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What Did Deceased IT Exec Know About Madoff Ponzi Scheme?

A defense attorney suggested that Liz Weintraub, Madoff's deceased former head of IT, helped devise the deceptive code that enabled the Ponzi scheme, and not his clients, two ex-programmers.

Yesterday, a defense attorney told jurors that Liz Weintraub, Bernard Madoff’s former head of information technology who died in February of 2008, was responsible for devising the deceptive code for systems that created fake client records and other related projects.

The attorney’s comments shine the spotlight on Weintraub who ran systems for 25 years at Madoff’s defunct firm. Weintraub died in February 2008, about 10 months before Bernard Madoff was arrested in December of 2008 and the $17 billion Ponzi imploded.

Even though Weintraub is deceased, her role has been resurrected during the trial.

“Her presence has invaded these proceedings like a ghost,” lawyer Gordon Mehler said in Manhattan federal court, according to a story in Bloomberg News. “Maybe it’s true one should never speak ill of the dead, but that’s Liz Weintraub.”

Mehler’s comments raise the possibility that Weintraub was responsible for the deceptive computer systems that enabled the Ponzi scheme to grow undetected for decades and trick thousands of investors. While it’s impossible to know what Weintraub did to enable the fraud, mentioning her involvement could help plant seeds of doubt in the jury.

Weintraub was the boss of the defendants, Jerome O’Hara and George Perez, who helped write and develop software code for more than a decade after they joined the firm in the mid 1990s. They went on trial in October along with three other Madoff aides, accused of aiding the fraud.

Frank DiPascali, Madoff’s ex-finance chief who pleaded guilty, testified that Weintraub was closely involved with creating the software programs, reported Bloomberg. DiPascali claimed that “Weintraub conspired with Madoff’s brother, sons and niece to remove email files and reinstall them into the computer network as if they had never been tampered with,” based on transcripts of testimony shown at the trial, Bloomberg reported.

I never met Liz Weintraub but I spoke to her a few times during the 1990s and early 2000s, when the firm announced news about its technology. My only memory of her was that she had a strong New York accident (Queens, Brooklyn, Bronx) and was very tight lipped during the interview. It was hard to get her to elaborate beyond the script of the press release.

In 2004, I reported on a story about Bernard L. Madoff Investment Securities (BLMIS) shifting from its inhouse proprietary FIX engine to Cameron Systems’ FIX protocol engine. "What we wanted to do is gradually move legacy applications off proprietary operating systems and platforms," explains Liz Weintraub, Madoff's head of information technology.

"Instead of reinventing the wheel, because there were so many FIX-engine vendors there, we (decided to) take a look at them," says Weintraub. In this story there was no mention of the Madoff investment advisory business and complex network of feeder funds, international banks and Palm Beach cronies that was perpetuating the Ponzi scheme.

No doubt, Weintraub has taken many secrets to her grave. She was the equivalent of a chief information officer (CIO) to BLMIS, the firm’s market making/broker-dealer business. For that era, she was probably the only woman holding a top IT position at a broker-dealer firm. Witnesses at the trial testified that Weintraub was a strict boss who made $500,000 a year at the time of her death.

Weintraub who died after a battle with lung cancer, was married to Marshall Caro, founder and president of Indii.com, an equity trading software business. According to a press release, the patent pending software used instant messaging and indications of interest to allow sell side teams to communicate with buy-side clients.

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The Madoffs held Weintraub in high esteem. In a tribute that was published in the New York Times from Feb. 9, BLMIS wrote: “Your legacy will live on with your beloved family and at Madoff Securities, where your 25 years of leadership has been an integral part of our success."

But perhaps she was in that position for a reason. After all, the code that she allegedly helped develop was responsible for spewing out fake confirmations to dupe customers and regulators, when in fact, no trades had occurred.

A story in Securities Technology Monitor from November 2009 dug into court records investigating the systems behind the fraud, to construct how Madoff operated a mix of legitimate and fake systems. Former Madoff employee, Bob McMahon, who was a project manager who worked under Weintraub, told STM that the Madoff proprietary systems were antiquated and difficult to maintain and that nothing was documented or written down.

McMahon told STM: “I immediately recognized there was massive institutional chaos in the way the place was managed. No one found value in participating in project management meetings or in writing things down. There was no documentation.”

While Madoff’s legitimate market-making business was located on the 19th floor of a Manhattan office building, and had a real trading floor, it used an IBM AS/400 computer, known as “House 5,” located on the 18th floor. But the fake trading floor, located on the 17th floor, had a second IBM AS/400 known internally as “House 17” that was manufacturing the phony trade confirmations and statements for 4,903 investment advisory clients, according to STM.

While Weintraub had hired McMahon in February of 2007, he lasted one year at Madoff, he told STM. He cited differences with Weintraub’s successors over updating the systems and formalizing procedures as reasons for his dismissal the following January.

Since CIOs oversee their company’s IT systems, it’s hard to believe that Weintraub was not privy to the deception going on when she was alive. This could mean the programmers on trial could have simply been dutifully following her orders, although that is debatable. Without the testimony of Weintraub on the witness stand, we can only speculate on what she knew and when she knew it.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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Greg MacSweeney
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Greg MacSweeney,
User Rank: Apprentice
3/27/2014 | 7:49:43 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
IT executives aren't the only ones on Wall Street who use jargon to hide questionable activities. Remember the financial crisis, when traders and quants spoke down to risk managers and even regulators who dared to question the financial underpinnings of their CDOs, CDS and other synthetic products? "Don't worry, you wouldn't understand these products anyway. They are complex. Trust us." Thankfully risk managers and regulators no longer are swayed by those types of arguments.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/25/2014 | 4:32:21 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
A jury convicted all five Madoff aides yesterday on all 31 counts of fraud. This included the two programmers who worked under the former deceased CIO Liz Weintraub. My favorite quote from a juror: GǣSitting on this trial for five months was like getting a college education in securities fraud.Gǥhttp://www.bloomberg.com/news/...
IvySchmerken
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IvySchmerken,
User Rank: Author
3/14/2014 | 1:20:22 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
Regulators audited Madoff's firm over the years, and didn't listen to the whistleblower Harry Markopolis that the returns were impossible to achieve and were fake. It was only after the Madoff Ponzi scheme was unraveled and the magnitude of the losses revealed, that the SEC tightened regulations on hedge funds and best practices evolved between hedge funds and their service providers.
Becca L
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Becca L,
User Rank: Author
3/13/2014 | 11:30:15 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
A good old fashioned game of cat and mouse.
Becca L
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Becca L,
User Rank: Author
3/13/2014 | 11:29:35 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
Great point Kathy, CIOs can get away with a lot if nobody around them understands even the basic details of their role. As you say, it's probably more difficult to pull off today because of technology's enterprisewide influence, not to mention regulatory requirement and the increased practice of bringing CIOs and CTOs into the board room.

It's definitively more difficult to be corrupt in this manner but it's a shift that's still underway. I think we all still see the occasional study/report suggesting technology transparency and technology eduction at the executive level is still an issue.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
3/13/2014 | 10:40:51 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
Unfortunate that it takes something like the Madoff scandal to get tighter controls, but it seems like as much as bankers complain about trying to play catch up with the regulations, the regulators are also often trying to play catch up with what is happening in the industry.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/13/2014 | 8:48:23 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
In this case, the Madoffs wanted to hide what they were doing, so only a
select inner circle knew what was going on. Only certain people were allowed on the 17th floor
or near the AS/400 spitting out fake confirms for their split . Yes, this type of fraud
is harder to get away with post-Madoff. It triggered a host of best
practices for compliance and resulted in the SEC getting tougher
overall.
KBurger
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KBurger,
User Rank: Author
3/13/2014 | 8:00:59 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
Very interesting report that provides some really great context/history that most reports on this trial never could hope to develop. Looks like Ivy knows where the skeletons are, literally! (Sorry, that's very crass.) This also is a reminder of how obscured IT used to be -- CIOs and other top tech executives could get away with using jargon and other obfuscating terminology to talk about what they were doing because no one inside the enterprise would/could call them on it because technology was mysterious to anyone not in the back office. I would imagine that is much harder to get away with today, where technology is integrated across the enterprise and business end-users are increasingly tech savvy. Of course it probably wouldn't have mattered in a culture of corruption as pervasive as in the Madoff organization.
Nathan Golia
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Nathan Golia,
User Rank: Author
3/13/2014 | 6:03:11 PM
re: What Did Deceased IT Exec Know About Madoff Ponzi Scheme?
I'm torn between finding it crass to just blame it on the dead person, with of course clearly understanding the need for restitution in this case. Too bad she couldn't tell her story before passing away.
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