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Judge Surprises Madoff Deputy by Denying Bail
Experts Question Effect in Other Cases

By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, August 13, 2009

NEW YORK -- When Frank DiPascali Jr. walked into a federal courthouse Tuesday afternoon, he expected to be able to stroll right back out. Instead, DiPascali, a key witness in the Bernard Madoff Ponzi scheme, was led away in handcuffs after a federal judge took the unusual step of rejecting the prosecution's recommendation that he remain free on $2.5 million in bail pending sentencing.

On Wednesday, while DiPascali, a former Madoff deputy, sat in a Manhattan jailhouse, legal experts questioned the effect the judge's decision would have on potential witnesses as the federal government continues its investigation of the Madoff scheme and other high-profile cases arising from the financial crisis.

While the decision does not set a binding precedent, some prominent former federal prosecutors and criminal defense attorneys said it would have a chilling effect on potential witnesses' willingness to work with authorities. Cooperating witnesses who plead guilty to white-collar crimes often are allowed to remain free on bail until sentencing. This can help prosecutors logistically, as they do not have to arrange for meetings in jail to go over voluminous documents.

Some legal experts said the consequences would be limited in part because any ruling in the Madoff case is not easily applicable to other crimes. But almost universally they expressed surprise at the decision by U.S. District Judge Richard Sullivan, who found that DiPascali may be a flight risk.

Sullivan, a widely respected former federal prosecutor who is known to be hard-nosed, left open the possibility that he still might free DiPascali, saying he would consider a revised bail agreement.

"The collateral consequence of that denial can create a chilling effect on cooperating witnesses," said Charles Ross, a Manhattan-based white-collar criminal defense attorney who is representing a former employee of Madoff Investment Securities. "Your freedom while providing cooperation is a very, very important consideration to witnesses coming forward. A highly publicized decision like this will cause clients to be that much more concerned and worried about what's going to happen when they enter their guilty plea."

DiPascali, 52, pleaded guilty to 10 felony counts. He has been a critical witness for the prosecution since the Madoff news broke last December. He faces a maximum of 125 years in prison but will likely serve less because of his cooperation. In court on Tuesday, he spoke, sometimes through tears, of how he and others he did not identify publicly helped Madoff perpetuate the fraud, including creating fake trade records and sending out false account statements to clients.

DiPascali is only the second insider to acknowledge his role in the Madoff scheme, the largest and longest-running financial fraud in history. While Madoff insisted during his own guilty plea that he acted alone, DiPascali has indicated others were involved, and he will likely be a key witness in future cases against potential accomplices. Madoff is serving 150 years in a North Carolina prison, the maximum allowed under federal guidelines.

Anthony Barkow, a longtime federal prosecutor who is now the executive director of New York University Law School's Center on the Administration of Criminal Law, said the decision could discourage potential white-collar witnesses, especially given that DiPascali was cooperating and that the government had advocated for his release pending sentencing.

"That could suggest to other similarly situated people that they are going to go to jail, when typically people in their situation don't, and would devalue any assurances by the government, which frankly probably won't be forthcoming anymore after this decision, that they would go to bat for that person to be released," Barkow said.

"That said, the penalties and losses in this case are so enormous that anyone embroiled in this misconduct has to realize that they're going to spend an enormous amount of time in jail. . . . And the only chance they have of ever getting out of jail is to cooperate. So they still have substantial incentive to do so."

DiPascali himself, Barkow said, will likely have little choice but to cooperate, since not doing so after pleading guilty means "he's probably never going to get out of jail alive."

Thomas M. Durkin, a partner at the law firm Mayer Brown who is also a former federal prosecutor, discounted the notion that the decision would have wide impact on future prosecution of major financial crimes.

"You may just decide to delay your guilty plea a little bit," he said. "If you are guilty in this kind of case, your only hope of minimizing your sentence is by cooperating."

Both federal prosecutors in the case and DiPascali's defense attorney declined to comment through their representatives.

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