC for its assistance.

Assistant United States Attorneys MARC LITT, LISA A. BARONI, WILLIAM J. STELLMACH, BARBARA A. WARD and SHARON FRASE are in charge of the prosecution.

State Senators Johnson and Foley

State Senate Energy and Telecommunications Chair Darrel J. Aubertine and Long Island Senators Craig M. Johnson and Brian X. Foley are continuing public talks with business leaders and other stakeholders on the future of energy incentive programs which have been used to create and sustain jobs throughout the state.

A roundtable discussion held today at the headquarters of the Long Island Power Authority as part of the Legislature’s “Powering New York’s Future” initiative, featured more than a dozen participants, including businesses, trade organizations and representatives with expertise on the economic development and energy sides of the discussion. It was the state Legislature’s second public roundtable discussion on the topic. Last week, lawmakers held a roundtable in Buffalo, followed the next day in Niagara Falls by the first of two hearings to be held.

“As we continue to reach out for public input, we recognize that there is a desire to reform these programs to make them more effective and more efficient to create and preserve jobs across the state,” Sen. Aubertine, D-Cape Vincent, said. “These programs have helped many energy intensive industries to hire new workers and maintain employment levels. The input we receive in these forums will help us to develop an even better approach to using the New York Power Authority’s resources for economic development. I want to thank Senators Johnson and Foley for their interest in this topic and their dedication to the needs of their constituents.”

“Long Island has a distinct business environment with challenges that include high energy costs and high costs of doing business overall,” Senator Johnson, D-Port Washington, said. “It is critical that any new energy incentive program help address of the unique needs of Nassau and Suffolk business leaders. I thank my good friend, Senator Aubertine, for spearheading this critically important undertaking.”

“Energy efficiency and energy costs have been important issues on Long Island for many years,” said Senator Foley, D-Blue Point. “Today’s roundtable is an integral step in looking at current programs and determining where they are working and where there is room for improvement. I would like to thank Senator Aubertine for recognizing the importance of these issues to Long Island and traveling down here to listen to the concerns of our business and environmental leaders.”

Long Island Power Authority President and CEO Kevin Law said: “I want to commend Chairman Aubertine, Senator Johnson and Senator Foley for their commitment to providing lower-cost energy to businesses that will retain and create jobs on Long Island and throughout New York State, as well as tackle the other significant energy challenges facing the region. At the Long Island Power Authority, it is integral to our core mission to promote economic development while also investing in critical efficiency and renewable programs. We are excited to participate in today’s roundtable discussion with the New York State Senate as we continue to deliver safe, reliable and affordable energy to our customers while partnering with the Long Island business community and stimulating a clean energy economy.”

At the roundtable today the participants discussed a desire to see the state’s low-cost power economic development programs centralized as a one-stop-shop for businesses, as well as the need for energy efficiency and maintaining programs to keep good businesses and good paying jobs in our communities. The participants also discussed the possibility of using low cost power for business incubators on college and university campuses to grow a business and provide the benefits that will keep that business and its jobs local.

Among those in attendance at the roundtable were representatives from the Advanced Energy Research and Technology Center, Renewable Energy Long Island, Long Island Progressive Coalition, LED Lumina, the Long Island Clean Energy Task Force, Suffolk County Electrical Agency, County Energy Service, the Long Island Association and John Hassall, Inc., a business receiving Power for Jobs benefits. Some of the participants said they were pleased to have the Energy Committee Chair host this event with their local representatives. They said it was the first time in their recollection that the chair of this important committee has visited Long Island.

The Senate and Assembly have put together this initiative to bring public input into ongoing discussions on the future of these programs. Before renewing several programs including Power for Jobs last summer, lawmakers promised to collect input from businesses and stakeholders to ensure that their ideas were part of the policy making process. Led by the Energy Committees in each house, these events are intended to better target and deliver program benefits, while examining the New York Power Authority’s (NYPA) stewardship of these vital economic development programs.

The legislators will continue to listen to business leaders, including from companies in the programs now and others not receiving benefits at this time, trade groups, advocates and the general public to better understand the value of these programs and consider new ideas to improve and reform these programs to retain existing jobs, attract new investment from new employers, and build new careers in New York. Input received in the hearings will be used along with legislative analysis of NYPA’s performance, to craft a new long term low-cost power economic development program.

Governor David A. Paterson

Governor David A. Paterson met with more than 50 members of the small business community from the Capital Region, Hudson Valley and across the State to discuss his Deficit Reduction Plan (DRP) and the State’s current fiscal situation. The meeting, which took place in Albany, was one of several that the Governor has convened across the State, including in New York City, Long Island, the Hudson Valley, Syracuse, Binghamton, and Watertown.

“The time for action is now. We cannot continue to put off the difficult choices we must make in order to preserve our financial stability”  Governor Paterson.

The Governor has hosted these conversations in an effort to better understand the concerns of New York’s business communities and to emphasize that his proposed reductions he are painful but necessary steps to ensure the long term health of the State.

“The time for action is now. We cannot continue to put off the difficult choices we must make in order to preserve our financial stability,” said Governor Paterson. “Doing so, will only make those choices more difficult down the road. That is why I am traveling the State to personally make my case to the people of New York and to listen to their concerns and ideas.”

“Today’s meeting focused on the small business community – a community that is the engine of the New York State economy,” continued the Governor. “I am committed to helping them grow even as we face the worst economic downturn since the Great Depression.”

This September, Governor Paterson unveiled a comprehensive guide for small business owners and entrepreneurs – a first-of-its-kind, comprehensive and interactive guide that will assist entrepreneurs in starting new businesses and will provide current small business owners with invaluable information and resources. The handbook is a direct result of the work done by the Governor’s Small Business Task Force, a group of statewide business leaders that convened this summer. Governor Paterson charged the task force with developing new strategies to address the concerns of small business in New York and to promote their growth and development.

The directory is available HERE.

Mike Elmendorf, New York State Director of the National Federation of Independent Business (NFIB), said: “New York faces a very real and very dire fiscal crisis. It is a crisis of over-spending, not revenue, and certainly not under-taxation, brought on by years of unsustainable spending that neither State government nor its taxpayers could afford. Now is the time for real and substantial reductions in State spending, and fundamental changes to stop New York’s pattern of limping from fiscal crisis to fiscal crisis, such as a State spending cap and public employee pension reform. Small business owners make tough choices every day to keep their businesses running and their employees working. They also know they cannot spend more than they take in. It is high time for State government to do the same. Governor Paterson’s deficit reduction plan is a critical first step toward restoring fiscal stability in New York, and NFIB urges the legislature to enact it.”

F. Michael Tucker, President and CEO of the Center for Economic Growth, said: “Governor Paterson clearly understands the urgent need to implement a deficit reduction plan to insure the short term viability of New York State’s economy. To do nothing or continue ‘spending as usual’ will result in a disastrous downward spiral that will take years to recover. State government must tighten its belt just like families and businesses do in tough economic times.”

Bob Mallozzi of the Mallozzi Restaurant Group in Schenectady said: “Governor Paterson’s Deficit Reduction Plan is a courageous and necessary course of action, and the first step in the process of restoring financial stability to the State of New York.”