NEW YORK (AP) - An accounting executive was arrested Thursday on charges he helped Bernard Madoff maintain his historic fraud with false bookkeeping meant to deceive some of the wealthiest victims, though his lawyer said his client was himself "a victim of a sociopath."
The executive, 77-year-old Paul Konigsberg, of Greenwich, Conn., was charged with five crimes in an indictment unsealed in federal court in Manhattan. Prosecutors said Konigsberg was a senior tax partner at the accounting firm Konigsberg Wolf & Co. when he directed others since at least the early 1990s to falsify records to conceal a fraud that cheated thousands of investors out of nearly $20 billion.
Konigsberg pleaded not guilty at an arraignment to charges carrying a potential penalty of up to 40 years in prison. His lawyer, Reed Brodsky, insisted he was a victim of Madoff, the onetime high-flying financier who pleaded guilty to fraud charges in 2009 and was sentenced to 150 years in prison. The lawyer noted that the Securities and Exchange Commission and thousands of investors were duped for decades by Madoff.
"Mr. Konigsberg was no different," Brodsky said. "He and his family lost over $10 million."
Konigsberg was freed on $2 million bail. Outside court, Brodsky said Konigsberg looked forward to clearing his name.
"He is a victim of a sociopath, Bernie Madoff," Brodsky said. Konigsberg declined to comment.
In court, Assistant U.S. Attorney Matthew Schwartz said Konigsberg was Madoff's "accountant of choice" for important clients. He said Konigsberg backdated trades by months or years to further the fraud. The indictment said Konigsberg was paid between $15,000 and $25,000 monthly for work related to one of Madoff's oldest and largest clients, a customer who deposited and withdrew tens of billions of dollars with Madoff over the years and benefited from "glaringly fraudulent trades in his accounts."
"These are serious charges," Schwartz said, arguing that Konigsberg's substantial assets made him a flight risk.
Konigsberg, also a lawyer, is the only person outside the Madoff family to have held an ownership interest in Madoff's private investment business with his minority interest in Madoff Securities International Limited, Madoff's London-based affiliate, the indictment said.
Brodsky said his client considers himself retired, except for consulting work.
The indictment said that Madoff steered some of his most important customers "in whose accounts Madoff executed the most glaringly fraudulent transactions" to use Konigsberg as their accountant, and that Konigsberg's firm handled accounting duties for more than 300 of Madoff's private securities accounts by December 2008, when Madoff was arrested.
Konigsberg is charged with conspiracy to falsify records, conspiracy to commit fraud, falsifying records of a broker-dealer, falsifying records of an investment adviser and falsifying statements.
The charges, which included a request by the government that Konigsberg be forced to forfeit all property traceable to the offenses, came just days before the start of a trial of five of Madoff's former employees. Those employees are charged with aiding him in a scheme to defraud his investors that stretched into the 1970s.
Prosecutors said Konigsberg turned down an offer from Madoff in 1992 to receive an additional cash payment of about $20,000 annually, directing him instead to pay it to one of Konigsberg's relatives who had previous worked for Madoff. The relative, according to the government, received more than $320,000 for a no-show job from 1992 until December 2008.
The SEC filed related civil charges against Konigsberg, seeking unspecified fines and restitution.
Brodsky described the indictment as weak, saying the charges were not supported by facts that could be corroborated. He added that the indictment was "simply astonishing and outrageous" and contained "a lot of creative writing."
He criticized the use of information from Madoff's former finance chief, Frank DiPascali, who pleaded guilty to charges and is cooperating with the government.
Prosecutors, Brodsky said, were "relying on the testimony of a proven liar, the right-hand man of Madoff."
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Associated Press writer Marcy Gordon in Washington contributed to this report.