SEC Targets Madoff’s IT Pros
The SEC has filed a complaint against two computer programmers that it alleges helped Bernie Madoff hide his fraud from regulators. The SEC charges that the longtime Madoff employees wrote programs to produce reporting data even though they had knowledge that the underlying trade data was fraudulent. The SEC also alleges that the defendants knew that they were creating false reports to mislead regulators. Evidence indicating their knowledge includes work on legitimate trading systems, file deletion in 2006 when the defendants expressed concern about their activities, and contemporaneous notes of conversations with Madoff and his co-conspirators. The SEC has charged the defendants with aiding and abetting securities fraud and seeks disgorgement of “ill-gotten gains.” A separate criminal prosecution has also been filed.
OUR TAKE: We are unaware of any prior case where internal IT professionals have been charged with aiding and abetting securities fraud. The challenge for the SEC will be to prove the “knowledge” component of the charge. Also, it is unclear how the SEC calculates “ill-gotten gains” for essentially salaried employees.