BREAKING NEWS: Two Madoff Computer Programmers Charged With Conspiracy For Enabling Massive Ponzi Scheme

Federal prosecutors and the FBI demonstrated again this morning that people who enable Ponzi schemers are subject to arrest and prosecution.

Today’s announcement that two computer programmers for Bernard Madoff have been charged with serious felonies could send shockwaves across the so called autosurf “industry,” which relies heavily on computers and programming tweaks to fleece participants.

Charged in New York were programmers Jerome O’Hara, 46, of Malverne, N.Y., and George Perez, 43, of East Brunswick, N.J. If convicted, they each face up to 30 years in prison and fines that could total in the millions of dollars.

O’Hara and Perez were charged with conspiracy, falsifying books and records of a broker-dealer, and falsifying books and records of an investment adviser.

“Jerome O’Hara and George Perez allegedly helped construct Bernie Madoff’s house
of cards,” said U.S. Attorney Preet Bharara of the Southern District of New York. “The computer codes and random algorithms they allegedly designed served to deceive investors and regulators and concealed Madoff’s crimes. Today they have been charged for their roles in Madoff’s epic fraud, and the investigation remains ongoing.”

An FBI official said Madoff could not have pulled of his Ponzi scheme without the aid of programmers, adding that Madoff bought their silence for a a price.

“O’Hara and Perez are charged with being instrumental in facilitating the Ponzi scheme that was the Bernard Madoff investment advisory business,” said Joseph M. Demarest Jr., assistant director-in-charge of the FBI’s New York field office.

“Their subterfuge was designed to conceal the fraud from regulators and others, and when they told Madoff they would no longer lie for him, their continued complicity was bought for a price,” Demarest said.

It is common knowledge in the autosurf “industry” that the operators install scripts to make the programs functional online and that the scripts are tailored by programmers to the specifications of the operators.

bowdoinmadoffart2Today’s charges against O’Hara and Perez give surf operators — and their programming employees and contractors — something else to worry about, beyond being forced to give up ill-gotten gains in forfeiture proceedings and being charged with crimes such as wire fraud and money-laundering.

By charging the programmers who helped Madoff carry out the scheme, the Feds sent a clear message that they view Ponzi-enablers as co-conspirators.

The website of AdSurfDaily, a Florida company accused of operating a $100 million Ponzi scheme, was offline for much of July 2008, amid reports that programmers were tweaking the website and programming the system to enable it to accommodate higher volumes of traffic and perform more database functions.

ASD President Andy Bowdoin repeatedly relied on programmers to tweak systems, members said.

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8 Responses to “BREAKING NEWS: Two Madoff Computer Programmers Charged With Conspiracy For Enabling Massive Ponzi Scheme”

  1. Hi Patrick:
    In the Madoff case it appears that the programmers were involved in setting up the scheme to defraud investors.

    In the ASD case, there was one ASD employee, who was supposedly a director overseeing the computer operations. Most if not all the programming was handled off-site using remote servers and contractors. All the contractors were doing was providing a service that continued to grow and hence was impacting the response time for individuals attempting to use their computers; hence the ‘tweeking’ that was going on. Now the ASD director might be suspect but I would hope that we would never attempt to prosecute the the contractors.

    If we were to allow prosecution of people providing services then where do you draw the line on the limits of the assumed Government power? Maybe Bill Gates would be sued because he provided the operating system that was used? Government organizations have been know to over-react.

    Just my 2 cents for the day.

    Best Regards,

    Richard

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  2. Richard Burson: Most if not all the programming was handled off-site using remote servers and contractors. All the contractors were doing was providing a service that continued to grow and hence was impacting the response time for individuals attempting to use their computers; hence the ‘tweeking’ that was going on.

    With the greatest respect, I’d strongly disagree with you, Richard.

    As with most everything associated with AdSurf Daily, Bowdoin and Co, what you’re describing is what you were TOLD was happening, not what actually took place.

    I have a sense that, for many of the ASD victims, the penny hasn’t quite dropped as yet as to exactly how little of what they believe/ed is or was actually true and just how much smoke and mirrors work is behind the whole autosurf “scene”

    The script/s used by ASD were not modified legitimate advertising scripts.

    They were specifically designed to be fraudulent, and can be purchased “out of the box” in template form on the ‘net for less than a couple of hundred dollars.

    Actually, to be truthful, anyone who actually purchases, rather than pirates, a script is the exception, rather than the norm.

    Prove it for yourself.

    Google “autosurf scripts” and prepare to be surprised.

    Remember, the scripts you find are only the basic and “free” autosurf scripts. But, you’d only have to look slightly harder to find the “Rolls Royce” variations used by ASD, CEP, 12DP etc.

    Please believe me, the “programming” spoken about by Bowdoin and ASD consisted mainly of customizing, personalizing and editing, with little or no actual “programming”

    Search the usual suspect forums, Talkgold, MMG, DTM or ASA, and you’ll find literally hundreds of HYIP and “autosurf” scripts, scripters and “programmers” offering their services at any given time.

    “Innocent” victims of over zealous officialdom, they ain’t.

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  3. Hi Richard,

    Richard Burson: Hi Patrick:
    In the Madoff case it appears that the programmers were involved in setting up the scheme to defraud investors.

    In the ASD case, there was one ASD employee, who was supposedly a director overseeing the computer operations. Most if not all the programming was handled off-site using remote servers and contractors. All the contractors were doing was providing a service that continued to grow and hence was impacting the response time for individuals attempting to use their computers; hence the ‘tweeking’ that was going on. Now the ASD director might be suspect but I would hope that we would never attempt to prosecute the the contractors.

    If we were to allow prosecution of people providing services then where do you draw the line on the limits of the assumed Government power? Maybe Bill Gates would be sued because he provided the operating system that was used? Government organizations have been know to over-react.

    Just my 2 cents for the day.

    Best Regards,

    Richard

    I’d like to agree with your point of view on this, but respectfully cannot.

    In my view, people who enabled Bowdoin by setting up the website and performing programming/script/system tweaks enabled a $100 million Ponzi scheme.

    ASD could not work if programmers or ASD insiders with a thorough knowledge of systems and websites did not perform employee or contract services for the company.

    Bill Gates would never be charged with aiding and abetting or conspiracy, for example, if a kidnapper wrote a ransom note with Microsoft Word. But if Microsoft were actively selling scripts to enable autosurf Ponzi schemes or providing back-office support or contract labor to the schemes, the company would be at great risk.

    Think about the e-Gold prosecution. The company, in essence, was charged with and convicted of enabling money-laundering by providing a computerized service and platform money-launderers found helpful: Hard-to-trace accounts/users who were given the advantage of no chargebacks. That’s what the money-launderers needed to thrive.

    To me, the same theory applies to employees/contractors who helped ASD with programming chores. The key here might be the phrase “knew or SHOULD HAVE KNOWN.”

    People in AVG, for instance, knew about ASD — and yet AVG was able to get programming help. Before that, people in ASD knew about 12DailyPro and PhoenixSurf, but ASD was able to get programming help.

    You asked, “[W]here do you draw the line on the limits of the assumed Government power?” — observing that, “Most if not all the programming was handled off-site using remote servers and contractors. All the contractors were doing was providing a service that continued to grow and hence was impacting the response time for individuals attempting to use their computers; hence the ‘tweeking’ that was going on.”

    This goes back to my point about “knew or SHOULD HAVE KNOWN.”

    Whether ASD was using in-house programming labor or offsite, contract labor, the employees/contractors “knew or SHOULD HAVE KNOWN” that the script and the business model is associated with Ponzi schemes.

    I noted yesterday, I believe, that the Feds included the complaints against 12DailyPro and PhoenixSurf in the August 2008 complaint against ASD’s assets.

    Regardless, AVG (and others) still evolved with the aid of programmers/tweakers/webmasters, etc. The line should be drawn at what they knew and when they knew it.

    That’s where the line was drawn against Madoff’s programmers. The Feds allege the programmers knew about the deception years ago and still helped Madoff carry it out.

    Regards,

    Patrick

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  4. Patrick and Littleroundman:

    Patrick, Your point regarding ‘Knew or should have known’ is good. You are much better about explaining this situation than I. But in a round about way, this is what I was trying to say. For example, contractors would have no reason to involve themselves in the ASD business if only they are providing the server hardware necessary to enable server to client communications along with possibly a database application to store and retrieve client information.

    I don’t think that it is necessary for a computer programmer to understand the business operations unless they are involved with the application programming development and thereby assisting with or had knowledge of the ASD Ponzi model. If they were doing this then they would be guilty of course.

    I remember quite well all the ASD excuses for the system not being available or the system response time being reasonable. I was giving ASD the benefit of the doubt and assuming that they (ASD) had not purchased enough hardware/software resoures from the vendor in order to supply the communications needs to the membership. Could I be wrong, of course. Would I be surprised that when all the smoke clears that Andy had bought off a bunch of programmers to do his dirty work? Of course not.

    Above all, I’m sure as hell not defending anything that ASD did. I’m ashamed to tell you how much of my money they stole.

    Thank y’all (that’s southern) for the feedback. Great conversation.

    Best Regards,

    Richard

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  5. I remember when there were 10,000+ new members joining ASD every week the site was constantly NON-FUNCTIONAL..It was my belief at the time that Andy maybe had grandchildren working as programers..seriously, that’s exactly what I thought because they simply could not keep it up and going! A woman in my upline who knew Andy told me that it was not grandchildren but a young man Andy was helping out by letting him do the computer work for ASD. You know, good ole “Christian” Andy was giving this inexperienced young man an opportunity he might not have had otherwise (tongue in cheek). Well, if THAT story was true, the computer fellow might be in serious trouble regardless of his insight or lack of insight on just what was actually going on with ASD.

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  6. A few months back there was a BBC documentary about the Madoff scheme, it focused on the son of someone who committed suicide because they had lost everything in one of the Madoff funds. One thing that was stated in the documentary was that the PCs and the systems that ran the Madoff funds were basically built and programmed in the 1980’s. There was a floor in Madoff’s building which housed archaic IBM-XTs (not even 286’s) that were running the system that was making the fake buys and sells. Line printers and dot-matrix printers were used to print out the statements.

    Is it possible that someone, a programmer, from that era, would realise that what they are programming is essentially a system for a ponzi scheme? This is from a time before the interweb, before networking, before laser printers. In this era, COBOL was the thing that processed financial transactions (it still is). Computers communicated with each other via token ring networks, or 300 baud dial up, if at all. If these programmers programmed the systems in this era I believe it is possible that didn’t know what they were doing.

    Today it is different. Today, the internet is seen as an essential utility, and “google” is a well known verb. Today, any programmer worth their explicit type declaration should be able to research the type of work they are being asked to do.

    The ASD script was an off-the-shelf ponzi script lightly modified. Many HYIPs use a “Goldcoders” script that was quickly modified to use Liberty Reserve instead of EGold. The programmers that did this must have surely known that HYIPs are obvious ponzi schemes. They have and are continuing to profit from fraud. This is inexcusable.

    It is possible that the Madoff programmers knew what they were doing. But if they were programming in the 1980’s, it is possible that they didn’t.

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  7. Who knows what Andy was doing for sure with regards to the computer systems in use. He lied about everything else, why not the computer systems and the people who were really involved. I have learned something today. I didn’t realize that there were scripts that could be purchased for running applications such as this. But then I didn’t know anything about Ponzi’s before Andy either. I feel like I have gotten a first class education from Andy. I feel like I’ve received a BS in BS.

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  8. Hi Richard,

    I (and others who post here) have written pretty extensively on the subject of GIGO. As LRM pointed out above, garbage goes in, and garbage goes out — and gets spread as the truth.

    The core ASD GIGO myths — exciting, new business model, award-winning, wealthy businessman, Google “agreement,” perfectly “legal” — were what made the scheme thrive. Even so, it needed the Internet to spread its tentacles, and that’s where the script, programming and webmastering come into play.

    One of the core deceptions was the back-office showing of accrued gains. It was the electronic equivalent of Madoff sending bogus account statements through the mail. Don’t know if you’ve read Shannon Allison’s story here yet, but she talked about seeing a $7,000 gain in her back office in only weeks.

    http://patrickpretty.com/2009/11/13/widow-shares-story-of-20000-loss-in-adsurfdaily/

    That would not have occurred without the script — and without information being uploaded to ASD’s website and data being entered so the script could perform its function. Someone had to manage these processes. If script tweaks were required, someone had to perform them. If servers needed to be upgraded/throttled, someone had to manage the process — or else the whole thing would have collapsed.

    Beyond that, it was to ASD’s benefit to have a “trainer” using computers and a web interface that had to be installed to instruct people on the 80/20 program. As you know, the 80/20 pitch is designed to stem the outflow of cash and provide the illusion of sustainability.

    The “Breaking News” site that advertised upcoming rallies and positioned Bowdoin as a man of great benevolence and wisdom also had to be installed.

    All of these things required the participation of employees/contractors.

    Which takes us back to “rebates aren’t guaranteed.” ASD sought to license itself to keep all the money if:

    * The scheme was collapsing naturally,
    * The scheme was collapsing through government intervention.
    * The scheme was collapsing — as Madoff’s easily could have — because key insiders who provided services/talents said they wanted out or demanded extra money for staying in, with the implicit threat not meeting their demands would mean a call would be placed the law enforcement.
    * The scheme was collapsing through theft or mismanagement.

    Did “Russian” hackers really steal $1 million from ASD during its first iteration? Did the script, as Bowdoin contends, really overpay members?

    ASD was a criminal cesspool. Nothing it said to members can be believed. Law enforcement has to vet it all after the fact, because the entire thing was based on a lie. People who helped ASD remain functional by providing employee/contractor services were a big part of that lie.

    The lies continued after August 2008. I have not seen one shred of evidence that the prosecution ever admitted ASD was NOT a Ponzi scheme, for example, even though the claim was passed along as a central truth.

    At the same time, I have not seen one shred of evidence that ASD ever was vetted and declared legal by a government entity, even though that claim also was passed along as a central truth.

    GIGO.

    Always enjoy the productive exchanges, Richard, and I appreciate the time you take to share your thoughts.

    Regards,

    Patrick

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