## Facts

- The Securities and Exchange Commission brought a civil enforcement action against Frank DiPascali, Jr., a longtime senior employee and de facto chief financial officer at Bernard L. Madoff Investment Securities LLC (BMIS).
- The complaint alleged that for decades DiPascali helped operate and conceal a large-scale fraudulent investment-advisory and securities scheme at BMIS that caused more than $64 billion in investor losses.
- DiPascali allegedly oversaw the mechanics of a fictitious “split-strike conversion” strategy and helped structure and record trades that never occurred.
- The SEC alleged he generated fictitious returns by fabricating backdated trades and creating false customer confirmations and account statements.
- DiPascali allegedly designed and maintained extensive false broker-dealer and advisory records (including trade blotters, stock records, and reports purporting to reflect activity through the Depository Trust Company) to mislead investors, auditors, and regulators.
- A separate “fake” set of books and records was allegedly maintained apart from BMIS’s legitimate market-making and proprietary trading records.
- The SEC alleged investor funds were deposited into a bank account not reflected on BMIS broker-dealer books and records, and that DiPascali knew no securities were purchased and that prices were selected after the fact to produce desired results.
- The complaint alleged concealment of the true scope of BMIS advisory accounts by presenting regulators with a shifting subset of “special accounts” and supplying false records during examinations.
- The civil case proceeded in parallel with a criminal case in which DiPascali pleaded guilty to multiple felony counts on the same date the SEC filed its complaint.

## Issues

1. Whether DiPascali’s alleged fabrication of trades, performance, and account documentation constituted violations of Securities Act § 17(a), Exchange Act § 10(b) and Rule 10b-5, and Advisers Act §§ 206(1)–(2).
2. Whether creating and using false broker-dealer and adviser books and records supported liability under Exchange Act §§ 15(c), 17(a) and related rules, and Advisers Act § 204 and Rule 204-2.
3. Whether DiPascali could be held liable as a primary participant in a fraudulent scheme and/or for aiding and abetting BMIS’s violations.
4. What injunctive and monetary remedies were appropriate in a consent resolution.

## Decision

- DiPascali consented, without admitting or denying the allegations, to entry of a partial judgment.
- The court entered relief permanently enjoining DiPascali from future violations of the charged antifraud and books-and-records provisions.
- The partial judgment reserved determination of disgorgement and civil penalties for later proceedings.

## Legal Principles

- Permanent injunctions are available in SEC enforcement actions to prevent future violations of federal securities antifraud and recordkeeping provisions.
- Antifraud provisions (including Securities Act § 17(a), Exchange Act § 10(b)/Rule 10b-5, and Advisers Act §§ 206(1)–(2)) reach schemes involving material misrepresentations, omissions, and deceptive conduct connected to securities transactions or advisory services.
- Broker-dealer and investment adviser recordkeeping regimes (including Exchange Act § 17(a) and Rule 17a-3, and Advisers Act § 204 and Rule 204-2) are violated by creating, maintaining, or using false or misleading required records.
- A defendant may face liability for direct participation in a fraudulent course of conduct and for aiding and abetting violations where the defendant knowingly or recklessly provides substantial assistance.
- In consent judgments, courts may impose injunctive relief immediately while reserving monetary remedies (disgorgement and civil penalties) for later determination.

## Conclusion

The action ended in a consent partial judgment that permanently enjoined DiPascali from further antifraud and recordkeeping violations based on allegations that he helped run and conceal BMIS’s fictitious trading and falsified records, while leaving disgorgement and civil penalties to be decided later.


S.E.C. v. DiPascali, No. 09 Civ. 7085 (LLS) (S.D.N.Y. 2009)