Another Co-conspirator in the Madoff Scheme

Today Enrica Cotellessa-Pitz, Bernie Madoff’s former controller, pleaded guilty to conspiracy, falsifying books and records, and making false filings with the Securities and Exchange Commission. She could spend up to 50 years in prison.

Cotellessa-Pitz said she started working at Bernard L. Madoff Investment Securities LLC in 1978 while she was studying economics in college. She was named controller in late 1998. She said Madoff and others within months were directing her to put false entries in the company’s books to make it appear profitable trades were being made and that losses were not incurred.

~ LARRY NEUMEISTER, The Associated Press

She also helped Madoff’s organization reduce its tax liabilities by underreporting income to the IRS. Madoff’s own 2004 tax return was audited when he underreported by millions of dollars. And then when faced with audits, Cotellessa-Pitz perpetuated the fraud by providing false information to the SEC and the IRS.

Madoff’s Unnecessary Tax Payments

We often hear about people trying to get out of paying taxes that they are legally obligated to pay. I blog about tax crimes all the time. But seldom do we hear about somebody paying taxes that are not owed as part of their fraudulent scheme.

Bernie Madoff went to great lengths to ensure that his fraud would not be exposed. He and his firm paid some $326 million in taxes on behalf of foreign investors in connection with the sale of securities. The only problem is Madoff’s firm never purchased or sold any securities on behalf of foreign investors.

Legitimate firms pay taxes. This much Madoff understood. Perhaps Madoff was thinking that by paying as much as he did, it would eliminate any doubt about the legitimacy of his operations.

I believe that the payments made to the IRS falsely identified the funds as income tax withholding in order to give the investment advisory arm of Bernard L. Madoff Investment Securities LLC (BLMIS) an air of legitimacy and to avoid inquiries . . .

~ Irving Picard, trustee acting on behalf of Madoff’s victims

Picard struck a deal with the IRS today whereby the IRS would refund the $326 million. This will help offset some small fraction of the losses suffered by Madoff’s victims.