An employee who's been singled out as a member of Bernard Madoff's "inner circle" pleaded guilty Monday to charges that he doctored documents to fool auditors, faked payroll records and obtained a loan by inflating the value of his personal accounts.
Eric Lipkin, a second-generation Madoff employee who worked at Madoff's secretive investment advisory business for 16 years, pleaded guilty to conspiracy, bank fraud and falsifying financial records in a deal with prosecutors. The 37-year-old admitted his role in Madoff's epic fraud, telling the judge that he "worked to deceive auditors."
"I'm very sorry for my conduct," he said.
Irving Picard, a court-appointed trustee seeking to recover billions of dollars in losses for thousands of clients in Madoff's Ponzi scheme, said in a lawsuit last year that Lipkin misled investigators when he provided bogus information and fabricated trade blotters during a Securities and Exchange Commission probe in 2005 and 2006.
Lipkin also admitted that he falsified payroll records to include people that he knew did not work at the firm. This, prosecutors said, enabled the individuals to receive retirement and other benefits to which they were not entitled.
Sentencing was set for Dec. 15, though that date was expected to be postponed. The charges carry a potential penalty of 70 years in prison and $7 million in fines, though cooperation was likely to earn Lipkin a substantial reduction.
Lipkin also agreed to surrender any property related to the fraud, including his Ridgewood, N.J., home and accounts held in the names of his wife and children. He also will pay a $1.4 million judgment. U.S. District Judge Laura Taylor Swain permitted him to remain free on $2.5 million bail, secured by $800,000 in cash or property.
The plea came as the SEC announced civil charges against Lipkin, saying he helped Madoff defraud investors and mislead auditors for more than a decade. The agency said Lipkin consented to a proposed partial judgment of the SEC charges that calls for him to give up any ill-gotten gains and pay a fine that's yet to be determined.
The SEC said Lipkin helped Madoff deceive regulators by preparing fake reports showing the sham investments for clients. It said he received annual bonuses from the firm, including for his work to mislead auditors, and he received $720,000 from Madoff to buy a home.
"Eric Lipkin helped create the detailed and entirely phony trading and business records that contributed to the success of Madoff's fraud," said George S. Canellos, Director of the SEC's New York Regional Office.
Lipkin became the third person who worked for Madoff to plead guilty to a crime in the massive fraud that cost thousands of people billions of dollars. Many of the victims were lured into a false sense of security by statements that indicated initial investments totaling about $20 billion had tripled in size.
The government announced Lipkin's plea last week to give victims the chance to speak at his plea hearing. Although one person had indicated a wish to speak, the individual did not show up in court and no others answered the judge's multiple invitations to address the court.
Madoff surrendered in December 2008 after revealing the fraud to his sons. By then, only a few hundred million dollars remained in the firm's accounts.
The 73-year-old Madoff is serving a 150-year prison sentence after pleading guilty in 2009. He has repeatedly claimed he acted alone.
Picard's lawsuit had labeled Lipkin a member of Madoff's "inner circle," saying he profited handsomely from the fraud and was an active part of attempts to cover it up.
The lawsuit said Lipkin's father, Irwin, was one of the first people hired by Madoff when he started his investment business, and was one of the key workers who began building the firm from scratch in 1964. Eric Lipkin followed his father into the company in 1992 and acted as a "lieutenant" to Madoff, as well as the company's payroll manager, Picard said.
Picard accused both father and son of being aware of the Ponzi scheme and helping to conceal it, all while pocketing about $9.2 million in customer money through fictitious stock trades.
Besides Lipkin, the other Madoff employees to plead guilty include his independent auditor and his long-time deputy. Five other people who worked for the firm have been charged but have pleaded not guilty.