NEW YORK – The younger brother of disgraced financier Bernard Madoff -- the loyal No. 2 at an investment firm that fronted a multibillion-dollar Ponzi scheme -- pleaded guilty Friday to charges he doctored documents that helped conceal a fraud that wiped out thousands of investors.
Peter Madoff, 66, entered the plea Friday as part of a deal expected to result in a 10-year prison term. He had been taken into custody at his lawyer's midtown Manhattan office earlier in the morning.
The plea came in the same Manhattan courthouse where Bernard Madoff was led away in handcuffs in 2009 to serve a 150-year sentence.
Peter Madoff told the judge he was "deeply ashamed and terribly sorry" but that he didn't know about the scam until his brother revealed it in December 2008.
When he learned of the fraud, "I was in shock and my world was destroyed. I lost everything I worked for," he said.
The government has used the cooperation of six former employees and associates at Bernard L. Madoff Investment Securities LLC to learn what went on inside the secretive business. Close to $20 billion vanished in the scam, the largest Ponzi scheme ever prosecuted in the U.S. The scheme left behind only a few hundred million dollars, not the $65 billion claimed in bogus financial statements.
Peter Madoff revealed in court that he agreed to assist his brother in sending out the only money left to favored people, including friends and family.
"I was shocked and devastated but nevertheless I did as my brother had said, as I had consistently done for decades," he said. "I knew that the conduct was wrong and I am deeply ashamed." The checks never went out.
In his guilty plea, Bernard Madoff admitted his investment advisory business was a sham, but insisted that his brother and two sons who also worked for him were in the dark about his misdeeds. The FBI nevertheless had been suspicious from the start about the role of Peter Madoff, who had worked side by side with his scheming brother for more than 40 years.
Peter Madoff sometimes signed many weeks of compliance reports in one sitting, intentionally changing pens and ink colors to make it appear he had signed them at various times, Assistant U.S. Attorney Lisa A. Baroni told U.S. District Judge Laura Taylor Swain. She said he also arranged for his wife to have a no-show job at the company, allowing her to receive salary.
FBI Assistant Director Janice K. Fedarcyk said Peter Madoff played an "essential enabling role" in the scam by certifying fabricated investment results.
"The Madoff investment empire, built on a foundation of deceit, was a house of cards that grew to skyscraper proportions," she said. "As Peter Madoff has admitted today, he was one of the chief architects."
Peter Madoff was being released on $5 million bail, secured by $1 million in cash or property, pending his Oct. 4 sentencing. Prosecutor said Peter Madoff has agreed to give up all his assets.
"Peter Madoff enabled the largest fraud in human history. He will now be jailed well into old age, and he will forfeit virtually every penny he has," U.S. Attorney Preet Bharara said. "We are not yet finished calling to account everyone responsible for the epic fraud of Bernard Madoff and the epic pain of his many victims."
Friends and business associates had described the brothers as very close. Their offices in midtown Manhattan were a few feet apart. Their families vacationed together.
Peter Madoff was credited with creating a computer trading system for the firm in the late 1970s and early 1980s that was considered groundbreaking at the time. He ran the daily trading operation while his brother focused on the more secretive investment advisory arm.
Both brothers made a fortune. Peter Madoff owned a Palm Beach, Fla., vacation house that recently sold for $5.5 million.
When Bernard Madoff was arrested, Peter Madoff broke the news to Madoff Securities employees. And he was a co-signer on a $10 million bond that won his brother's release. Through attorneys, he denied any wrongdoing.
But the denial didn't stop federal authorities from moving to freeze Peter Madoff's assets. He agreed not to dispose of his assets and promised to curtail his personal spending as the investigation moved forward. His living expenses were capped at $10,000 a month.
A trustee appointed to recover stolen assets also came after Peter Madoff, accusing him of financing his high-end lifestyle through the fraud.
A complaint filed in bankruptcy court alleged that the Madoff investment business had transferred more than $77 million to Peter Madoff. It said that between 1993 and 2008, he was paid a total of $36 million in salary and bonuses. And it identified other income for Peter Madoff as memberships to country clubs, including Glen Oaks Club in New York and one of Donald Trump's country clubs.
Given Peter Madoff's "level of financial experience and sophistication," he either knew or should have known that he reaped gains from "fraud and deception," the trustee alleged.
The trustee also took aim at his daughter Shana, who once worked as an in-house lawyer at the firm and has denied involvement in the scheme.
"Had Peter, as the Chief Compliance Officer, or Shana, as Compliance Counsel, done their jobs properly, the fraud might have been revealed years earlier," the complaint said. "Either they failed completely to carry out their required supervisory/compliance roles, or they knew about the fraud but covered it up."
Defense lawyers responded by branding the complaint "a sensationalistic attempt to lump together members of the Madoff family and create liability by association." Their court papers claimed the scandal has "left Peter Madoff mired in litigation, and has devastated his family emotionally and financially."