Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.


12:29 PM
Connect Directly

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.

[Budgets and technology specifications are only part of an technology leader's responsibilities. Managing an IT workforce might be the most challenging aspect of any executive's job. Attend the Humans Aren’t Computers: Effective Management Strategies for IT Leaders session at Interop 2014 in Las Vegas, March 31-April 4 to learn new management techniques.

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

Register for Wall Street & Technology Newsletters
Stressed Out by Compliance, Reputational Damage & Fines?
Stressed Out by Compliance, Reputational Damage & Fines?
Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.