Madoff workers concerned about 'exit strategy' in 2006 - witness

By Joseph Ax

NEW YORK (Reuters) - Spooked by three audits in less than two years, several of Bernard Madoff's employees grew concerned in 2006 about their fates if his massive Ponzi scheme came to light, a former Madoff aide testified on Tuesday.

Among them, two computer programmers, Jerome O'Hara and George Perez, told an incensed Madoff in early 2006 that they would no longer alter trading records, and they later suggested getting paid off the books in diamonds, the former aide said.

"They said they didn't want their fingerprints on this crap any longer," the aide, Frank DiPascali, said in federal court in New York.

DiPascali was testifying at the trial of O'Hara, Perez and three other former Madoff employees who are accused of helping pull off a fraud that cost investors an estimated $17 billion. The others are portfolio managers Annette Bongiorno and Joann Crupi, and Daniel Bonventre, the director of operations for the firm's back office.

All five have said they are innocent of the charges and, like many others, were duped by Madoff into believing the business was legitimate.

DiPascali, who pleaded guilty and is the prosecution's star witness, has been testifying in U.S. District Court for more than a week, detailing how he and the five defendants conspired to falsify documents, fool regulators and hide the fraud from the firm's clients.

In 2006, he said, following dinner at a Greek restaurant where O'Hara and Perez drank a "considerable amount" of alcohol, O'Hara said "something to the effect of, 'Could this whole thing be a fraud?'"

DiPascali brushed off the question as "ridiculous," he said, but over the next few weeks both programmers expressed concern about the work they had done to construct fake records to give to the Securities and Exchange Commission.

"'I'm tired of jumping on hand grenades here,'" they said, according to DiPascali. "'Every time we turn around, there's another regulator.'"

That led to the meeting with Madoff, in which O'Hara and Perez suggested that he shut down the investment advisory business where the scheme originated, DiPascali said. Madoff became belligerent, DiPascali said.

"'You're not going to tell me how to run my business,'" Madoff said, according to DiPascali. After the meeting, he instructed DiPascali to "offer them anything they want," he said.

The two programmers told DiPascali they didn't want to have massive salary and bonus increases on paper and at one point suggested that they might be paid in diamonds, DiPascali said.

"I kind of flew off the handle," DiPascali said. "Where am I going to get a bag of diamonds?"

Eventually they agreed on a sizable raise, he said. Despite their insistence that they would no longer input data into fake trade records, however, he said they helped him build software to make it easier for others to do so.

A few weeks later, also in 2006, DiPascali said he and Bonventre had a drink at a restaurant in the lobby of the firm's office building in New York. Bonventre asked DiPascali if he knew whether Madoff had "an exit strategy," DiPascali said.

"If he does, he hasn't explained it to me," DiPascali said he replied.

Bonventre said he had his own plan: He would maintain that Madoff told him the trades were all occurring in Europe and that Bonventre should mind his own business, DiPascali said.

Wednesday marks the five-year anniversary of Madoff's arrest. He is serving a 150-year prison sentence and has denied involving others in his scheme.

The case is USA v. O'Hara et al, U.S. District Court for the Southern District of New York, No. 10-cr-0228. (Reporting by Joseph Ax; Editing by Jonathan Oatis)