Five years later, aide recalls Madoff's arrest on witness stand

By Joseph Ax

NEW YORK, Dec 11 (Reuters) - Exactly five years ago, Frank DiPascali was awakened in his New Jersey home by an early call from his boss, Bernard Madoff.

"He said, 'Frank, the FBI is in the office with my brother,'" DiPascali said in federal court in New York on Wednesday. "I said, 'Why are you calling me?' And I threw my phone across the room."

The longtime Madoff deputy was speaking on the fifth anniversary of Madoff's arrest on Dec. 11, 2008, which marked the collapse of his decades-long Ponzi scheme.

DiPascali, who has pleaded guilty to his part in the scheme, was testifying at the trial of five former Madoff employees who are charged with helping the financier conceal his fraud from customers, government regulators and Wall Street.

The defendants - back-office manager Daniel Bonventre, portfolio managers Joann Crupi and Annette Bongiorno and computer programmers Jerome O'Hara and George Perez - have denied the allegations. They claim Madoff convinced them that the business was legitimate.

Madoff is serving a 150-year prison sentence. He has denied that the five defendants aided in his scheme.

FAKING OUT THE FEDS

In a week of testimony so far, DiPascali has said all five took part in creating fake records to hide the fact that no trading was occurring in any customer accounts.

On Tuesday, DiPascali had testified that Madoff told him that the firm was broke only days before he was arrested.

As the trial continued on Wednesday, DiPascali said he then panicked, throwing an unregistered gun he had received as a gift into his pond and destroying a flash drive that contained evidence of fake records.

"It was ridiculous," he said, because he knew there were other copies at the office.

At the office in New York on Dec. 10, he said he saw Bernard Madoff's wife, Ruth, and that she looked "catatonic," adding that it was obvious to him Madoff had told her about the fraud's extent.

"I touched her cheek and said, 'Ruthie, it's going to be OK,'" he testified.

"Did (KOSDAQ: 074130.KQ - news) you believe it was going to be OK?" Assistant U.S. Attorney John Zach asked.

"No," DiPascali said.

On his way to the office on Dec. 11, he got a call from Peter Madoff, Bernard's brother, telling him that Bernard Madoff had been taken into custody. Throughout the day, DiPascali provided falsified records to federal agents and lied to them about what he knew, he said.

At one point, Peter Madoff walked into the conference room where investigators had convened and dropped stacks of records for the firm's main bank account at JPMorgan Chase & Co (NYSE: JPM - news) , DiPascali said.

Under his breath, Peter Madoff said "something to the effect of, 'This is where the secrets are,'" DiPascali testified.

Zach then took DiPascali through his decision to cooperate and eventually plead guilty, asking him what had happened to his house, his cars and his boat, all of which were seized by federal authorities.

"How much money do you have right now on your own?" Zach asked.

"The $14 in my pocket," replied DiPascali, who is out on bail, but under house arrest.

He faces up to 125 years in prison.

Later on Wednesday, Larry Krantz, the defense lawyer for Perez, began what is likely to be several days of cross-examination by emphasizing that DiPascali spent the better part of three decades lying to customers, regulators and fellow employees about the fraud, in an effort to undermine his credibility as a witness.

"Is it fair to say that you got pretty good at conning people?" he asked.

"I never took a survey," DiPascali answered.

The case is USA v. O'Hara et al, U.S. District Court for the Southern District of New York, No. 10-cr-0228.