5/8/09 - Updated to include an excerpt from a  12/18/2008 New York Times article re real estate developers who had Madoff accounts. The article specifically mentions loans collateralized by Madoff accounts.

[Frank DiPascali] is prepared to testify that he manipulated phony returns on behalf of some key Madoff investors, including Frank Avellino, who used to run a so-called feeder fund, Jeffry Picower, whose foundation had to close as a result of Madoff-related losses, and others. If, for example, one of these special customers had large gains on other investments, he would tell DiPascali, who would fabricate a loss to reduce the tax bill. If true, that would mean these investors knew their returns were fishy... - "How Bernie Did It", 4/30/2009, Fortune, James Bandler & Nicholas Varchaver 

Frank DiPascali

"Manipulated phony returns" says it all. With Frank D.'s help, some of the most wealthy people in the country were cheating feloniously on their taxes and they all knew Bernie was a crook. If profits were rigged, there is no reason to think accounts weren't fabricated wholesale.  

Bernie's sophisticated real estate developer clientele has been very quiet since the scandal broke and I wonder how many of them might have been taking advantage of Bernie's sideline business. Something about Bernie must have attracted so many of them to "invest" with him.

Did Bernie jack up the value of their accounts so the developers could use them as collateral to secure loans, thereby artificially (and illegally) expanding their access to credit? On 12/18/2008, the New York Times published an article, "Madoff Scandal Shaking Real Estate Industry"  by Christine Haughney which specifically stated Madoff accounts were used as collateral.

Haughney interviewed a real estate lawyer, Jerry Reisman:

 "[H]is clients were especially concerned because they counted on Madoff investments to complete some of their real estate projects, pledging their investments as collateral for projects. Those developers fear that when their banks realize that their investments with Mr. Madoff have disappeared, they will demand new collateral from other sources, Mr. Reisman said."  

The issue, as far as I know, has never been followed up online. Feds might not be anxious to publish this kind of information since confidence in the credit markets is already so low. On the other hand, the Feds just might be keeeping the names of Bernie's crooked customers under wrap for now.

The August 2006 announcement that SL Green Realty Corp. and Reckson Associates Realty Corp. merged as part of a $6 billion deal should interest the Feds investigating Bernie.

Reckson Associates chairman, Donald Rechler, and SL Green chairman, Stephen L. Green, were Madoff customers.  

The Rechlers know their way around the stock market. When they wanted to modernize their buildings in the '90s to accommodate the demand for hardwired networks, they didn't pay for the work out of their pocket. They formed an office services company, HQ Global Workspaces, Inc., took it public and used the proceeds to re-do their buildings. Then the company went under.

When the Rechlers took Reckson Associates Realty Corp. private, they ended up having to cough up more than $25 millon for shortchanging the other shareholders, one of which was Henry Kissinger's brother, Walter, who was also a Madoff customer.

If the real estate developers were screwing around, it should be fairly easy to determine whether some of them were aided and abetted by their accountants. For example, Sprung & Cohen prepares the 990s for the Leonard Litwin Foundation. In fact, Richard Cohen is the  assistant secretary.

(Curiously, the Litwin Foundation stopped including Madoff account statements in its 990s after 2005.)

If Cohen & Sprung does Litwin's other tax work, the folks there would have known if Leonard Litwin's Madoff statements were rigged because they managed account statements for a number of other Madoff customers.

Another way DiPascali could have produced a phony tax deduction for a Madoff customer would be to generate a phony contribution to a personal foundation or another complicit non-profit organization. Using the theoretical Leonard Litwin example again, the Feds should investigate whether Litwin actually deposited $10,000,000 in cash into his foundation's Madoff account in 2001.

Obviously, I am only speculating about what Frank DiPascali did for Bernie's customers. I doubt Donald Rechler, Stephen Green and Leonard Litwin are going to be too perturbed by me using them as examples to illustrate the possibilities. After all, the Madoff swindle is the biggest of its kind in history and everyone's trying to figure out what happened.

My educated guess is that a lot of influential people have been trying very hard to keep the lid on this scandal but I don't think they are going to get their way this time.