The continuing saga of the Madoff Ponzi
scheme has yielded another guilty plea and another Commission compliant. This
time criminal and civil charges were brought against David Kugel, a longtime
employee of Bernard L. Madoff Investment Securities LLC who is alleged to have
participated in the fraud at the advisory business. SEC v. Kugel (S.D.N.Y.
Filed Nov. 21, 2011).
Mr. Kugel began working for Mr.
Madoff's brokerage operations in early 1970 as an arbitrage trader in the
firm's proprietary trading operation, according to the SEC's complaint.
Subsequently, he worked at the firm as a trading compliance analyst ensuring in
part that the computer systems facilitated compliance with regulations
affecting the market-making and proprietary trading operations.
At some point in the early 1970s,
Mr. Madoff informed defendant Kugel about the advisory business. Mr. Kugel was
asked to furnish historic or backdated convertible arbitrage trades for
inclusion on investor account statements. The staff of the advisory business
subsequently obtained historical trade data from Mr. Kugel periodically. In
some instances that data replicated trades he had done. In others the data was
drawn from historic information obtained from sources such as the Wall
Street Journal. The claimed transactions were used on investor account
Mr. Kugel also furnished backdated
trade data for fictitious trades for his own advisory account. From 2001
through 2008 he withdrew almost $10 million from his accounts at the brokerage
firm and the advisory business although he knew that the so-called profits
"were not proceeds of actual trading activity . . . "according to the SEC.
The Commission's complaint alleges
violations of Exchange Act Sections 10(b) and 15(c), Securities Act Section
17(a) and Advisers Act Sections 206(1), (2) and 204.
Mr. Kugel has pleaded guilty to
criminal charges. He has also agreed to settle the SEC's action, consenting to
the entry of a permanent injunction and to the forfeiture of his ill-gotten
monetary gains upon entry of a criminal forfeiture order in the criminal case.
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