Madoff's Programmers Indicted

jason8 writes with news that two programmers who worked at Bernie Madoff's investment firm have now been indicted on charges of 'conspiracy, falsifying records of a broker-dealer and falsifying records of an investment adviser,' for their role in hiding the firm's activities (PDF) from the SEC and external accountants. Quoting Reuters: "O'Hara and Perez, employed at the firm from 1990 and 1991, respectively, were primarily responsible for developing and maintaining computer programs in the investment advisory unit at the center of the fraud. Many of the programs were run on an IBM server known as 'House 17,' according to court documents. Prosecutors said the men took hush money to help keep the fraud going and designed codes to make up fake trade blotters and phantom records. US prosecutors said the two men worked under the supervision of Madoff and his top aide, Frank DiPascali, to deceive the US Securities and Exchange Commission and a European accounting firm. DiPascali is cooperating with prosecutors, who said his information led to the arrests of the programmers and the now defunct firm's outside accountant."

Comments

So what?

[Hatta]

Wake me up when someone at AIG gets indicted.

Re:So what?

[Anonymous Coward]

So, it's off to federal "pound me in the ass" prison for those guys...

Re:So what?

[jhd]

Dont forget Goldman, Citi, Fanny, Freddy, BofA, CountryWide, etc....

They all new what they were doing.

Re:So what?

[Hatta]

You are of course correct. Also, Lehman Bros. Especially Lehman Bros. Their failure was the straw that broke the camels back. And yes, they knew what they were doing. They were so clever about what they were doing that they came up with ways to hide liability that no one ever thought of before. String em all up I say.

Re:So what?

[Gorobei]

Programmers often claim to be professional workers rather than technicians. This is pretty much a case study: do you walk because you are being asked to behave unethically, or do you rationalize the problem and accept the $200K/year (or whatever?)

Last week I was meeting with our business head, and he asked me if and why my team was able to execute a pretty complex plan. I said yes, of course, and the only reason I gave was that everyone on the team was honest: they would each work hard, and would update us rapidly on their real progress and problems. Got it sold in under a minute, no PERT charts needed. Just professionals planning to get a job done - if even one person on the team might behave like the programmers involved in Madoff's operation, I wouldn't have been able to promise anything.

I guess the moral of the story is to have morals.

[Agamous Child]

If your boss asks you to break the law, the argument "I was just following orders!" doesn't hold up according to the authorities, especially when your boss decides to "cooperate with them" and throw you under the bus. Always question the motives and the legality of a system you design, and if your boss asks you to break the law, tell them that you won't do it, and if they persist, explain that you are going to contact authorities immediately.

Insert "scheme" joke here. Or "chroot jail"...

[ewg]

Insert "scheme" joke here. Or "chroot jail", "execution protection", "dropping privileges",...

Would be interesting...

[timeOday]

...to know how much "hush money" they actually received? Madoff made billions from this. I'll bet anything these guys were paid less than the average Goldman Sachs annual bonus.

I hope I would say "no" to something like this. As engineers and software developers, we generally feel obliged to do what we are told.

Re:Would be interesting...

[Sponge Bath]

...to know how much "hush money" they actually received?

They got to wear Hawaiian shirts on casual Friday.

No details

[UnknowingFool]

Reading the article and the indictment no details are given that the men knew it was a fraud other than the allegations. Also no details are given about "hush" money.

Re:No details

[canajin56]

Also, the courts are granting one of the masterminds leniency in exchange for prosecuting their underlings? Isn't that the opposite of how it works? Reducing the sentence of a drug kingpin in exchange for testimony against 2 of his street dealers, really?

Re:No details

[Danimoth]

Generally, trade reports are generated from you know, trades. Typically, for the reason of the article, these systems don't allow the users to generate reports even for testing purposes. Rather, they would submit a trade in a test stock such as ZVZZT or ZXZZT. These would generate a trade, which would show on the reports, but not have any clearing associated with them. While it is possible to "dummy" in trade reports, even a rudimentary glance at the corresponding blotter would throw up red flags as there would be no clearing associated with the trades, and they would have no presence on the tape. I know the auditors were crooked, but this is an aspect of the scam that the SEC should have been all over. A system which would make it appear as if there was clearing (at least on the paper that Madoff was generating) without that clearing actually being there is something that should shout "FRAUD" to anyone involved in the project.

Re:No details

[morgan_greywolf]

They would have to know what they were doing was fraudulent, since the software they wrote generated false trade records. A real electronic trade connects to the trade exchange systems, which feeds back a confirmation code that the transaction took place. Since no actual trade took place, no there was no confirmation code. The software they wrote simply made it appear that the trade legimitately took place.

Makes me think of this scene from Clerks

[colmore]

http://www.youtube.com/watch?v=n6lzEhoXads

Re:I guess the moral of the story is to have moral

[gbjbaanb]

but is it a bribe, or a bonus?

I mean, if I worked at a financial org, and they asked me to write some wierd code that created dummy trade records, I may think 'eh?' and ask whether it was correct or not, but they'd then tell me its all legal, above board and just another one of those stupid regulatory rules that seem to make no sense to mere programmers... and I'd shrug, say "well, ok then" and do it. then they give me a huge bonus and I think "great, working for financial services is wonderful - they always pay large bonuses"

I mean, imagine if you worked on a popular OS and my boss told me to put a back-door in, saying the NSA required it of us. what would you do? :)

Re:20 years ago?

[Zak3056]

I think you read that wrong... they have been working for him "from" (i.e. since) 1990 and 1991, not "during 1990 and 1991."

Re:20 years ago?

[D. Taylor]

Um, they didn't work for him from 1990 to 1991. One was hired in 1990, the other in 1991. They still worked for him beyond 2006: http://www.finextra.com/news/fullstory.aspx?newsitemid=21200

Re:I guess the moral of the story is to have moral

[tpstigers]

Success in our culture is often measured by money. Unfortunately, money and morals don't usually go together. So we generally have to make a choice - do I want to be rich, or would I rather be able to teach my kids the difference between right and wrong? Personally, I think you made the right choice.

Digital Era Henchmen Among Us

[lucm]

Big Tobacco health data. Big Pharma test data. Big Oil environmental data. Enron accounting or trading data. Retails sales zappers.

There is no way all this data "tweaking" can be done without involving IT people: DBA's, programmers, techies.

Right now, at this very moment, some of these Digital Era Henchmen are reading Slashdot on iPhones or 32 inch monitors purchased with blood money. And chances are that some of these people are making snide comments about Microsoft or Darl McBride's ethics. Tsk tsk.

They didn't turn Madoff in.

[Animats]

Also, the courts are granting one of the masterminds leniency in exchange for prosecuting their underlings? Isn't that the opposite of how it works? Reducing the sentence of a drug kingpin in exchange for testimony against 2 of his street dealers, really?

Justice Department policy is that the first one to come forward and turn in the others gets leniency. Those guys could have turned in Madoff, even after Madoff's arrest, until Madoff confessed. But the one "that is second in the door -- even if by only a matter of days or hours, as has been the case on a number of occasions -- will not be eligible for leniency." If your company is crooked, it's very important to know this.

Madoff himself, of course, is Prisoner #61727-054, at Butner Federal Correctional Institution (medium security).

"Investigative Journalism" is dead

[beakerMeep]

Is it just me or does it seem like the most important details are always left out of these articles? The report clearly raises the question about how much these guys were paid and how willingly they aided their superiors. It also seems an inexplicable role reversal of the big fish cooperating to catch the little fish. Why is this type of info always left out of articles? I gather it's possible that some info was unavailable, but I feel like the journalists who write these articles don't even bother following up to see. As long as we have a bit of controversy it's good to go. At the very least there should be a line such as "we contacted the US Attorney regarding the case but they had no comment about the apparent role reversal or how much money the programmers were alleged to have been paid for the crime."

About Time!

[Anonymous Coward]

It's about time some simple programmers got held accountable for their deeds.

I can live with programmers and bad testing, bad code, bad QA, but I can NOT accept EVIL code.

Just following orders does not cut it. These people knew what they were doing, there is no hiding it.

Want to be called a "software engineer"? Live by the engineers code of ethics, be judged by the engineers standards, and accept the same punishment. Otherwise, it's just being a simple programmer.

Re:I guess the moral of the story is to have moral

[K. S. Kyosuke]

I mean, if I worked at a financial org, and they asked me to write some wierd code that created dummy trade records, I may think 'eh?' and ask whether it was correct or not

"Hey, Jim, we need you to write setup code for some test cases."

Re:I guess the moral of the story is to have moral

[Migala77]

but is it a bribe, or a bonus?

The 'please don't tell the SEC about this'-condition might have given them a hint about that.

I mean, imagine if you worked on a popular OS and my boss told me to put a back-door in, saying the NSA required it of us. what would you do? :)

Check with the NSA? Ask which law authorizes the NSA to do that?

Re:I guess the moral of the story is to have moral

[beakerMeep]

"OK, what are we testing?"

"How about testing the imaginary scenario of us making billions of off fake trades? We'll have a little fun with it, haha."

"Hah, you're such a kidder, Bernie."

no ethics

[Anonymous Coward]

While working on a contact for company A, which was servicing company B, I was asked to commit fraud to the tune of maybe 300k by falsifying data in the deliverable to Company B. I refused. It is scary to think about the absolute lack of ethics I have seen...before I walked off site in this instance I had a manager yelling at me to just do it. They found someone else to do it, eventually got caught and it was a pretty ugly fiasco, but my company was not involved. Company B was huge and could have owned us all.

Yes, they were paid off, and here's how much.

[Animats]

Here are the payoff details, from the SEC press release. They were paid off, but not very well.

The SEC alleges that O'Hara and Perez had a crisis of conscience in 2006 and tried to cover their tracks by attempting to delete approximately 218 of the 225 special programs from the House 17 computer. But they did not delete the monthly backup tapes. O'Hara and Perez then cashed out hundreds of thousands of dollars each from their personal BMIS accounts before confronting Madoff and refusing to generate any more fabricated books and records.

According to O'Hara's handwritten notes from the encounter, one of them told Madoff, "I won't lie any longer. Next time, I say 'ask Frank,'" meaning that Madoff should rely on DiPascali alone to create the false data and reports.

The SEC's complaint alleges that Madoff responded by telling DiPascali to offer O'Hara and Perez as much money as necessary to keep quiet and not expose the misrepresentations. O'Hara and Perez considered the offer and demanded a salary increase of nearly 25 percent along with one-time bonuses in late 2006 of more than $60,000 each. They stated to DiPascali at the time that they did not ask for more because a greater amount might appear too suspicious. DiPascali then managed to convince O'Hara and Perez to modify computer programs so that he and other 17th floor employees could create the necessary reports themselves.

Re:I guess the moral of the story is to have moral

[Vasheron]

I mean, imagine if you worked on a popular OS and my boss told me to put a back-door in, saying the NSA required it of us. what would you do? :)

I would contact the RCMP and CSIS immediately!

Re:I guess the moral of the story is to have moral

[selven]

I mean, imagine if you worked on a popular OS and my boss told me to put a back-door in, saying the NSA required it of us. what would you do? :)

Put a back-door in the back-door. What else is there to do?

Re:I guess the moral of the story is to have moral

[ClosedSource]

I know it doesn't put food on the table but you did good. Sometimes the satisfaction you get from doing the right thing is all you get for your efforts.

Let's hope there really is Karma.

Re:I guess the moral of the story is to have moral

[Gorobei]

I mean, if I worked at a financial org, and they asked me to write some wierd code that created dummy trade records, I may think 'eh?' and ask whether it was correct or not, but they'd then tell me its all legal, above board and just another one of those stupid regulatory rules that seem to make no sense to mere programmers... and I'd shrug, say "well, ok then" and do it.

That's exactly why big financial institutions make their programmers spend 1hr+/week going through on-line training courses with dull topics like chinese walls, information leakage, money-laundering, ethics, non-public information, etc. The topic hardly matters, the point that is trying to be explained is "if it seems wrong, don't do it. Escalate to your management or the compliance department." A good firm takes this stuff seriously: I've seen several examples of a junior associate reporting pressure to do something questionable, three levels of managers and lawyers zoom in, 24 hours later, it is announced that a senior person has left the firm.

Re:I was going to post

[MillionthMonkey]

Madoff was recently beaten in prison in a "dispute centered on money".

He also socializes in there with former Colombo crime family boss Carmine Persico.