When a person is indicted on a federal crime, there is about a 99% chance that he/she will either plead guilty or be found guilty at trial. For many, that means a stint in prison ... unless you cooperate with the government against everyone else. This applies even if you were part of the largest Ponzi scheme in history.
Yesterday, former Madoff Security controller, Enrica Cotellessa-Pitz, was sentenced to probation for her role in the Madoff scheme. She received the light sentence as a result of her extensive cooperation with the government against others involved in the conspiracy, including the Madoff 5, who were found guilty at trial. According the Federal Sentencing Guidelines, Cotellessa-Pitz could have been sentenced to Life in prison due to the dollar amount of and her role in the fraud. However, her cooperation and testimony was looked upon favorably by both U.S. District Judge Laura Taylor Swain and AUSA Randall Jackson who called her assistance, "Extraordinary." That did not stop Judge Swain from ordering Cotellessa-Pitz to pay restitution of $97.3 Billion (yes, billion).
Today, another Madoff associate, Eric Lipkin, 41, who was also facing Life, was also sentenced by Judge Swain to nine (9) months of home detention, 200 hours of community service and $30.6 Billion in restitution. You start to see a trend here.
Lipkin was groomed to be a part of the fraud from an early age when he joined Madoff Securities right after high school as a clerk in the payroll and benefits department. His father, Irwin Lipkin who was the controller for Madoff at the time, helped him get the job. Irwin, 76, has also pleaded guilty and is expected to be sentenced on July 7, 2015.
While Lipkin was lauded for his cooperation and his minimal role in the fraud as compared to others, he admitted to a number of crimes according to the U.S. government's sentencing memorandum. These include:
- Misled auditors and SEC regulators
- Performed stock analysis to create fake reports with Madoff right-hand-man Frank DiPascali
- Created fake account statements for clients on assets that did not exist
- Created letters for Madoff to give foreign investors that falsely stated values
- As payroll clerk, he paid individuals who did not work at the firm (including his retired father)
- Created over 150 fake Depository Trust & Clearing Corporation (DTCC) account reports
- Created fake proxy voting records (Madoff Securities had no securities) to show investors
Beyond his fraud at Madoff Securities, he also created fraudulent bank statements to qualify for a loan to build a new home. He would never move into the house because Madoff Securities collapsed before it was finished. So he was in the thick of the fraud right up until the end. Any one of these crimes, any part of one of these crimes (most took place multiple times over years) would have resulted in a prison term of years. In fact, people are serving years in prison for mortgage fraud alone! However, cooperation goes a long way with prosecutors and the judge.
Lipkin got lucky. Sure he did the right thing and came clean about his role in the fraud ... after Bernie Madoff called the feds on himself. He also helped the government build their case against others. That cooperation most likely resulted in guilty pleas and it most certainly helped in the conviction of the Madoff 5 who went to trial. However, he knew more than anyone and knew what everyone else was up to at the firm. That put him in a position to help, to cooperate ... and cooperation is what gets your sentence reduced. In this case, a Life sentence resulted in an ankle bracelet hanging around the house for 9 months ... no prison time ... that is a huge break.
My good friend Sam Antar of Crazy Eddie fame, told me that the only thing you are good for when you are the target of a federal investigation is "information." "You don't get credit for helping little old ladies across the street or helping young children," Antar said, "but if you have information on others, then you're sitting in a good position to help yourself." Antar was sentenced to house arrest for his role as the CFO of Crazy Eddie.
The difference between those Madoff associates who went to prison and Lipkin is 'information.' It has little to do with their moral character, their level of deception, even their role in the fraud ... it has to do with what they knew. That is all the difference between being on the outside of the prison fence or on the inside.
In our justice system, co-conspirators to tell on are a criminal's best friend.
