Peter Madoff Is Sentenced to 10 Years for His Role in Fraud

8:48 p.m. | Updated

Peter B. Madoff was sentenced on Thursday to 10 years in prison for crimes that helped his brother, Bernard L. Madoff, swindle investors out of billions of dollars in a Ponzi scheme that collapsed four years ago this month.

A lawyer by training, Peter Madoff is the second figure in the scandal to be sentenced. His older brother, Bernard, pleaded guilty in March 2009 and is serving a prison term of 150 years.

Mr. Madoff, in a slate blue suit and striped blue tie, entered the crowded courtroom a ccompanied only by his lawyers, although many members of his family and friends had written letters of support for him. The 63 character references stood in stark contrast to his brother's sentencing, when the judge in that case noted that he had not received a single supportive letter.

Still, a handful of victims attended the hearing, including two who spoke emotionally about the financial and psychological hardships they are enduring and urged the judge to impose a life sentence.

In his own brief statement to the judge, Peter Madoff said he was “deeply ashamed” of his conduct and had “tried to atone by pleading guilty.” He added: “I am profoundly sorry that my failures have let so many people down, including my own loved ones and family.”

In June, Peter Madoff, 67, admitted to a range of crimes, including falsifying documents, lying to securities regulators and filing sham tax returns. Prosecutors said that if Peter Madoff had properly done hi s job as chief compliance officer at Bernard L. Madoff Investment Securities, regulators would likely have detected the fraud years earlier.

Peter Madoff was not charged with knowing about the Ponzi scheme, and insists that he first learned about it only 36 hours before his brother's arrest.

During the sentencing in Federal District Court in Manhattan, Judge Laura Taylor Swain expressed skepticism about that assertion.

“Peter Madoff's contention that he did not know that anything was wrong with the investment advisory business is beneath the dignity” of a sophisticated Wall Street executive, Judge Swain said.

“It is also, frankly, not believable,” she added.

Peter Madoff's lawyer, John R. Wing, has portrayed his client as a loving, charitable family man who was bullied, betrayed and destroyed by the imperious older brother he had idolized all his life. Bernard Madoff was widely viewed as an honorable and successful trader, Mr. Wing wrote in a letter to the court, “and no one believed it more than Peter did. Peter revered him and trusted him implicitly.”

In the geography of the Madoff offices, the money management business run by Bernard Madoff operated from a separate suite two floors below Peter Madoff's office and the firm's trading operations. With separate key cards, Bernard Madoff kept the suite off limits, shutting his brother and sons out of the investment advisory business.

In pleading guilty, Peter Madoff has agreed to a 10-year sentence and a forfeiture order of $143 billion. Though a staggering sum that does not bear any relation to what Mr. Madoff could pay, it is tied to the amount of the crime's proceeds. The government set the amount that high to send a clear signal that it would seize all of his and his family's assets and distribute them to victims.

On the day of Bernard Madoff's arrest, his customers thought their accounts contained a total of $64.8 billion, but most of that wealth was fictitious. Madoff's customers had actual cash losses of about $17.3 billion in the fraud, according to Irving H. Picard, the Madoff bankruptcy trustee.

Mr. Picard has recovered about $9.3 billion and distributed about $3.7 billion of that to eligible victims. An additional $2.35 billion has been seized by federal prosecutors under forfeiture laws and will be distributed separately by the Justice Department.

Peter Madoff worked alongside his brother for 39 years. Though Bernard was the firm's sole owner, he paid Peter handsomely. The government said that Peter received about $40 million in compensation from 1998 to 2008. That money was put toward his and his wife, Marion's, lifestyle that included homes in Old Westbury, N.Y., on Long Island, and Palm Beach, Fla., as well as a $4 million apartment on Park Avenue.

In his letter to the judge, Mr. Wing cited the early patterns of the Madoff family as a reason Peter Madoff dutifully obeyed his brother. “Their mother viewed Bernie as the prince, and Peter longed for the love and approval of his brother and family,” Mr. Wing wrote. “Peter had a large build, and Bernie ridiculed him mercilessly, calling him ‘Rollo,' which hurt Peter deeply.”

But despite that demeaning abuse, “Peter seemed to be blind to his brother's flaws,” Mr. Wing wrote.

Judge Swain saw it differently. In her view, Peter knew for decades that the Madoff business operation was “a little bit crooked and he was content to go along with that.” She then added, “We all know that a crooked operation is only rarely, if ever, just a little bit crooked.”

Before Thursday's hearing, both sides filed letters to the judge highlighting factors they hoped she would consider.

The prosecuto rs stressed the harm done by Peter Madoff's willful failure to carry out his duties. They cited a letter submitted by Marion Wiesel, the wife of the Nobel Peace Prize-winner Elie Wiesel, whose foundation lost $15.2 million in the fraud. Mrs. Wiesel said the crime that flourished under Peter Madoff's neglect caused “the immediate and dramatic loss of a lifetime's worth of work and savings.”

Judge Swain directed Peter Madoff to report to prison on Feb. 6, implicitly granting a request that he not be incarcerated until after his granddaughter's bat mitzvah in late January.

In her own appeal to the court, the granddaughter wrote, “I would give anything just to have him see me reading from the Torah even if it was only for a second.”

The judge also complied with a request by Mr. Wing that she ask that Peter be assigned to a nearby prison in Otisville, N.Y., permitting regular visits from his family, though that decision ultimately rests with the Bureau of Prisons.

Besides the two brothers, criminal charges have been filed against a dozen other defendants. Bernard Madoff, 74, is serving his sentence at a federal prison near Raleigh, N.C. Peter's daughter, Shana Madoff Swanson, was a lawyer at the Madoff firm but has not been charged with any crime.

Frank DiPascali, a longtime Madoff employee, pleaded guilty in August 2009 and is awaiting sentencing. Of the remaining defendants, six have pleaded guilty to violations of tax and securities laws that sustained the scheme. The remaining five defendants have denied the government's charges and their trial is scheduled for October.

Among the 41 victim letters submitted by prosecutors was an unexpected one from Robert Roman, the brother-in-law of Bernard's wife, Ruth Madoff. Mr. Roman said that although he and his wife lost their life savings in the fraud, he did not want to see Peter imprisoned.

“Our family is supposed to hate him. But - we do not,” Mr. Roman wrote. “Peter in prison is an answer only to those who seek revenge. It is not a solution.”

Toward the end of the hourlong sentencing, as Peter Madoff fought back tears, Judge Swain counseled the defendant that true atonement required that he fully disclose what happened at his brother's firm.

“Be honest about all that you have done and all that you have seen,” the judge said. “In other words, all that you know.”

A version of this article appeared in print on 12/21/2012, on page B1 of the NewYork edition with the headline: Peter Madoff Sentenced to 10 Years in Fraud Case.