08-01789-smb Doc 18151 Filed 11/01/18 Entered 11/01/18 18 ... · 08-01789-smb Doc 18151-1 Filed...

Stacey A. Bell direct dial: 212.589.4632 [email protected]

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November 1, 2018

VIA ECF

Honorable Stuart M. Bernstein United States Bankruptcy Court Southern District of New York One Bowling Green, Room 723 New York, New York 10004-1408

Re: Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities LLC, Adv. Pro. No. 08-01789 (SMB)

Dear Judge Bernstein:

We are counsel to Irving H. Picard, trustee (the “Trustee”) for the substantively consolidated liquidation of Bernard L. Madoff Investment Securities LLC and the chapter 7 estate of Bernard L. Madoff under the Securities Investor Protection Act, 15 U.S.C. § 78aaa et seq. We write in response to the Court’s November 1, 2018 request to the Trustee for copies of the deposition transcripts of Bernard L. Madoff in connection with the Trustee’s Motion for Limited Additional Discovery Based on Prior Orders Authorizing Deposition of Bernard L. Madoff filed Sept. 21, 2018. See ECF No. 18015.

To that end, we are filing herewith the following transcripts:

Exhibit A: Transcript of Deposition of Bernard L. Madoff dated April 26, 2017 Exhibit B: Transcript of Deposition of Bernard L. Madoff dated April 27, 2017 Exhibit C: Transcript of Deposition of Bernard L. Madoff dated November 8, 2017 Exhibit D: Transcript of Deposition of Bernard L. Madoff dated November 9, 2017

The deposition transcript of Bernard L. Madoff dated December 20, 2016 was previously filed on June 26, 2017. See ECF No. 16237, Ex. I.

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The deposition transcripts of Bernard L. Madoff referenced herein are no longer confidential pursuant to the orders authorizing the deposition of Bernard L. Madoff. See ECF Nos. 14213, 14905, 16625.

Respectfully submitted,

/s/ Stacey A. Bell Stacey A. Bell Partner

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Exhibit A

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CONFIDENTIAL1 UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK23

In re: )4 )

SECURITIES INVESTOR )5 PROTECTION CORPORATION, )

)6 Plaintiff-Applicant, )

)7 vs. ) 08-01789 (SMB)

)8 BERNARD L. MADOFF )

INVESTMENT SECURITIES, LLC, )9 )

Defendant. )10 )

)11 In re: )

)12 BERNARD L. MADOFF, )

)13 Debtor. )

)141516 Videotaped Deposition of BERNARD L.17 MADOFF, VOLUME I, taken on behalf of the Customers,18 before K. Denise Neal, Registered Professional19 Reporter and Notary Public, at the Federal20 Correctional Institution, 3000 Old Highway 75,21 Butner, North Carolina, on the 26th day of April,22 2017, commencing at 9:07 a.m.2324 * * * * *25

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Veritext Legal Solutions212-267-6868 www.veritext.com 516-608-2400


CONFIDENTIAL

1 APPEARANCES OF COUNSEL:2 On Behalf of the Customers:3 HELEN DAVIS CHAITMAN, Esq.4 Chaitman, LLP5 465 Park Avenue6 New York, New York 100227 (908) 303-45688 [email protected] On Behalf of the Trustee:11 DAVID J. SHEEHAN, Esq.12 AMANDA E. FEIN, Esq.13 Baker Hostetler14 45 Rockefeller Plaza15 New York, New York 10111-010016 (212) 589-462117 [email protected] On Behalf of the Deponent:20 PETER A. GOLDMAN, Esq.21 12 Fairlawn Parkway22 Rye Brook, New York 1057323 (914) 935-685724 [email protected]

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1 APPEARANCES OF COUNSEL:2 Videographer:3 Ken Morrison, CLVS45 * * * * *67 CONTENTS8 THE WITNESS: BERNARD L. MADOFF EXAMINATION9 BY MS. CHAITMAN 610 BY MR. SHEEHAN 1321112 * * * * *1314 INDEX OF EXHIBITS15 FOR THE CUSTOMERS: PAGE16 Exhibit Number 15, Copies of Bloomberg 3817 trade tickets18 Exhibit Number 16, JPMorgan Chase 5219 statement - 2-200120 Exhibit Number 17, 703 account statement 5821 - 6-200122 Exhibit Number 18, JPMorgan Chase 6023 statement - 10-200224 Exhibit Number 19, JPMorgan Chase 6125 statement - 12-2003

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1 INDEX OF EXHIBITS (Continued)2 FOR THE CUSTOMERS: PAGE3 Exhibit Number 20, JPMorgan Chase 614 statement - 12-20045 Exhibit Number 21, JPMorgan Chase 626 statement7 Exhibit Number 22, Bear Stearns statement 648 - 8-1-059 Exhibit Number 23, Documents - composite 6710 Exhibit Number 24, Morgan Stanley statement 7011 Exhibit Number 25, JPMorgan Chase position 7212 summary13 Exhibit Number 26, Fidelity statement - 7314 1-31-9915 Exhibit Number 27, Clothmasters statement 7416 - 8-31-9117 Exhibit Number 28, Account Canada document 7518 Exhibit Number 29, Appendix to Dubinsky 9219 report20 Exhibit Number 30, Copies of correspondence 9421 Exhibit Number 31, Bill Feingold expert 10922 report2324 * * * * *25

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1 THE VIDEOGRAPHER: My name is Ken Morrison2 representing Veritext Legal Solutions. The date3 today is April 26th, 2017 and the time is 9:07 a.m.4 This is the deposition being held at Butner Federal5 Correctional Facility located at 3000 Old 756 Highway, Butner, North Carolina 27509 and is taken7 by counsel for the Plaintiffs in the case of8 Securities Investor Protection Corporation,9 Plaintiff-Applicant, versus Bernard L. Madoff10 Investment Securities, LLC, Defendant.11 This case is being held in the United12 States Bankruptcy Court, Southern District of New13 York, Case Number Adversary Proceeding 08-0178914 (SMB). The name of the witness is Bernard L.15 Madoff. At this time would the attorneys present in16 the room identify themselves and the parties you17 represent and then our court reporter, Denise Neal,18 representing Veritext Legal Solutions, will swear in19 the witness and we can proceed.20 MS. CHAITMAN: Helen Davis Chaitman on21 behalf of a great number of claw-back Defendants.22 And, in fact, I'm taking the deposition. It's not23 the Trustee who's taking it.24 MR. SHEEHAN: Right.25 MR. GOLDMAN: Peter A. Goldman. I

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1 represent Bernard Madoff.2 MR. SHEEHAN: David J. Sheehan with Baker3 Hostetler, counsel to the Trustee.4 MS. FEIN: Amanda Fein, Baker Hostetler,5 for the Trustee.6 (The witness was duly sworn by the court7 reporter.)8 MR. GOLDMAN: Keep your voice up.9 BERNARD L. MADOFF,10 having been first duly sworn, was examined and11 testified as follows:12 EXAMINATION13 BY MS. CHAITMAN:14 Q. Good morning, Mr. Madoff.15 A. Good morning.16 Q. Irving Picard has argued to Judge Bernstein17 that you're not a credible witness and I want to ask18 you a few questions about that. At the time you19 confessed on December 11th, 2008 had you been20 indicted?21 A. No.22 Q. At the time you confessed was there a23 criminal investigation against you?24 A. No.25 Q. At the time you confessed was there an SEC

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1 investigation against you?2 A. No.3 Q. At the time you confessed was there any4 limitation on your ability to transfer funds?5 A. No.6 Q. At the time you confessed was there any7 limitation on your ability to travel abroad?8 A. No.9 Q. So is it fair to say that you had the10 option of taking a couple of hundred million dollars11 and moving with your wife to Switzerland and living12 out your life in Switzerland the way Mark Rich did?13 A. I'm --14 MR. SHEEHAN: Objection to form. Let's15 get this geared up because I don't want to16 interrupt. I apologize. So I'm just going to say17 objection. When I say that, it means as to form.18 That's it.19 MS. CHAITMAN: Okay.20 MR. SHEEHAN: But just to preserve.21 MS. CHAITMAN: Sure, sure.22 MR. SHEEHAN: Okay. All right. I'll shut23 up.24 MS. CHAITMAN: I'm going to rephrase the25 question because I was rudely interrupted.

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1 (Laughter on the record.)2 MR. SHEEHAN: I apologize for that. I3 apologize. Go right ahead. Go ahead.4 MS. CHAITMAN: I'm kidding.5 Q. (By Ms. Chaitman) Okay. At the time you6 confessed you knew who Mark Rich was; didn't you?7 A. Yes.8 Q. And did you understand that Mark Rich had9 escaped prosecution by moving to Switzerland?10 A. Yes.11 Q. And did you recognize that you could have12 done the same thing, just moved to Switzerland with13 Ruth with a couple of hundred million dollars and14 lived out your life?15 A. Yes.16 Q. Now, at the time you confessed the global17 economy had collapsed. Do you recall that?18 A. Yes.19 Q. Bear Stearns had collapsed in March 2008;20 isn't that true?21 A. Correct.22 Q. And Lehman filed in bankruptcy in23 October 2008?24 A. Correct.25 Q. And the stock market lost half its value

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1 when Lehman filed in bankruptcy; isn't that true?2 A. Just about, yes.3 Q. And you had a lot of wealthy people who4 owed you about $10 billion; isn't that true?5 A. Correct.6 Q. So instead of confessing to a crime which7 would inevitably result in your spending the rest of8 your life in prison, why didn't you move to9 Switzerland or try to work out a negotiated10 liquidation of your business?11 A. Well, first of all, I knew that I was12 guilty. I felt responsible. Secondly, I had made a13 decision that the best thing that I could do for the14 -- you know, to make restitution to my clients was15 to try and convince certain people that were16 responsible for creating my problem to threaten them17 with turning them in with their complicit behavior18 if they did not return the money that they owed me.19 Q. Okay. And I just want to caution you.20 We're going to speak a little bit about the four21 families, but I don't want you to mention the names22 of any of the people.23 A. Okay.24 Q. Now, when you met with the U.S. Attorney's25 Office in December 2008, did you tell them the

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1 complete truth about what happened?2 A. Yes.3 Q. Since that time have you ever been4 dishonest when you testified about what happened?5 A. No.6 Q. Now, as I just mentioned, you've testified7 previously about the four families who had been your8 clients from the 1960s on. And, again, I don't want9 you to mention the names of any of those four10 families, but I just want to ask you a question.11 Was there a period prior to 1990 when Annette12 Bongiorno backdated trades from members of the four13 families?14 A. Yes.15 Q. Was that done without the knowledge of the16 members of the four families?17 A. No. They were aware of it. They had18 instructed her to do it.19 Q. They instructed her to backdate trades?20 A. Yes.21 MS. CHAITMAN: Okay.22 MR. SHEEHAN: Excuse me. What time period23 was that?24 MS. CHAITMAN: Before the 1990s.25 MR. SHEEHAN: Okay.

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1 Q. (By Ms. Chaitman) Now, to your knowledge2 has the Trustee settled with each of these four3 families?4 A. I believe so.5 Q. Okay. You testified the last time you were6 deposed by me that the fraud did not begin until you7 began doing the split strike conversion strategy in8 1992?9 A. Correct.10 Q. Now, was it, as Judge Bernstein used the11 expression, a light switch? When you started doing12 a split strike, did you stop buying any securities13 for the split strike customers?14 A. No. I had started -- I had started buying15 -- doing the strategy for probably through 1993; but16 as more money came in, that's when my problem began17 because I couldn't put it all to work in the18 strategy. And I had committed that I would keep all19 the money working.20 Q. Okay. I just want to say one thing. I21 have seen statements as early as July 1991 which22 seem to be in split strike. Are you saying that it23 wasn't -- I'd like you to give me your best24 recollection of when you stopped buying securities25 for the split strike customers.

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1 A. Sometime post-'92. As I started, you know,2 I was still buying it in '92 and also through most3 of '93. After that, that's when I stopped buying4 securities for split strike.5 Q. Okay. Now, you continued to have some6 customers who were in convertible arbitrage?7 A. Correct.8 Q. Did you continue so long as people were in9 convertible arbitrage, did you actually buy those10 securities?11 A. Yes.12 Q. Okay. So it was only in the split strike13 that you stopped buying the securities?14 A. Correct.15 Q. Okay. Do you derive any kind of benefit16 from your testimony as to when the fraud started?17 A. No.18 Q. Does it benefit anyone in your family?19 A. No.20 Q. If the Trustee claims you're lying as to21 when the fraud started, is there any conceivable22 benefit that you enjoy by virtue of that testimony?23 A. No.24 Q. Does this testimony benefit any of your25 family members?

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1 A. No.2 Q. Now, you testified that at some point in3 1992 you leased the 17th floor of the Lipstick4 Building?5 A. Yes.6 Q. And you bought a separate computer system7 for the people you moved to the 17th floor; is that8 right?9 A. Correct.10 Q. And that was called the IBM AS/400?11 A. Yes.12 Q. Now, was the IBM AS/400 on the 17th floor13 linked to outside sources, like other investment14 firms or DTC?15 A. No.16 Q. Now, the computers that were used on the17 18th and the 19th floors by the traders --18 A. Right.19 Q. -- were those Bloomberg terminals?20 A. Well, we have Bloomberg terminals all over21 the firm, yes.22 Q. Okay. Were the Bloomberg terminals linked23 to outside sources?24 A. Yes.25 Q. What outside sources were they linked to?

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1 A. I can't probably tell you all of them, but2 they -- Bloomberg generally is linked to --3 basically, Bloomberg terminal gets information from4 other information providers. They're also -- I'm5 not sure, but they're also linked to probably the6 depositories as well. They're not linked to other7 brokerage firms.8 Q. Okay. Now, when you testified that Annette9 Bongiorno prior to 1990 had backdated trades for the10 four families, were those carried out on the AS/400?11 A. Yes.12 Q. Okay. But before -- before you bought the13 AS/400 in 1992, what kind of computer was she using14 that she would backdate trades?15 A. We had other small like, you know,16 computers, what you would call them, just like, you17 know, what you would use at home, you know, word18 processors and, you know, NASDAQ terminals and19 things of that sort.20 Q. They were not linked to outside sources?21 A. No. They were not linked, right.22 Q. Now, was it -- you testified last time, and23 correct me if my recollection is incorrect, but I24 think what you testified last time is that it was25 not illegal for you to sell short?

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1 A. Correct.2 Q. And that was because -- can you explain?3 A. It's an obligation if you're -- if4 you're -- first of all, any brokerage firm can sell5 short, you know, just as any client can sell short.6 That's a typical way of doing business, you know.7 So you as a client could instruct your broker to --8 to execute a short sale.9 Brokerage firms more routinely go short10 stock to complete their customer orders at times if11 they don't have them in their inventory. If you're12 a market making firm like I was, you're obligated to13 honor your market, which requires you to go short,14 you know, at times.15 So going short is a regular, every day16 business. A firm like ours, you know, regular17 trading inventory typically would have hundreds of18 millions of dollars, probably $500 million short all19 the time.20 Q. Okay. But a naked short is where you're21 selling short but you don't own the security; right?22 A. The definition of a short sale is naked.23 It means that you're selling something that you24 don't own at the current time.25 Q. Okay. And as a market maker did you have

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1 an unlimited right to sell naked shorts?2 A. Correct.3 Q. So was it illegal for you to send a4 statement say beginning in '94 or whenever you5 stopped buying the securities shown on the split6 strike, was it illegal for you to send a statement7 to a split strike customer that indicated that the8 customer owned certain Fortune 100 company stocks9 when you hadn't purchased them?10 A. No. It was not illegal.11 Q. Okay. So if it was not illegal for you to12 sell unlimited naked shorts, what was illegal about13 the split strike activity?14 A. Well, what was illegal and what we did was15 not reflect our short positions to the clients on16 our audited financials.17 Q. Because you had a debt to each client to18 whom you sold naked shorts --19 A. Correct.20 Q. -- in the amount -- the present value of21 those securities; is that correct?22 A. Correct.23 Q. And that was a fraud on anyone to whom you24 gave your financial statements; is that right?25 A. Well, depends upon how you define fraud.

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1 It was a bookkeeping violation. I don't think2 anybody initially would consider it a fraud. You3 know, that's -- well, I just don't know. I would4 say that it clearly was an SEC violation.5 Q. And is it fair to say that the SEC reviewed6 the financial information that you submitted in your7 focus reports on a monthly basis?8 A. Regularly, yes.9 Q. And if you showed a massive debt to your10 customers, your investment advisory customers, what11 would they have done?12 A. It would have been a violation. You13 probably would have been suspended.14 Q. You would have been suspended as a broker?15 A. Correct.16 Q. Okay. So in your view was the crime simply17 that you didn't properly disclose the debt to your18 customers on your financial statements?19 A. Correct.20 Q. Now, you've testified this morning that you21 think either at the end of '93 or early '94 you22 stopped buying securities for your customers, and I23 just want to get a better understanding of why that24 occurred at that time. You had -- I think you said25 you made a commitment to your clients to put them in

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1 this strategy?2 A. Correct.3 Q. And what happened at the end of '93 or4 early '94 that you could no longer do that?5 A. The markets had gone into a -- into a slump6 because of a number of things, you know, starting7 with the Mideast Crisis at that time. So there was8 a lack of liquidity. This particular strategy that9 we used, the split strike strategy, requires certain10 market conditions to be able to execute it properly.11 And we didn't have those conditions.12 So because I had committed when I took in13 the money from the clients, primarily they were14 hedge funds, I had made a commitment to keep the15 money working constantly. Because I couldn't do16 that, I started to short the securities, which was17 as I said, not a violation at the time I was18 shorting the stock. It only became a violation when19 I filed my financial reports.20 I thought that would just be a temporary21 situation for the market to, you know, recover and22 improve and then I would have started doing the23 strategy. In the interim the money that the24 customers came in, I basically kept it located in25 Treasury bills.

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1 Q. Okay. So you took the money --2 A. Which is part of the strategy as well.3 Q. Right. So you basically took the money4 that went into the 703 account?5 A. Correct.6 Q. Which was the investment advisory7 customers' money?8 A. Correct.9 Q. And you purchased Treasury bills with that?10 A. Correct.11 Q. And in the early '90s the Treasury bills12 were bearing an interest rate of about six percent;13 isn't that true?14 A. No. They probably were -- you know, they15 were short-term T bills, so they were probably, you16 know, closer to three to four percent.17 Q. Okay. And that three to four percent was18 money that was earned by the customers --19 A. Correct.20 Q. -- whose money you were using?21 A. Correct.22 Q. And, in fact, the statements reflected the23 ownership of those Treasury securities?24 A. Correct. And they -- well, they also, you25 know, reflected the ownership of the securities that

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1 I wasn't buying.2 Q. Right. Now, in late 1993 or early 1994 was3 your business, you were operating at that point as a4 sole proprietorship; is that right?5 A. Yes.6 Q. Was your business insolvent?7 A. No.8 Q. At what point in time did you become9 insolvent? And when I say you, I mean your sole10 proprietorship or the limited liability company.11 A. I would say probably in the early 2000s,12 maybe somewhere between let's say '98 and 2002.13 Q. Okay. And what --14 MR. SHEEHAN: Can I just -- before you get15 an answer, two things. One is I don't know what16 insolvency means.17 MS. CHAITMAN: Oh, okay.18 MR. SHEEHAN: I'm going to ask to define19 that.20 MS. CHAITMAN: Okay.21 MR. SHEEHAN: And I'm not going to22 interrupt you again because I'm just going to have a23 continuing objection to leading questions, which is24 you're testifying more than he is, but I don't care25 about that. Just objecting. All right.

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1 Q. (By Ms. Chaitman) Okay, okay. When you2 say that your business became insolvent at some3 point between '98 and what did you say? 2000 --4 A. 2002.5 Q. Okay. What are the events that you're6 thinking about that --7 A. Well, because I was also returning -- there8 were client -- part of the strategy was to return9 profits that were earned to clients. So in order to10 do that, I was returning money from the 703 account11 to clients and, therefore, I wasn't able to buy12 either the securities or the treasuries. So there13 was a deficit.14 So because that wasn't reflecting the15 liabilities and I didn't have assets to back them up16 at some point, I would say that would be -- the firm17 would be insolvent.18 Q. Okay. So would it be fair to say that the19 insolvency arose from the differential between what20 the investment advisory customers' money was earning21 in Treasury bills versus the return you were paying22 them?23 A. Correct.24 Q. Did your formation of the limited liability25 company in -- it became effective January 2001, did

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1 that relate in any way to your feeling that your2 firm had become insolvent?3 A. I realize that that -- yeah, that there4 were problems brewing, yes, I would say.5 Q. Well, what motivated you to form a limited6 liability company since you had been operating as a7 sole proprietorship since 1960?8 A. Well, I was always -- I had always been9 advised to incorporate since I started my firm. I10 never felt the need to do that because I was not11 worried about, you know, ever being in a situation12 that, you know, I would have any exposure. The firm13 was always successful and, you know, it just never14 really entered my mind.15 So I just didn't do it, but then because16 of what was going on with the stock market, the17 market had -- had crashed in 2000 because of the --18 there was the bubble of the technology stocks, so19 everybody became very nervous about the market in20 general.21 So there was a rush to incorporate or go22 into an LLC type of mode. And the regulators had23 also sort of started recommending to the industry24 that everybody should basically do that.25 Q. Now, Mr. Madoff, according to Mr. Dubinsky

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1 the three areas of your firm functioned as totally2 separate legal entities, that is, market making,3 proprietary trading and investment advisory. Is4 that correct that each of these groups functioned as5 a separate legal entity?6 A. No.7 Q. Were the expenses for -- the operating8 expenses for each group paid solely out of the9 revenues generated by that group?10 A. They were -- all the expenses were paid11 through a -- through the firm, but the money came12 out of an expense account that was held at Bank of13 New York.14 Q. So there was one Bank of New York account15 which covered all of the say overhead expenses?16 A. All the operations of the firm. There was17 a JP Morgan account. We referred to it as a 70318 account. And that was exclusively used for client19 monies in and client monies out --20 Q. Okay. And --21 A. -- for the investment advisory side.22 Q. Okay. So all of the rent, personnel23 expenses, general overhead was paid out of the Bank24 of New York account?25 A. Everything. Salaries, everything.

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1 Q. For all of the employees at first the sole2 proprietorship?3 A. Right, right.4 Q. And then all of the employees at the LLC?5 A. Yes. It never changed, right.6 Q. Okay. And is it fair to say that at times7 money went from the 703 account to the Bank of New8 York account?9 A. Yes. There were some instances that --10 that I used that, but the issue is because all of11 these clients had margin accounts because they were12 short securities, whether it be convertible13 securities or whether it be the split strike trades,14 their -- the assets of the client is fungible with15 the firm because the long positions, whether it be16 Treasury bonds or whatever, is the collateral for17 the exposure on the short side of the firm.18 So there were sometimes where relatively19 small amounts of money, I think, in the late '90s20 went from the 703 account into the Bank of New York21 account to cover -- what was not, I don't think,22 understood in the Dubinsky report among a lot of23 other things was that customers have short24 positions. They're mark to market from the clearing25 corporation every day and short position being the

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1 difference in the market. As the stock market goes2 up, the short position goes up. The customer gets a3 call which is called a margin call.4 So typically the money would come from the5 customer account to meet those margin calls. So we6 had -- we had margin calls that we had to make to7 the clearing corporation, which all that which was8 done through the Bank of New York account.9 So by taking the money from the client10 account, putting it into the Bank of New York11 account, that allowed us to meet the margin calls of12 the clearing corporation. That is typical of the13 industry.14 Q. Okay. Now, I want to ask you something15 else since you've mentioned the margin. If you --16 if someone had a margin loan and you bought stock17 for them --18 A. Right.19 Q. -- would that stock be segregated in a20 clearing or custody account for that customer?21 A. No.22 Q. Why is that?23 A. Because margin, the whole concept of a24 margin account is the firm is allowed to use those25 securities to borrow money to cover, you know, what

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1 the customer is requesting to be able to purchase2 securities. The brokerage firm also has to deliver3 securities if the firm that he sold it to for the4 customer who needs delivery.5 So he has to go out and borrow securities.6 And to borrow the securities to make the delivery,7 he has to -- he has to borrow them from another8 brokerage firm. He has to pay them for those9 securities. So the only -- the only securities that10 are segregated for a customer are what's called11 fully paid for securities where there is no12 liability or debt involved in the firm.13 Q. Okay. Now, you've explained that the fraud14 was in the split strike, but if you had an15 investment advisory customer who instructed you to16 buy a specific position for them and you gave them a17 margin loan to do that, did you actually execute18 those sales?19 A. We always execute the sales. Whatever was20 reflected on the customer statement, we executed.21 We executed the sales to the customer. You know, we22 wouldn't have executed them in the market unless we23 were doing a strategy, unless we were also buying24 securities.25 Q. Okay. But where a customer made a specific

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1 instruction to you to buy a specific stock, are you2 saying that you always executed those instructions?3 A. The customer didn't usually give us4 instructions. These accounts are handled basically5 as sort of discretionary accounts. So once the6 customer opened the account to go into this7 particular strategy, the firm had the -- had the,8 you know, allowance to be able to execute the9 strategy whenever he saw fit.10 Q. No, but I'm thinking of customers who were11 not in split strike, investment advisory customers12 who had you as their investment advisor but they13 instructed you as to what stocks to buy and sell.14 A. We didn't -- we basically did not do that15 kind of business.16 Q. Now, in the government's deferred17 prosecution agreement with JPMorgan Chase, the18 government and the bank stipulated that during the19 period from 2003 to 2008 you maintained on deposit20 at JPMorgan Chase three to six billion dollars. Is21 that correct?22 A. Yes.23 Q. Did that amount -- was that only between24 2003 or 2008 or had you done that earlier than 2003?25 A. Well, there were certain -- we started

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1 buying treasuries when we start the split strike2 conversions. So that would have been, you know, in3 the '90s.4 Q. Okay. And to the best of your recollection5 at any given time how much investment advisory6 customers' money was held in U.S. treasuries?7 A. Well, I would say basically the maximum8 that we had was between five firms we had about9 two-and-a-half billion dollars between Morgan10 Stanley, Lehman Brothers, Bear Stearns and Fidelity.11 Was that five firms? Four firms. And JP Morgan.12 Q. Okay.13 A. So I would say probably the maximum was14 probably about $6 billion held in treasuries.15 Q. Okay, okay. Did it fluctuate or did you16 instruct your staff to maintain that amount?17 A. No. It pretty much fluctuated depending18 upon the monies that came in and the monies that --19 monies that came out.20 Q. What percentage of the investment advisory21 customers' money was put in Treasury securities, if22 you can estimate that?23 A. Well, I mean, the most we had -- I mean,24 the customer statements depending, you know, at the25 end was 60 some odd billion dollars.

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1 Q. Not what the statements showed, but what2 you actually did.3 A. What we actually did?4 Q. Yeah. How --5 A. I don't understand your question.6 Q. Let me step back a minute. Were the people7 on the 17th, were any of the people on the 17th8 floor authorized to buy Treasury securities?9 A. Yes.10 Q. Who was authorized to buy Treasury11 securities?12 A. Frank DiPascali, Eric Lipkin and a fellow13 by the name of Robert Romer.14 Q. And they were -- what money were they15 authorized to use to buy the Treasury securities?16 A. Whatever -- they followed the instructions17 of basically Frank DiPascali, who was the manager of18 that department. And the money, the money to buy19 the securities always came from customer money20 except for a small amount of treasuries or financial21 instruments that came from the operating operations22 of the market making proprietary trading side.23 Q. Okay. So the money came from the 70324 account, is that what you're saying, except for25 the --

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1 A. For the most part, yes.2 Q. Except for the money that came from the BNY3 account?4 A. Right.5 Q. Okay. Now, did you ever have a lock-in6 period like hedge funds would have which would7 prevent a customer from immediately demanding a8 redemption on their money?9 A. No.10 Q. Was there any period of time from the end11 of 1993 to 2008 when you were unable to honor a12 customer redemption?13 A. No.14 Q. Was there anytime between 1993 and 200815 when you felt that you couldn't redeem a customer's16 account unless you brought in new investment17 advisory customers?18 A. No. Well, I would say during -- in 200819 probably that half the market was -- was collapsing.20 There would have been -- had customers requested21 money, I wouldn't have been able to do it, but no22 one had ever requested it.23 Q. Okay. So, well, you did have significant24 redemptions in 2008?25 A. Yes, at the very end in December.

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1 Q. Okay. And prior to December 2008 --2 A. But there was always -- there was -- you3 know, I never got an official request for redemption4 that I didn't have money to cover it to my5 recollection other than maybe the last week in6 December.7 Q. Okay.8 A. The last, you know, week that I was in9 business.10 Q. Okay. So in the entire period when you11 were not buying the split strike securities starting12 say late 1993 or early 1994, had you ever received a13 redemption request where you thought oh, my God,14 I've got to bring in a new customer to have the15 money to pay this?16 A. No.17 Q. Did you actively solicit new investment18 advisory customers?19 A. No.20 Q. Why not?21 A. Because the firm was in a position that we22 were always turning away investors. We never --23 never solicited, you know, new monies coming in. As24 a matter of fact, we tried to return monies at times25 but met resistance with clients.

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1 Q. We talked last time about the fact that you2 maintained clearing accounts with various banks?3 A. Correct.4 Q. And can you just review the banks with5 which you had clearing accounts?6 A. Well, first of all, the firm itself was a7 self-clearing firm, which meant we had the ability8 to clear transactions. That was starting with the9 firm in 1960 through the very end, but most firms10 also had clearing arrangements with a number of11 banks to be able to service different types of the12 operations of the firm.13 So the firm at one point had clearance14 facilities with -- initially with Meadowbrook15 National Bank, then, you know, also Commercial Bank16 of North America. There was then Irving Trust17 Company, Bank of New York, Bankers Trust,18 Manufacturers Hanover, Chase Manhattan Bank, Marine19 Midland Bank, Chemical Bank, JP Morgan Bank,20 Continental Illinois Bank. I think that pretty much21 covers it.22 Q. M&T?23 A. M&T, yes. M&T Bank.24 Q. Now, what services did these banks provide25 to you?

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1 A. Both loans, brokered and unbrokered loans,2 conversion, instructions to convert securities,3 drafts for election, you know, checking accounts,4 typical usually broker day loans, things -- you5 know, whatever, complete clearance facilities.6 Q. Did they have custodial accounts where you7 maintained securities for customers?8 A. Not that I'm aware of, no.9 Q. Did you have custodial accounts with anyone10 where securities were maintained for customers?11 A. Well, the -- we had securities at12 depositories, but they were not basically segregated13 for customers. That was the practice, quite14 frankly, that most brokerage firms never did any15 longer when securities -- as the industry progressed16 and you didn't have full physical securities in your17 own vaults.18 We always had some securities in our vault19 we had, but those are from many, many years ago.20 They were a relatively small amount of securities21 that we were holding or that we bought, you know;22 but for the most part all the securities were23 commingled, which was typical for a firm that24 operated the way we did where you had customers that25 were short securities.

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1 Whether or not we executed the transaction2 or not, they had opened up, you know, accounts, what3 would be deemed as a margin account, and that4 automatically allows you to commingle the5 securities.6 Q. Okay. So you did have -- you did have7 physical possession of the securities with the8 margin accounts?9 A. When we were buying them, yes.10 Q. Okay. Now, you referenced the change from11 physical securities to electronic securities. Can12 you pinpoint when that occurred?13 A. I don't remember any longer. I would say14 sometime during the '90s.15 Q. Would it help if I told you that the16 Securities Investor Protection Act was enacted in17 1970?18 A. No.19 Q. Okay. Now, when you were doing the20 convertible arbitrage, did you ever use a strategy21 called legging in?22 A. Always.23 Q. Okay. And can you explain what legging in24 means?25 A. Legging in means that when you're doing a

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1 strategy, whether it be for convertible securities2 or for the split strike, you go in and you don't buy3 everything typically in one day.4 You start -- when the firm makes a decision5 to effect a strategy, whether it be convertible6 bonds or whether it be a basket strategy and a split7 strike where you're buying, you know, a portfolio of8 securities, the skill of the strategy is to being9 able to judge the market.10 So you -- if when you're going out and11 buying securities, you would start buying it let's12 say on a Monday, Tuesday, Wednesday, Thursday.13 Typically you would buy it over a four-day period14 was basically what our practice is. And you would15 have different prices during the four-day period.16 And all of our strategies use what's17 defined as an average price transaction, which means18 we would then take the average price that we bought19 stock during that four-day period and that would be20 the -- you know, we'd figure what the average was21 that we paid and then we would -- we would send the22 customer a confirmation on the last day.23 So let's say on a Thursday, we started on24 Monday. And if you start -- to make a simple25 example, let's say you did it over four days and you

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1 paid -- you started buying stock at 50 and you wound2 up buying it at, you know, up to 51 and you had an3 average of 50-and-a-half, you would -- you would4 place five-and-a-half.5 Q. Was that unique to you or was this6 something --7 A. No. That's typical for any firm that is8 investing in a strategy and treating -- you know,9 that's treatable to customers the same in a10 particular strategy.11 Q. Now, you testified last time that Mr.12 Dubinsky apparently lacked an understanding of that13 strategy?14 A. Well, he -- he must have. He must have not15 understood the strategy because his report failed to16 -- failed to state that. So, for example, where17 Dubinsky, when he was trying to analyze the prices18 that a customer paid in relationship to the market,19 he would look on whatever the trade date was on the20 confirmation.21 And the trade date on the confirmation, for22 example, would be -- an example I use would be the23 trade date would be Thursday's trade date. If the24 stock had traded at 51 and on that day if that was25 the higher, the lower the stock and the average was

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1 50-and-a-half for the customer, there would be a2 difference. So it wouldn't match up. Now, the3 customer, the customer confirmation always stated --4 there was a legend on it that said that the5 transactions effected for the customer was an6 average price transaction.7 So right away that would -- that would8 illustrate that he wasn't accounting for the -- for9 the fact that the transaction was an average price10 transaction.11 The same thing would happen when you -- the12 same error he made when he accounted for volume13 because he would just look at the volume that14 occurred on the one day, on the date of the trade15 date, as opposed to the volume that happened on the16 four days. So, obviously, he's looking at the17 volume on one day when you should be looking at the18 volume on four days.19 Q. Now, Mr. Madoff, Mr. Dubinsky testified at20 the Bonventry trial that the Trustee paid him over21 $30 million to do his report. Did he at any time22 ever seek to talk to you?23 A. No.24 Q. To your knowledge did he or anyone on his25 behalf ever seek to meet with you to discuss how you

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1 operated the business?2 A. No.3 Q. Did anyone working with the Trustee ever4 ask you any questions about how your convertible5 arbitrage trades were done?6 A. No.7 Q. Did anyone working with the Trustee ever8 question you about any activity of the firm that9 predated 1992?10 A. No.11 Q. Now, you mentioned with respect to the12 purchase of Treasury securities with the investment13 advisory customers' money that the purchases were14 done through Bear Stearns, Morgan Stanley, Fidelity,15 Lehman Brothers and JPMorgan Chase?16 A. Right.17 Q. Were there also purchases done directly by18 Frank DiPascali, Eric Lipkin and Robert Romer?19 A. Correct.20 MS. CHAITMAN: I'm going to mark as21 Exhibit 15, which is the next number from our last22 deposition, a compilation of trade tickets. I have23 two if you each want one.24 (Customers Exhibit 15 was marked for25 identification.)

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1 MS. FEIN: Thank you.2 MR. SHEEHAN: Thank you.3 Q. (By Ms. Chaitman) Mr. Madoff, do you4 recognize what these documents are?5 A. Yes. They're -- they're a copy of the6 Bloomberg terminal execution, meaning a trade that7 was executed through a Bloomberg terminal.8 Q. Okay. Now, could this be a phony document?9 A. No.10 Q. Why is that?11 A. Because we've got the ability to -- to12 create something like this.13 Q. Is that because it's a Bloomberg terminal?14 A. Yes.15 Q. So if we look at the first one, this was16 the trader was Eric Lipkin; right?17 A. Uh-huh.18 Q. The date was September 26, 2002; right?19 A. Uh-huh.20 Q. And the -- it was the purchase of a21 Treasury bill with a cost of $998,461.94; is that22 right?23 A. Yes.24 Q. And this would have been purchased with25 money from the 703 account?

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1 A. Yes.2 Q. And it would have been held for the benefit3 of the investment advisory customers?4 A. It would have been -- it would have been5 held at the firm for the benefit of the firm. We6 didn't segregate, you know, these securities.7 Q. But if the money that was used to purchase8 this --9 A. Uh-huh.10 Q. -- came from the 703 account, would this11 show up, for example, on your focus reports?12 A. This particular -- I don't know. I mean,13 the only trades that -- if it went through the14 Bloomberg terminal, typically that would show up --15 I don't know if it would show up on the focus16 report.17 It depends upon whether the trade was18 bought for -- there were some trades that were19 bought -- well, not if it was bought by the people20 that you mentioned. They only have the authority to21 execute trades for client accounts, not for the22 firm's account.23 Q. Okay. So I'm confused.24 A. These securities would be held either at --25 typically it would be held at DTC or the Bank of New

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1 York.2 Q. Okay.3 A. I mean, I can't tell from that. It depends4 upon where the trade would settle. Any of these5 Bloomberg trades that went through the Bloomberg6 terminal, it would actually be a money settlement7 for the transaction. Otherwise, you couldn't -- you8 couldn't do it.9 Q. Okay. And that would be done through some10 ins --11 A. It would be done through some -- typically12 through Bank of New York.13 Q. Okay.14 A. It could also have been done through JP15 Morgan as well in delivery.16 Q. Okay, okay. You didn't have the ability17 yourself to clear Treasury security purchases?18 A. Correct. We didn't have the authority to19 execute and clear.20 Q. Treasury security purchases?21 A. Right.22 MS. CHAITMAN: Okay.23 MR. SHEEHAN: Helen, just for the record,24 this seems to be -- you did call it a compilation,25 but since there were different productions, one is

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1 AMF, another one is MAD Trustee, are you going to2 for the record tell us how this was put together or3 is that going to happen through your testimony?4 MS. CHAITMAN: It's not, but I don't think5 that we have to take up his time to do that.6 MR. SHEEHAN: Okay. We can do it later.7 MS. CHAITMAN: Yeah, sure.8 MR. SHEEHAN: All right. Just take care9 of it.10 MS. CHAITMAN: They were all produced by11 the Trustee.12 MR. SHEEHAN: Okay.13 Q. (By Ms. Chaitman) If you -- these are not14 in continuous order. They didn't come from one15 place, but I'm showing you one that was done where16 the trader is Erin Reardon.17 A. Ellen Reardon?18 Q. Erin Reardon.19 A. Erin, yes.20 MR. SHEEHAN: What's the Bates number on21 that?22 MS. CHAITMAN: It's MAD TEE 00118284.23 MR. SHEEHAN: Okay.24 Q. (By Ms. Chaitman) Did she work under Frank25 DiPascali?

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1 A. Yes.2 Q. And then two pages on there is one executed3 by Robert Romer?4 A. Yes, same.5 Q. He worked for Frank DiPascali?6 A. Yes.7 Q. Now, I'm skipping to a page which is8 Public-USAO 0960973. Can you identify why that9 format is different? Is that a different kind of10 transaction?11 A. I don't know what this is. I mean, I'm not12 that familiar with it. It looks like a ticket for13 -- for a treasury, trading of a treasury, but it's14 actually from the Bloomberg terminals on here. So15 it must be --16 Q. Okay. A different format?17 A. -- a different format, right.18 Q. Okay. And then on the next page, which is19 Public-USAO 0961013, it indicates that the trader is20 Frank?21 A. Right.22 Q. Is that Frank DiPascali?23 A. Yes.24 Q. And was it Frank's responsibility to25 maintain the portfolio Treasury securities for the

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1 703 account customers?2 A. Yes.3 Q. Is it fair to say that he would direct the4 work of Eric Lipkin and Robert Romer?5 A. Yes.6 Q. And they reported to Frank?7 A. Yes.8 Q. Now, what was your purpose in instructing9 Frank to maintain a portfolio of Treasury securities10 up to $6 billion using the 703 account money?11 A. We had to put the money somewhere, so if we12 were -- if it wasn't -- we would never keep the13 money in cash. So if we weren't buying the14 securities, we would put it into -- we would put it15 into treasuries.16 Q. Okay. And did you have some thought that17 the three to six billion -- that was at JPMorgan18 Chase. That the up to six billion in Treasury19 securities was intended to protect any of your20 customers?21 A. Well, if it was -- it was customer money,22 you know, yes.23 Q. Okay. And in your mind over the years did24 you have customers, investment advisory customers25 that you wanted to protect more than others?

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1 A. No.2 Q. Were you concerned about protecting the3 European investors?4 A. No.5 Q. Why is that?6 A. Well, because I was aware of the fact that,7 first of all, they really weren't my customers.8 They were customers of hedge funds. I was aware of9 the fact that the -- that most of the hedge funds,10 if not all of them, had structured product11 arrangements with banks that they were guaranteed,12 their principal was guaranteed and they were sharing13 in the profits of the transaction.14 So it was as far as -- I mean, basically,15 they were all my customers. So I was obligated from16 a legal standpoint whether -- you know, whether I17 wanted to or not; but I would say that the -- I18 looked at the individual clients which would -- who19 had direct accounts with me differently than I did20 with the hedge funds, particularly because the hedge21 fund money that was pouring in was the thing that22 caused me the problem.23 Q. What about the feeder funds? Are you24 putting them in the category of the hedge funds?25 A. The who?

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1 Q. The feeder funds?2 A. Those are the hedge funds.3 Q. Those are the hedge funds. Okay. So were4 you buying the Treasury securities then to protect5 the private customers as opposed to the hedge funds?6 A. I didn't look at it, you know. I didn't7 isolate it one over the other because I knew I was8 basically obligated for -- you know, for all of it.9 Q. Okay. Now, you said that you purchased10 Treasury securities with the 703 account money11 through the five institutions that you named?12 A. Right.13 Q. Bear Stearns, Fidelity, Lehman Brothers,14 JPMorgan Chase and Morgan Stanley --15 A. Right.16 Q. -- is that right?17 A. Yes.18 Q. Okay. It was only those five firms?19 A. Yes.20 Q. Okay. And did you maintain a consistent21 portfolio of Treasury securities at each of those22 institutions?23 A. They were rarely sold unless they matured24 and then we repurchased, you know, different, you25 know, Treasury bills. Yes, I mean, for the most

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1 part the monies in those accounts built and became,2 you know, more and more up to the maximum, which3 was, I think, $500 million pretty much in each4 account.5 Q. So you maintained 500 million of Treasury6 securities at each of those five firms?7 A. Pretty much, yes.8 Q. Okay. And then in addition you had the9 portfolio that was purchased directly --10 A. Correct.11 Q. -- by the 17th floor people?12 A. Right.13 Q. Now, the market making and proprietary14 trading people were buying and selling securities;15 right?16 A. Yes.17 Q. And what kind of records were kept of the18 securities that were held by the firm as of say19 month end of each month? Was there a record kept of20 an inventory of securities that were owned by the21 firm as of the end of each month?22 A. That the firm was long you're talking23 about?24 Q. Yes.25 A. Yeah. That was -- you know, you were

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1 required to -- you had trading ledgers that2 reflected what was long by the market makers or the3 proprietary traders in the firm's investment4 account. There were trading ledgers and then there5 were -- there's what's called a securities record,6 stock record.7 Q. Is it called a trade blotter?8 A. There's trade blotters, yes.9 Q. Is that the same thing?10 A. Same thing.11 Q. Okay. So if I -- if I --12 A. Trade blotters basically reflect also13 monies -- monies in and monies out for the payment14 of the securities. The trading ledgers just shows15 the inventory long and short, and same for the stock16 record. Stock record would reflect where the17 securities are held.18 Q. Okay. So I just want to get the terms.19 There are trade blotters?20 A. Trading ledgers.21 Q. And it's called a trading ledger?22 A. Correct.23 Q. Okay.24 A. You know, which would -- trading ledgers25 would be for the market making, proprietary trading

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1 and the investment account, investment ledger.2 Q. Okay.3 A. And then there's what's known as a stock4 record, which breaks down by each security.5 Q. So each of those reports was done as of6 month end?7 A. Daily.8 Q. They were done daily?9 A. The reports were effected daily.10 Q. Okay. And did you -- through11 December 11th, 2008 did you maintain those records?12 A. Yes.13 Q. So they should have been there for the14 Trustee when he took over?15 A. They would be, yeah.16 Q. Okay. And were they all electronic records17 or were they paper records?18 A. No. They were -- well, they were all done19 through computers.20 Q. Okay. Who was responsible within the firm21 for generating these reports?22 A. Well, depends upon, you know, where they23 were executed. Basically, Dan Bonventry was the24 operations director, so he had the final25 responsibility. The records themselves were

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1 generated by the systems people. And depending upon2 whether it was generated by the Stratus system,3 which handled basically all the -- all the market4 making, proprietary trading side of the firm, or5 whether it was done by the investment advisory side,6 that would have been through the AS/400.7 Q. Okay. But the investment advisory side8 would show -- would it show securities that actually9 hadn't been purchased? In other words, the split10 strike securities that weren't purchased, would11 they -- would that be listed on that report?12 A. That's correct.13 Q. Okay. So that's the trading ledger?14 A. Right.15 Q. Okay. So --16 A. It would be -- it would be the customer17 ledger. There's a customer ledger.18 Q. There's a customer ledger. So if I wanted19 to get an accurate picture of what securities the20 firm actually held as of any given day, what would21 be the best document to look at?22 A. You would have to look at the -- the23 trading ledgers.24 Q. The trading ledgers. Okay. Now, at25 JPMorgan Chase did you have an account or accounts

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1 other than the 703 account?2 A. Yeah. They had what they called a3 controlled disbursements account, which most4 brokerage firms maintain, so that the money was only5 transferred -- it was part of the 703 account, but6 it was so that they didn't take the money out of the7 account until the checks would hit from the checks8 that you issued it to. So it was like a flow of9 funds account.10 Q. Was there a 509 account? Do you remember11 that?12 A. I don't remember the number.13 Q. You don't remember. Okay.14 A. I mean, it was related to the 703 account.15 MS. CHAITMAN: Okay.16 MR. GOLDMAN: I'm going to direct this to17 the reporter. Do you need a break? Okay.18 MR. SHEEHAN: I could use a bio break in19 about five minutes.20 THE WITNESS: A what break?21 MR. SHEEHAN: Bio break.22 THE WITNESS: Bio break?23 MR. SHEEHAN: Men's room.24 THE WITNESS: Oh, okay.25 MS. CHAITMAN: I'm going to mark as

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1 Exhibit 16 a JPMorgan Chase account statement for2 the 703 account dated February 2001.3 MR. GOLDMAN: I want to clear something up4 just so we know where they are.5 MS. CHAITMAN: Yeah.6 MR. GOLDMAN: The trading ledgers or7 customer accounts that we were talking about that8 you were just being asked about --9 THE WITNESS: I don't understand the10 question.11 MR. GOLDMAN: I just want to ask you some12 questions about where you could look at the end of13 the month to see what was held by the company.14 THE WITNESS: Right.15 MR. GOLDMAN: Okay. Were those16 electronically maintained?17 THE WITNESS: Yes.18 MR. GOLDMAN: Okay.19 MR. SHEEHAN: That's all right.20 (Customers Exhibit Number 16 was marked21 for identification.)22 Q. (By Ms. Chaitman) Bernie, do you recognize23 this as a 703 account statement?24 A. Yes.25 Q. And if you'd turn to page four of

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1 thirty-two?2 A. Four of thirty-two?3 MS. CHAITMAN: Yeah.4 MS. FEIN: Is that the last Bates? It's5 777; is that right?6 MS. CHAITMAN: Yes.7 THE WITNESS: Uh-huh.8 Q. (By Ms. Chaitman) If you look at the entry9 on the 1st of February for $55 million and it says10 debit memorandum, reference purchase of ticket11 number. Do you see that? It's down here, 5512 million?13 A. Yeah, okay. Uh-huh.14 Q. Do you know what that is?15 A. It's a debit, so I'm assuming it's -- I'm16 assuming it's a check.17 Q. Were you investing through JPMorgan Chase18 funds that you had on account?19 A. Purchase of -- I'm not sure what the20 question is.21 Q. Were you -- that $55 million, were you22 instructing Chase to invest that money in some23 interest earning security?24 A. Oh, they -- we must have, but they -- I25 don't know if that was a sweep account. It was 55

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1 million. What did they purchase? I can't tell from2 here.3 Q. Well, you would have to look at the ticket,4 001478.5 A. Well, basically they wouldn't purchase6 anything unless we instructed them to do it, but7 they had -- all banks have what they call a sweep8 account, you know, where they swept the money that9 was cash that was in an account, they put it into a10 financial instrument so that it was an interest11 bearing account.12 Q. Okay. And would you tell them what to13 invest in it?14 A. No. They would do that themselves.15 Q. Okay. If you'd just look up a little bit,16 there's a $13 million entry on February 1st?17 A. Right.18 Q. And it says --19 A. Nassau.20 Q. -- Nassau deposit taken?21 A. Right.22 Q. Attention, Tony Tiletnick?23 A. Right.24 Q. And it says to establish your deposit for25 purchase or sale of Chemical commercial paper?

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1 A. Commercial paper, right.2 Q. Right. Do you see that?3 A. Yes.4 Q. Who was Tony Tiletnick?5 A. He was the -- around the cashiering6 department.7 Q. Was he responsible for dealing with8 JPMorgan Chase?9 A. Yes, uh-huh.10 Q. Was he responsible to make sure that the11 money was invested so that it was earning money?12 A. Yes.13 Q. Okay. So was it your general practice to14 make sure that the money in the 703 account was15 always invested in securities so that it was earning16 money?17 A. Yes. We would never keep it just in cash.18 That's what that -- that's why I'm referring to a19 sweep account. They would sweep their money into an20 interest bearing account.21 Q. Okay. But if it's Chemical commercial22 paper --23 A. Right.24 Q. -- was that -- would that have had to be a25 specific instruction?

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1 A. No. They would have -- they would do that.2 You know, well, I mean, Tony would tell them -- you3 know, Tony knew that they were investing it, but4 they were -- he, obviously, would have had a5 conversation with someone at the bank because at one6 point we told them not to use -- that we didn't want7 money going into Nassau because it was a -- it8 wasn't -- there was concern that, you know,9 commercial paper that was not, you know, in the U.S.10 was more at risk. Turned out never to be a problem,11 but it was an issue at one point.12 Q. So where -- if I look at page nine of13 thirty-two, let me show you which one that is.14 There's a hundred million dollar debit memorandum on15 February 5th. Do you see that?16 A. Uh-huh.17 Q. It's Bates number 1458787.18 A. Right, uh-huh.19 MS. FEIN: Thanks.20 MR. SHEEHAN: Yeah.21 Q. (By Ms. Chaitman) So do you know what that22 would have been purchasing?23 A. It would have -- if it's not a -- it,24 obviously, must have been a financial instrument.25 Whether it would be a CD or whether it be a

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1 Treasury, I can't tell.2 Q. Okay. Did Tony Tiletnick consult with you3 on a daily basis --4 A. No.5 Q. -- or did he have authority to make these6 decisions?7 A. No. He had authority to do it himself.8 Q. And in essence what were his instructions?9 A. He was in charge of paying securities, you10 know, and settling up with the clearing houses.11 Q. But in terms of the investment of deposits12 that were in the 703 account?13 A. He would put whatever money that wasn't14 being -- he typically wouldn't buy treasuries15 himself. He was not someone that would normally buy16 treasuries. He would basically be involved with17 purchasing financial instruments like CDs or18 treasuries for the sweep account. They weren't19 typically large amounts. I mean by large amounts,20 they weren't billions of dollars.21 MS. CHAITMAN: Okay. All right. You want22 to take a break?23 MR. SHEEHAN: Sure.24 THE VIDEOGRAPHER: Going off the record.25 This ends disc number one. The time is 10:20 a.m.

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1 (A recess was taken and Customers Exhibit2 Number 17 was marked for identification.)3 THE VIDEOGRAPHER: Back on the record.4 This begins disc number two. The time is 10:35 a.m.5 Q. (By Ms. Chaitman) Okay. I've marked as6 Exhibit 17 a June 2001 statement for the 7037 account.8 THE VIDEOGRAPHER: Ms. Chaitman, your9 microphone.10 MS. CHAITMAN: It's on.11 THE VIDEOGRAPHER: Okay. Raise it up12 higher. It's being covered.13 Q. (By Ms. Chaitman) And I'm going to just14 take a look at page seven of forty-four. Mr.15 Madoff --16 MR. SHEEHAN: What's the Bates number?17 MS. CHAITMAN: The Bates number is -- it18 ends --19 MR. SHEEHAN: Oh, we have it, seven of20 forty-four. I'm sorry.21 MS. CHAITMAN: Sorry.22 MR. SHEEHAN: Okay. Go ahead.23 Q. (By Ms. Chaitman) If you look at --24 there's on June 4th at the bottom of the page,25 there's a $50 million debit?

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1 A. Uh-huh.2 Q. And it says purchase of slash sale of3 JPMorgan Chase. Is that commercial paper?4 A. Yes.5 Q. And then reference purchase of Chemical6 commercial paper?7 A. Uh-huh.8 Q. Okay. And then above that there's a9 $35 million debit memorandum for purchase of ticket10 and then it's redacted?11 A. Uh-huh.12 Q. Okay. And then above that it's13 12-and-a-half million and it says Nassau deposit14 taken account?15 A. Right.16 Q. Can you describe what these are?17 A. Those are just financial instruments that18 are invested so that the money is not just sitting19 there not earning any interest overnight.20 Q. Okay, okay. And, again, was Tony Tiletnick21 authorized to do this on a daily basis?22 A. Yes.23 Q. Okay. And is it fair to say that the goal24 was to earn money on the investment advisory25 customers' money?

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1 A. Yes.2 (Customers Exhibit Number 18 was marked3 for identification.)4 Q. (By Ms. Chaitman) I'm marking as5 Exhibit 18 a 703 account statement for October 2002.6 And Mr. Madoff, I'm going to open this to Bates7 number 576, which is page eight of fifty-five. Mr.8 Madoff, we're looking at a statement for9 October 2002.10 And if we look at the entry on11 October 1st, there's a $279 million entry for --12 it's a debit for the purchase of slash sale of JP13 Morgan commercial paper --14 A. Right.15 Q. -- is that right?16 A. Uh-huh.17 Q. And, again, was this done on -- by Tony18 Tiletnick under your instructions?19 A. Correct, yes, yes.20 Q. Okay. Now, were there times of the year21 when you tended to have more cash to invest than22 others or was this a general?23 A. No, no. It was just -- was just a normal24 flow of funds.25 (Customers Exhibit Number 19 was marked

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1 for identification.)2 Q. (By Ms. Chaitman) Okay. We'll go through3 a few more of these just because they cover4 different periods. This is -- will be Exhibit 195 and this covers the period of November -- of6 December 2003. And if you could look at page 41 of7 65? Let me open it up for you.8 A. Uh-huh.9 Q. There are two entries for December 22nd10 where $50 million --11 A. Right.12 Q. -- is being invested; is that right?13 A. Yes.14 MS. CHAITMAN: Okay. I'm going to mark as15 Exhibit 20 the statement for December 2004.16 (Customers Exhibit Number 20 was marked17 for identification.)18 MS. FEIN: Thanks.19 Q. (By Ms. Chaitman) Some of them I have -- I20 don't know why some of them I have four and some of21 them I don't, but if you look at page 35 of 63,22 which bears Bates stamp number 1486? Now, this is23 -- this is December of 2004 and do you see that24 there's a $30 million --25 A. Right.

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1 Q. -- Nassau deposit ticket?2 A. Uh-huh.3 Q. And then there's a $90 million purchase?4 A. Right.5 Q. Is it fair to say that those are again --6 A. Uh-huh.7 Q. -- investments?8 A. Yes.9 Q. So that the investment advisory customers10 were earning money on their money?11 A. Uh-huh.12 Q. And can you explain what the Nassau deposit13 is?14 A. It's a CD, commercial paper of the -- I15 don't know how to describe it to you, but it's no16 different than JP Morgan. It's their branch in17 Nassau.18 MS. CHAITMAN: Okay, okay. I've just got19 two more of these. I'm marking as Exhibit 21 a20 June 2007 statement from JPMorgan Chase.21 (Customers Exhibit Number 21 was marked22 for identification.)23 MS. FEIN: Thank you.24 Q. (By Ms. Chaitman) And if you look on page25 16 of 66 which bears Bates numbers 3654, this has an

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1 entry for 50 million on June 6th, which is AIP2 overnight investment?3 A. Uh-huh.4 Q. Purchase of JPMorgan Chase commercial5 paper?6 A. Right, uh-huh.7 Q. And then the next one is 150 million and8 that's -- can you explain what that is? It seems to9 have an interest rate of 5.1407 percent; is that10 right?11 A. Yes.12 Q. Can you tell what that is?13 A. You know, I don't know. I mean, it must be14 some sort of commercial paper of JP Morgan.15 Q. Okay. And then the next entry on June 6th16 is 600 million and that's invested in short-term17 derivatives; is that right?18 A. Where is that? Six hundred million?19 Q. Six hundred million is -- it's June 6th.20 A. It says JP Morgan short-term derivatives.21 I don't know what that is. It must be a -- you22 know, it must be some sort of commercial paper that23 is a financial instrument.24 Q. Okay. And, again, is it fair to say that25 even in 2007 it was Tony Tiletnick who had handled

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1 these investments?2 A. I don't -- he died at one point. It might3 have been his brother, Walter Tiletnick, took over4 his job at one point. I think in 2007 he was5 already -- he had already died.6 MS. CHAITMAN: Okay, okay.7 MR. GOLDMAN: I didn't know whether you8 could hear with the microphone.9 THE WITNESS: Uh-huh.10 MS. CHAITMAN: I'm going to mark as11 Exhibit 22 a Bear Stearns statement dated April --12 dated August 1, 2005.13 MR. SHEEHAN: Twenty-three?14 MS. FEIN: Twenty-two.15 MR. SHEEHAN: Twenty-two. My fault.16 (Customers Exhibit Number 22 was marked17 for identification.)18 Q. (By Ms. Chaitman) Twenty-two. Can you19 identify this document, Mr. Madoff?20 A. It's Bear Stearns' account statement.21 Q. Did you -- what was the time period that22 you transacted business with Bear Stearns?23 A. I transacted business with Bear Stearns,24 you know, from the time I started my firm over the25 years. So it was probably the 1960s on, you know,

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1 through 2008.2 Q. What kind of business did you do with Bear3 Stearns?4 A. My market makers and proprietary traders5 traded with them, you know, on a regular basis. We6 executed trades for their customers for -- you know,7 we were a wholesaler, a market maker. So we did8 business with, you know, hundreds of brokerage9 firms, Bear Stearns being one of them.10 Q. Is it fair to say that you did billions of11 dollars a year in business with Bear Stearns?12 A. With Bear Stearns, yes, certainly. I mean,13 I think we probably traded a trillion dollars a year14 in general with Wall Street.15 Q. With everyone?16 A. Yes.17 Q. Now, did you have more than one account at18 Bear Stearns?19 A. No. We only had one -- well, I guess my20 wife had an account at Bear Stearns, you know, just21 a brokerage account for herself; but the firm, you22 know, only had -- they had Treasury -- an account23 where we bought Treasury bonds and then we had -- we24 executed trades on the exchanges through Bear25 Stearns because they were the clearing broker for

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1 Cohmad Securities, which is a firm that we owned.2 We were the owners of that.3 Q. For Cohmad?4 A. For Cohmad.5 Q. Okay, okay. So is this a statement for the6 securities account because on the second page it7 lists different securities?8 A. Yeah, yes. It must have been -- yeah.9 This is the securities.10 Q. Now, why would -- I mean, these seem to11 indicate that the transactions were sold, bought,12 received, delivered?13 A. Uh-huh.14 Q. Why would you have used Bear Stearns to buy15 securities instead of buying them yourself?16 A. Because we're not a member of the New York17 Stock Exchange. Bear Stearns was. So if we bought18 an executed trade on the floor of the exchange and19 we weren't a market maker in that security, we would20 go through Bear Stearns. It could have been21 probably for like proprietary traders.22 Q. Okay. Now, you've testified that you had23 two accounts at Bear Stearns. One was to hold the24 Treasury securities that were purchased and one was25 trading?

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1 A. It would have been for proprietary and2 market making trading activity.3 Q. Okay, okay. So if I wanted to get the4 evidence of the Treasury securities that were5 purchased with the 703 account money, I would have6 to get the statements relating to the Treasury7 securities?8 A. Correct.9 Q. Okay. And did you maintain those records?10 A. Yeah. They would have been at the firm,11 yeah.12 (Customers Exhibit Number 23 was marked13 for identification.)14 Q. (By Ms. Chaitman) Okay. I'm going to mark15 as Exhibit 23 a document which was produced by the16 Trustee. Now, this document consists of a number of17 different pages. And if you would, Mr. Madoff, I'd18 like you to explain to me to the best of your19 ability what each of these pages represents.20 A. Well, the first page is -- is an account21 for Cohmad Securities, which is an account -- which22 is a firm that we used to execute certain trades for23 Bear Stearns. If it was a -- if it was what's24 called a dot trade, a trade that they had a dot25 machine that went directly down the floor to Bear

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1 Stearns, that would be a firm that -- that would be2 part of our market making or proprietary trading3 business.4 Q. Okay. And the second page?5 A. The same.6 Q. Okay. So this is the -- the second page,7 which is Bates numbered ending in 14, says buy SEG?8 A. Uh-huh.9 Q. That's a stock; right?10 A. Right.11 Q. Okay. And then on the sell line it says12 hold PR something, OUS. Do you know what that is?13 A. No.14 Q. Okay. So is this a document that would15 have been generated by Bear Stearns or --16 A. Yes. This is.17 Q. Okay, okay. If you look at page 16, which18 -- do you recognize the handwriting on this page?19 A. No.20 Q. This is dated November 11th, '94 and the21 handwritten note says open account for Madoff. Do22 you see that? Here. Open account?23 A. Oh, handwritten, yeah.24 Q. Do you know what that is?25 A. No. This looks like Miller, you know,

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1 Tabak and Hirsch. It probably is probably an option2 account.3 Q. Were they clients of yours?4 A. No. They must have been -- this isn't Bear5 Stearns. This is the -- they're another6 broker-dealer --7 Q. Okay.8 A. -- that we must have done. It's an option9 account --10 Q. Okay.11 A. -- that was part of our hedging, probably12 our proprietary trading department.13 Q. If you look at the third to the last page14 of this collection of documents --15 A. Uh-huh.16 Q. -- this is dated January 30th, 1985 and it17 seems to -- it says please install a restricted18 centrex line to existing Turret equipment at Bernard19 Madoff. Do you have any idea what that was about?20 A. No. It's the communications department.21 So it must be, you know, one of numerous, you know,22 systems lines that we had to -- you know, we had23 hundreds of these types of lines to different24 brokerage firms so that we could route orders25 directly through them for our market making and

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1 proprietary trading.2 (Customers Exhibit Number 24 was marked3 for identification.)4 Q. (By Ms. Chaitman) Okay. I'm going to mark5 as Exhibit 24 a statement of account, and I'm6 wondering if you can identify that. It bears a7 Bates number MS 236. Is this a Morgan Stanley8 statement? You can --9 A. I'm trying. Everything seems to be10 redacted. I don't know.11 Q. Right. I believe that the MS means it was12 produced to the Trustee by Morgan Stanley.13 A. Okay. It probably is because it's Treasury14 bills.15 MR. GOLDMAN: I think it is because if you16 look on the last page, they have a note about17 retirement accounts and review with your Morgan18 Stanley financial advisor. It's unlikely one bank19 is soliciting for another bank, so I think you can20 conclude it's a Morgan Stanley statement.21 THE WITNESS: Uh-huh.22 Q. (By Ms. Chaitman) So am I correct that23 this is showing that you had one-and-a-half million24 dollars in income from this account as of March 8th,25 2003? Am I reading that correctly?

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1 A. What page are you on?2 Q. On the first page.3 A. On the first page?4 Q. It looks like -- it looks like Morgan5 Stanley is holding Treasury bills; right?6 A. Uh-huh, right.7 Q. Okay. And then it has a liquid asset fund8 of about 9.7 billion. Do you see that?9 A. Nine point seven billion? No.10 Q. No, million. Excuse me.11 A. Nine million, right.12 Q. Excuse me, excuse me. Yes, of course.13 A. Yeah. Right. A million five hundred14 thousand dollars was the yearly income.15 Q. Okay. To the best of your recollection did16 you have more than one account at Morgan Stanley?17 A. Not for treasuries. We would have had only18 one account.19 Q. One account for treasuries?20 A. Right.21 Q. But you would have had accounts for22 something --23 A. Well, we also executed trades for Morgan24 Stanley.25 (Customer Exhibit Number 25 was marked for

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1 identification.)2 Q. (By Ms. Chaitman) Okay. I'm going to mark3 as Exhibit 25 a document which is a JPMorgan Chase4 position summary. So Mr. Madoff, did you have a5 separate account at JPMorgan Chase which held the6 Treasury bills for the --7 A. Yes.8 Q. -- 703 account customers?9 A. Uh-huh.10 Q. Can you identify this document? Is it in a11 form that you've seen before?12 A. I don't know what -- I mean, I typically13 wouldn't look at these statements, so looks to me14 just like a -- you know, a typical Treasury bond15 account where we bought treasuries. It lists all16 the activity as of April 2008.17 Q. Okay. So if you had at JPMorgan Chase, you18 had about 2.8 billion, right, in Treasury19 securities?20 A. Let me see. Yes.21 Q. And then you maintained about 500 million22 at each of those other four institutions?23 A. Right.24 Q. So that would have been 2.8 and then it25 would have been 4.8; right?

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1 A. Right.2 Q. And then you had Treasury securities that3 were purchased directly by --4 A. Right.5 Q. -- Frank DiPascali?6 A. Right. It would be at DTC. Those would7 have been -- no. Those would have been by -- those8 would have been bought by Frank.9 (Customers Exhibit Number 26 was marked10 for identification.)11 Q. (By Ms. Chaitman) Okay. I'm going to mark12 as Exhibit 26 what I believe is a Fidelity13 statement. Can you identify this?14 A. Uh-huh.15 Q. Is it a Fidelity statement?16 A. Yes.17 Q. So they use the trade name Premium18 Services?19 A. Uh-huh.20 Q. And this statement is dated January 31,21 1999. So what does the statement show that Fidelity22 was holding in U.S. Treasury securities?23 A. Looks like 205 million.24 Q. Okay. And these were bearing interest of25 5.25 percent and 5.375 percent?

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1 A. Right, uh-huh.2 Q. And was this purchased with money from the3 703 account?4 A. Yes.5 (Customers Exhibit Number 27 was marked6 for identification.)7 Q. (By Ms. Chaitman) I've marked as8 Exhibit 27 an August 31, 1991 statement of9 Clothmasters, Inc. Mr. Madoff, was Clothmasters an10 investment advisory customer?11 A. I would assume so, yes.12 Q. Okay. And this statement is dated August13 31, 1991. Can you tell what trading strategy this14 statement reflects?15 MR. GOLDMAN: I'm going to step out for a16 second.17 MS. CHAITMAN: Sure.18 THE WITNESS: This looks like a -- it19 looks like a split strike trade via equity. It20 looks like a basket of securities that were part of21 the split strike transaction.22 Q. (By Ms. Chaitman) Okay. And as of23 August 31, 1991 were you actually purchasing the24 securities?25 A. Yes.

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1 (Customers Exhibit Number 28 was marked2 for identification.)3 Q. (By Ms. Chaitman) I'm marking as4 Exhibit 28 a document which is called Account5 Canada. Can you tell me what this is?6 A. Looks like it says Canadian dollars, so7 this must have been part of our proprietary trading,8 I think. I doubt whether this is -- I doubt whether9 this is a customer.10 Q. So this is a record of investments that the11 firm made in Canadian dollars?12 A. Right.13 Q. Is this a report that was regularly14 prepared by your firm?15 A. I don't know what this is. I mean, you16 know, I'm not familiar with this, so, you know --17 Q. Okay. I don't want you to guess if --18 A. No. I don't know.19 MS. CHAITMAN: Okay.20 MR. GOLDMAN: Do you need to eat?21 THE WITNESS: Yeah. Whenever you're --22 MR. GOLDMAN: They have your food outside.23 THE WITNESS: Huh?24 MR. GOLDMAN: I checked. They have your25 food outside.

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1 THE WITNESS: All right. I'm okay for2 now.3 MS. CHAITMAN: Do you want to? Do you4 want to?5 THE WITNESS: No. It's all right.6 MS. CHAITMAN: You sure?7 MR. SHEEHAN: Whenever you're ready, just8 tell us.9 THE WITNESS: Okay.10 MR. SHEEHAN: We're not going anywhere.11 THE WITNESS: I don't know how long she's12 going to be with this. What are you doing?13 MS. CHAITMAN: Well, I --14 MR. SHEEHAN: I think we're looking at all15 day.16 CHAITMAN: No, but if you want -- do you17 want to take a break? Is this when you normally eat18 lunch? Why don't we --19 MR. SHEEHAN: Why don't we just do it?20 MS. CHAITMAN: Yeah.21 THE WITNESS: Okay.22 THE VIDEOGRAPHER: Going off the record.23 The time is 11:09 a.m.24 (A luncheon recess was taken.)25 THE VIDEOGRAPHER: Back on the record.

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1 The time is 11:29 a.m.2 Q. (By Ms. Chaitman) Just to review, Mr.3 Madoff, if I wanted to get a full picture of the4 Treasury securities that were purchased with money5 from the 703 account as of any point in time from6 say 1994 on when you say that the split strike,7 that's when you stopped writing securities for the8 customers, I would have to get the statements from9 Bear Stearns; right?10 A. (Witness nods head.)11 Q. The statements from Morgan Stanley?12 A. Right.13 Q. The statements from Fidelity?14 A. Right.15 Q. The statements from Lehman Brothers?16 A. Right.17 Q. And I would have to get the JPMorgan Chase18 statements like the one we looked at, which was the19 account that held the Treasury securities?20 A. Correct.21 Q. Okay. And if I wanted to get a complete22 picture of the securities that your firm held that23 were long positions that you actually held, I would24 have to look at the DTC records?25 A. Correct.

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1 Q. I'd have to look at -- were there other2 places that you held securities? Would I have to3 look at, say, your account at Bear Stearns?4 A. You would have to look at the banks if5 there were -- if there were bank loans.6 Q. Because if you borrowed from a bank, you7 would have pledged the securities to the bank?8 A. Right. Typically they would be held at9 DTC, but they would be in the bank's account at DTC.10 They would be journaled over to the bank. So you'd11 have to look at the DTC -- you'd have look at the --12 you would have to get that from the bank themselves13 because DTC would not give them to you.14 Q. What banks did you borrow money from where15 you pledged the securities to the banks?16 A. It could be JP Morgan. It could be Bank of17 New York, you know, depending on what period; but if18 you were looking at 2008 or 2000s, it would be19 typically Bank of New York, M&T, it could be JP20 Morgan. I think that's -- those are the banks that21 we used at that time.22 Q. And if it's earlier?23 A. You'd have to look at any one of the -- you24 probably couldn't get them, you know, but it would25 be the banks that I mentioned to you.

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1 Q. All the clearing accounts?2 A. Right, right.3 Q. So if I wanted -- let's say I'm talking4 about 2003.5 A. Right.6 Q. I would have -- in order to determine what7 securities were held by your firm, I would have to8 look at the DTC records for each of the banks that9 you listed before?10 A. Right.11 Q. Plus your own DTC --12 A. Right.13 Q. -- correct? And would that give me a14 complete picture of all the securities you owned as15 of a given point in time?16 A. Uh-huh.17 Q. Yes?18 A. Yes.19 Q. Now, again, I don't want you to mention any20 individual names, but you testified previously that21 the four families entered into hold harmless22 agreements with you?23 A. Right.24 Q. Do you recall who was involved in drafting25 those hold harmless agreements?

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1 A. One of the partners at Price Waterhouse.2 Q. Do you remember who?3 A. Ed Kostin, Edward Kostin.4 MR. GOLDMAN: Could you spell the name?5 THE WITNESS: K-o-s-t-i-n. He's deceased6 now.7 Q. (By Ms. Chaitman) And, again, I don't want8 you to mention any names, but were the hold harmless9 agreements signed by members of all the four10 families?11 A. Yes.12 Q. And what was the total amount of the debt13 that the hold harmless agreements obligated the four14 families together to pay you?15 A. Well, it varied depending upon the16 fluctuation of the -- of the securities because the17 hold harmless agreements basically stated that they18 were holding me harmless for any loss involved in19 the naked part of their securities because of the20 short positions that had been maintained. So it21 could have -- probably was a maximum of probably I22 would say at one point probably $9 million --23 $9 billion.24 Q. Okay. As of December 11th, 2008 do you25 have any sense of how much it was?

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1 A. As of when?2 Q. December 11th, 2008.3 A. I couldn't give you an exact figure. You4 know, the --5 Q. Don't mention any names.6 A. Not counting the 6 billion, there was one7 debit balance of 6.3 billion.8 Q. Okay. So one person had a -- was that a9 margin loan?10 A. Yes.11 Q. So ones customer had a margin loan of six12 billion?13 A. Right, right.14 Q. And then --15 A. Then I would say the others were probably16 -- there was probably an additional $5 billion in17 exposure that they caused me.18 Q. Okay. So it was approximately $11 billion19 at the time you confessed?20 A. Approximately, yes.21 Q. Okay. Now, Mr. Madoff, you've testified22 that the investment advisory fraud did not begin23 until either late 1993 or early 1994. Are you aware24 that David Kugel testified that the fraud began in25 the 1970s?

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1 A. Yes.2 Q. Mr. Kugel testified at the Bonventry trial3 that in the 1970s he gave Annette Bongiorno4 arbitrage trades for the accounts of Stanley, Chase5 and for Avellino and Bienes. Were you defrauding6 Chase and Avellino and Bienes in the 1970s?7 A. No.8 Q. Did you read Mr. Kugel's testimony?9 A. Yes.10 Q. Do you think it's accurate?11 A. No.12 Q. Can you explain why?13 A. First of all, I think that --14 THE VIDEOGRAPHER: Microphone, microphone,15 microphone.16 MS. CHAITMAN: You took care of the17 microphone.18 MR. GOLDMAN: Want me to remove the19 microphone? Sorry.20 MS. CHAITMAN: I'm sorry, Mr. Madoff.21 THE WITNESS: I guess the best way to22 describe -- from what I've been able to piece23 together from the -- what I've read from the24 testimony and what I've been told and what I've seen25 is that this so-called smoking gun I would refer to

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1 it is that David Kugel, who is one of my convertible2 bond traders, used to -- at our -- at my request3 used to generate a convertible bond formula that he4 would give to either Annette Bongiorno or Jodi, all5 right, that would lay out what the proper conversion6 ratio was on a particular convertible security.7 In other words, it was a formula that he8 would write on a scrap of paper that would say MCI9 convertible bond would be bought 100 bonds, you10 would short let's say a thousand shares of stock at11 a certain price. And they would take that formula12 and they would use that when they were going to now13 generate a trade for a client.14 All right. Now, that was so that they --15 because they were not traders, they were not16 familiar with what the proper conversion ratios17 were. All right. So typically what would happen,18 the step used to be if Annette would come to them19 with a convertible bond and say okay, I have a20 million dollars worth of convertible bonds, that21 typically would be a million because we traded in22 much larger numbers.23 So she would say there's $10 million24 available to be invested in convertible securities.25 What securities would you recommend that would put

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1 for the customers in? All right. So he would pick2 out a security that we were trading and he would3 give him the correct formula. Once they got that4 formula, that scrap of paper, the next step would be5 to go and search our trading records, which would be6 what the market maker or the firm's investment7 account bought and sold over a period of let's say8 for four days.9 And then they would -- he would by running10 a run of what we bought and sold, then Annette or11 Jodi, not David, you know, Annette or Jodi would12 look through the trading records and pick out a13 certain number of shares in stock and they would14 come up with an average price and the appropriate15 number of shares.16 All right. So this David Kugel had no17 access to any of those records. He wouldn't be able18 to do that. He was just giving them -- he was just19 giving them what the correct formula would be.20 So by -- for some reason the Trustee, all21 right, because he had this piece of paper which they22 showed me when they first came down here years ago23 and asked me what it was, I told them it was a24 formula, exactly what I just said. They determined25 from that that David was generating the trade and

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1 that we weren't actually buying. He was just making2 up the trade, which I laughed at at the time because3 it didn't make any sense, you know, for him to do4 that. He couldn't possibly generate the trade5 because he had no access to the records to pick that6 out. He was just looking at one trade.7 That is why -- and that was why Dubinsky,8 you know, you know, did not have the -- couldn't9 match up the number of shares or the price properly.10 So David's testimony -- and I don't know why he11 would even say that. I don't think that he would --12 if he believed that he was actually generating a13 trade, I can't believe that he would even think that14 he was generating a trade because he knows that.15 I mean, it just didn't make any sense. So16 either he was -- either the Trustee or whoever it17 was that was determining that, you know, just didn't18 understand it, which is probably the most likely19 situation or they were just trying to create a20 situation. Just doesn't make any sense.21 And anybody that if you call anybody in22 for the industry, another person that ran a trading23 desk that was familiar with how you did these types24 of transactions would tell you the same thing. I25 mean, it made absolutely no sense.

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1 Q. (By Ms. Chaitman) Now, when you confessed2 you weren't in the process of negotiating a plea3 agreement; right?4 A. No, no.5 Q. When David Kugel gave his testimony --6 A. Uh-huh.7 Q. -- he had negotiated a plea agreement;8 right?9 A. From what I understand, yes.10 Q. So he had to give the prosecutor something11 that the prosecutor wanted; right?12 A. I don't know. It looks like it. I mean, I13 just -- you know, I don't think David Kugel was a --14 you know, a devious type of person. David Kugel was15 not a good communicator. I mean, he was known in16 the firm as having a very hard time telling anybody17 anything. Nobody ever wanted to speak to David18 Kugel. He was a very nice guy and he was actually a19 talented trader himself, but he could not20 communicate with anybody.21 I mean, and so that's the only thing I can22 think of is he didn't understand the question, he23 got nervous. I just don't know, but it made24 absolutely -- it made absolutely no sense, his25 testimony.

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1 And another example of this was there was2 a testimony by Irwin Lipkin, all right, about -- you3 know, first of all, you have to understand that the4 only one that ever saw a completed focus report in5 our firm or that ever signed a completed focus6 report was me. Nobody -- nobody in our firm knew7 what the actual P&L was. The traders -- and this is8 not by accident.9 In other words, the securities industry10 has very strict requirements so that there's no11 conflict of interest between market makers, the12 trading department and so on. You're required to13 keep your records separate.14 The trade -- the market makers are not15 allowed to see another market maker's, you know,16 trading positions or P&L. As a matter of fact, you17 have to have supervisors that are different. For18 example, my brother -- my one son was in charge of19 the market making department. The other son was in20 charge of the proprietary trading department. They21 had to be separate.22 And you couldn't have a system -- the23 traders are not allowed to see what this other24 trader has a position of because of what they call25 Chinese walls between your market making, your

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1 client business and your proprietary trading2 department. The -- now, when do our -- when a firm3 like ours that is a market maker and is doing an4 arbitrage business, whether it be split strike or5 whether it be convertible bonds and is trading6 baskets and options and all sorts of hedging7 strategy, which is what our firm specialized in,8 when you do -- when you prepare your financial9 reports, your focus reports at the end of any month,10 you are allowed to net all of your positions.11 So, for example, if you have -- in our12 firm we could have ten traders trading the same13 security. So some traders would have long positions14 in IBM. Some would be short positions in IBM. Some15 would have option positions on in IBM. What you16 have to do at the end of every month is you net all17 the positions, the option positions, to come up with18 a net exposure or net position.19 So you could have, for example, one trader20 may be long a thousand shares. Another trader is21 long -- is short 500 shares of stock so that the net22 would be 500 shares. All right. The person that23 instructs -- there's one person that instructs, you24 know, how you do all of this. Now, Irwin Lipkin25 even before he retired was very -- was not the most

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1 efficient person. Irwin Lipkin started with me when2 he first came out of the Army, but as the firm grew,3 as the firm became more and more sophisticated and4 was trading in the old strategies, it was beyond5 Irwin Lipkin's grasp, which was fine because he was6 a bookkeeper.7 He only had to know specific things. At8 the end of each month when you had to net all these9 different positions, Irwin Lipkin didn't do that.10 So what would happen is if Irwin Lipkin and the11 records that he was looking at showed a thousand12 shares of stock but didn't -- he wouldn't know what13 the rest of the firm's were. So somebody had to net14 all of this out.15 And it was a very complicated procedure16 and each firm depending upon the type of business17 you had had certain what they called no action18 letters from the SEC, which told you how you could19 -- you know, how you could handle each security.20 And as a matter of fact, because I was the21 chairman of the trading committee for the industry,22 I had to work with the SEC when we formulated all of23 these different regulations and rules. So I was24 aware of the fact that the typical accountant or25 lawyer, for example, would not be familiar with any

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1 of that. So I was not the least bit surprised that,2 for example, Dubinsky's errors that he had because3 he, obviously, was not that familiar with how -- you4 know, how you did this. Now, it doesn't mean you5 couldn't find out.6 If you went -- if you got someone that7 really was familiar with all of these things, they8 would be able to understand that; but if you ask the9 typical accountant because, look, I worked with10 every major accounting firm in the country, you11 know, over the years. So I was familiar with what12 they did, what they understood and what they -- it's13 not surprising. It's a typical problem in the14 industry.15 So David Kugel's testimony as far as I'm16 concerned as with Annette and as with any of these17 people in my firm, whether it be Enriqua Pitz or18 anyone else because I read all of their depositions.19 And, you know, none of that was really valid because20 they were looking at only what their specific job21 was. They didn't know what the rest -- they weren't22 familiar with the whole picture of the firm.23 The only ones that would know that would24 be Dan Bonventry in my firm, who was the director of25 all operations, or myself. It wouldn't have been

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1 David Kugel. It wouldn't have been Enriqua Pitz and2 so on.3 Q. Did you believe that the focus reports were4 accurate prior to 1994 when you stopped buying the5 split strike securities?6 A. Yes. And you see, you're using the '94,7 '93, '92, so I want to make sure there. I said that8 the fraud began in '92 because that was when we9 weren't completing all of the transactions in this10 split strike. All right. There was some -- there11 were some transactions in the split strike done, you12 know, through 1993.13 All right. But I'm not comfortable saying14 that everything was done -- was done -- I'm15 comfortable saying that everything was done16 correctly, you know, prior to '92.17 Other than the fact there was some back18 trading of -- of customer transactions for the19 accounts, for the four large accounts that started20 like in 1990, that was -- because of what happened21 was after the crash in 1987, the four big clients,22 you know, forced me to liquidate some of their23 positions. And that's when the hold harmless24 agreements started.25 Q. Okay. But --

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1 A. Focus reports were accurate because that2 wouldn't have affected the focus reports anyhow.3 The focus reports were accurate through 1992 for4 sure.5 Q. Through 1992?6 A. Yes.7 Q. Okay. So I know it's a long time ago and I8 don't want you to say anything unless it's your best9 recollection, but you testified earlier today that10 you were doing the split strike trades until late11 1993 or early 1994?12 A. Right.13 Q. But are you unsure of it? I mean, do14 you --15 A. No. I was -- I didn't do it for all of the16 clients, you know. That's what I said. There were17 some clients that I did do the trades through 199318 for.19 Q. Is there any way that we could determine20 now which clients you did the trades for and which21 ones you didn't?22 A. No. I couldn't remember that for sure.23 (Customers Exhibit Number 29 was marked24 for identification.)25 Q. (By Ms. Chaitman) Okay. I'm up to

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1 Exhibit 29. I'm handing you what I've marked as2 Exhibit 29, which is an appendix to Mr. Dubinsky's3 report in which he lists the documents that he4 considered. Have you seen this document before?5 A. No.6 Q. Now, you've testified that Mr. Dubinsky did7 not interview you and no one on his behalf8 interviewed you; is that right?9 A. Yes.10 Q. Okay. And if you look at page eight of11 this document, it lists a number of people who have12 been -- whose deposition transcripts Mr. Dubinsky13 said that he read. Can you look through this list14 and tell me if any of these people -- it begins on15 the bottom of page eight --16 A. Uh-huh.17 Q. -- and then it goes on to page nine. Can18 you look at these names and tell me if any of these19 people would have known how you executed the20 convertible arbitrage trades in the 1980s?21 A. You're looking at the depositions you're22 saying?23 Q. Yeah. The names of the people. Do you24 recognize any of these people as people who had25 knowledge about convertible arbitrage trading from

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1 the 1980s?2 A. None.3 (Customers Exhibit Number 30 was marked4 for identification.)5 Q. (By Ms. Chaitman) Okay. Now, I'd like to6 mark as Exhibit 30 an August 20th, 2010 letter that7 was written by Scott Garrett to Stephen Harbeck and8 then a September 7th, 2010 letter from Mr. Harbeck9 to Scott Garrett, which is the response. I'll just10 have to find the one that I marked up. Just give me11 one second. I should have one more of these. Let12 me just see.13 MS. FEIN: That's all right. We'll share.14 MR. SHEEHAN: It's all right. Go ahead.15 MR. GOLDMAN: This may be the marked up16 one.17 MS. CHAITMAN: Oh, yeah. Thank you.18 Q. (By Ms. Chaitman) Have you seen this19 document before?20 A. No.21 Q. If you'd be good enough to turn to page 18?22 And the numbers are on the top of the left-hand side23 of the page. The numbers are right up there.24 A. Uh-huh.25 Q. SIPC is telling Scott Garrett that you had

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1 all together -- you had the 703 account, you had two2 custody accounts at JPMorgan Chase and you had an3 additional 127 accounts. Do you see that?4 A. Right.5 Q. Does that sound accurate to you?6 A. A hundred and twenty-seven accounts why?7 Q. Held by -- I'm reading from the top of the8 page. It says in addition to the Madoff 703 account9 and the two BLMIS custody accounts held at JPMorgan10 Chase as discussed in response to section two,11 question 1(a) above, an additional 127 accounts held12 by Madoff, BLMIS or other Madoff-related entities13 have been identified to date as a result of the14 investigation.15 A. Well, I'm not sure which accounts he's16 referring to when he says 127 accounts. What is17 that? Customer accounts or what is it?18 Q. Accounts in the name of your firm, either19 you or in the name of either you or BLMI.20 MR. SHEEHAN: Helen, it might be a good21 idea if Mr. Madoff read question to question that's22 being answered here, the page before.23 MS. CHAITMAN: Sure.24 MR. SHEEHAN: It might be a little bit25 helpful.

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1 MS. CHAITMAN: Sure.2 THE WITNESS: I'm still confused as to3 what the question is. I don't know. Maybe it's4 just me right now, but I don't -- when he's talking5 about how many accounts, he's talking about -- what6 is he talking about? Customer accounts or accounts7 we had at other brokerage firms or what?8 Q. (By Ms. Chaitman) Well, the question was,9 and I'm reading from the bottom of page 17, if for10 the same period, which is --11 A. Right.12 Q. -- December 1998 through December 2008,13 Madoff, BLMIS or other Madoff controlled businesses14 had other accounts at U.S. or foreign banks or other15 financial institutions provide annual balance data16 for these accounts?17 A. Okay. Well, again, if he's talking about18 accounts that we had, you know, if he's talking19 about that we had -- for example, if the Union Bank20 in Switzerland handled an account for a hedge fund,21 they may have had ten hedge fund accounts because22 they have been the custodian for those accounts. As23 far as we're concerned, we never had an account with24 these entities. So again, it depends on how you25 define we have an account.

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1 We trade for -- we had -- we were hooked2 into hundreds of other broker-dealers, whether it be3 Charles Schwab or Merrill Lynch or Fidelity. You4 know, we didn't have a -- we don't consider that we5 had an account there. We did business with them, so6 we had transactions that went through that. We were7 executing Charles Schwab's customers' accounts but,8 you know, Charles Schwab was our customer, not a9 customer of Charles Schwab.10 Q. Okay.11 A. So I don't know --12 Q. Is it fair to say that you don't believe13 that you, Madoff or BLMIS maintained 127 different14 accounts?15 A. No, no. Again, it depends on how you16 define an account. I mean, we had hundreds, you17 know, of accounts. We had much more than 12718 accounts depending upon what your definition of an19 account is. We did 10 percent of all the trading in20 the United States.21 So, you know, we had -- we transacted five22 or six hundred thousand transactions every day, you23 know; but as I say, if you were a customer of24 Fidelity or Charles Schwab, you had an account25 there. All right. You weren't my customer.

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1 Fidelity or Schwab was my customer. Now, they did2 business with us, Fidelity. We don't consider that3 we had an account with them.4 Q. Right.5 A. Because when we executed transactions for6 them, those transactions went through the clearing7 corporation. They were settled every day. We8 didn't keep money at Fidelity. They didn't keep9 money at our account. Those all went through the10 clearing accounts.11 Now, they would say that they -- they could12 say they have an account with us because they did13 business with us. So they would have a -- they14 would show that -- what business they did with15 Madoff on a particular day the same way that if you16 were a customer of ours, Sean Jones, it would say17 you have an account with us; but that's not what a18 firm --19 Q. Right.20 A. So I don't know exactly how they're21 defining an account.22 Q. Okay. If you look at the back of the23 document and you go in one, two, three, four, five24 -- let's see. From the back of the document six25 pages, you see you get to this from the back of the

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1 document. You've got it.2 MR. SHEEHAN: Okay.3 Q. (By Ms. Chaitman) You're in the wrong4 document.5 A. Oh, I'm in the wrong --6 Q. That will make it even harder.7 A. No wonder why you people charge $700 an8 hour.9 Q. Okay. Sorry to confuse you.10 A. Uh-huh, right.11 Q. So these are -- this lists three Bank of12 New York accounts; right?13 A. Right.14 Q. One was for you and Ruth and then one was15 just for you and one was for BLMIS; right?16 A. Right.17 Q. And then there's a Bankers Trust account in18 your name?19 A. Uh-huh.20 Q. Was that used for the firm?21 A. Yes.22 Q. Okay. And there was a Barclays account?23 A. Right.24 Q. There were two -- actually, three Barclays25 accounts; right?

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1 A. Uh-huh.2 Q. One Bear Stearns account?3 A. Right.4 Q. One Fidelity account?5 A. Uh-huh.6 Q. One M&T account?7 A. Right.8 Q. And one Morgan Stanley account?9 A. Right.10 Q. Okay. Now, this is captioned Madoff11 related accounts, year-end balances and annual12 earnings accounts with transfers to and from the13 Madoff 703 account. Do you see that in the upper14 left-hand corner?15 A. Uh-huh.16 Q. So these were -- is it fair to say that17 these were all accounts which received transfers18 from the 703 account?19 A. If that's what it says, yeah.20 Q. Well, do you recall -- I mean, you've21 testified that Treasury securities were purchased22 with 703 account money by Fidelity, Bear Stearns,23 Morgan Stanley and Lehman; right?24 A. Uh-huh.25 Q. And Barclays is Lehman?

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1 A. No. Barclays is Barclays.2 Q. Well, if you look at the entry for3 Barclays, underneath it says Lehman?4 MR. SHEEHAN: Could Lehman -- I'll stop.5 THE WITNESS: Okay. I mean, Barclays we6 use -- Madoff Securities in London cleared their7 transactions through Barclays.8 MS. CHAITMAN: Okay.9 THE WITNESS: So but I don't know what10 Lehman did with Barclays. They may have used11 Barclays as well.12 Q. (By Ms. Chaitman) Okay. When money was13 transferred from the 703 account to MSIL in14 London --15 A. Uh-huh.16 Q. -- was that money used to purchase17 securities?18 A. It was used to purchase usually treasuries.19 Q. From -- by MSIL?20 A. Right.21 Q. Okay. And were those treasuries also held22 for the benefit of the investment advisory23 customers?24 A. Probably.25 Q. Do you remember approximately how much MSI

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1 held in Treasury securities?2 A. No.3 Q. And for us to determine that, we'd have to4 get the Barclays Bank statements, is that -- for the5 Treasury account?6 A. Correct.7 Q. If you look on the next page, which is page8 19 -- let me help you. Under paragraph two, what9 appears in bold is the question that was asked by --10 A. Right.11 Q. -- Congressman Garrett. It said during the12 period 1992-2008 when Madoff was actively pursuing13 his Ponzi fraud, he was engaged in market making and14 proprietary trading. For each of these years15 provide data on trading volumes and the annual gross16 and net revenues from this trading activity.17 And then the answer is a table, which SIPC18 says the table below includes annual revenue, net19 income and trading volumes as reported in the focus20 reports filed by Madoff with regulatory authorities.21 Madoff focus reports were available back to 1983.22 A. Uh-huh.23 Q. Was this information on the focus reports24 accurate after 1992?25 A. I assume so. The revenue, yeah.

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1 Q. So, for example, where it says average2 monthly reported trade ticket executions, do those3 numbers look accurate to you?4 A. It would be under focus reports, yes.5 Q. Okay. And would the focus reports6 accurately reflect the monthly trade ticket7 executions?8 A. Uh-huh.9 Q. And what -- if you can answer this, what10 was the average volume of each trade ticket? I11 mean, I assume you wouldn't do a trade for three12 shares of IBM?13 A. No. These would be -- this is not -- I'm14 assuming these are not customer transactions. These15 are -- on the focus reports these were just16 reflecting the market making proprietary trading17 business.18 Q. What you were doing for your own account?19 A. Right.20 Q. Right.21 A. Yeah. So --22 Q. Do these numbers look accurate to you?23 A. I would -- I would assume so. If we run24 the focus reports, the focus reports were accurate25 all the time.

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1 Q. So what would -- if there's a -- if you can2 quantify this. If you can't, just say you can't,3 but what would be the average number of shares that4 you would do on one ticket?5 A. On a ticket?6 Q. Yeah.7 A. It varies. I just -- no way to be able to8 tell you that. I know how many trades they were9 doing. They were doing, you know, anywhere from a10 low of 250,000 transactions a day to 600,00011 transactions a day. I mean, you know, how the12 shares were, you know, I don't -- you know, I don't13 know. I didn't pay attention to that.14 Q. Okay.15 A. Why is it relevant?16 Q. I'm just trying to get a sense of the17 volume. In other words, let's say if we take in18 1983 you did a reported -- average monthly reported19 trade tick at executions was 8,135.20 A. Well, let me put it to you this way. The21 industry kept records, transactions of how many22 transactions we did because they were reported, you23 know, to -- you know, to the NASD. I mean, it was24 reported all over the industry basically. These25 were not numbers that we generated. That went

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1 through the systems, the clearance and settlement2 systems and the reporting, trade reporting systems3 that we did anywhere from typically of a low of five4 to ten percent of the actual number of transactions5 were executed in the United States. That's not6 something that I made up.7 That was something that's been reported8 all over the -- all over the industry. It's been9 reported by the NASD and the SEC. I mean, by10 anybody's scope it was a huge amount of business.11 As a matter of fact, when we -- when we12 developed this Primex trading system and my partners13 were Goldman Sachs, Merrill Lynch, Lehman Brothers14 and Citicorp, the five -- all five firms that were15 the partners in Primex handled 50 percent of all the16 trading in the United States. Again, this is not17 numbers that we generated. This is what the18 industry reported.19 Q. Okay. But if I had been your customer,20 would you have taken an order from me to buy five21 shares of IBM?22 A. No.23 Q. So what was the low --24 A. We didn't -- if a customer called us up to25 buy stock for them, we never took an order. In

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1 other words, you couldn't as a customer, our firm2 policy was to not handle a typical retail order for3 a client. We either -- you either had to be a4 broker-dealer or a bank to be a client of Madoff or5 if you were a customer, you had to have -- when you6 opened an account, you had to have a minimum of7 500,000, which is at the very earliest $500,000 in8 the account. Typically it was then 2 million. That9 was if you were an individual client.10 So but if you called us up and you said11 you want to buy 20 shares of IBM or you want to buy12 a thousand shares of IBM, we would not do that13 order. If it wasn't -- the only customer business14 that we did was where we managed the entire account15 and we made the decisions.16 Q. Okay. Now, if you'd look on page 23 at the17 bottom of the page, the question was how many18 accounts under consideration for avoidance action19 were established with Madoff prior to the inception20 of the Ponzi scheme?21 In making the net investment method22 determination net equity from these accounts, has23 the Trustee used any of the pre-Ponzi disbursements?24 If so, provide details, et cetera. And the response25 says based on the Trustee's investigation and upon

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1 review of the earliest records available to him, the2 Trustee has found no evidence indicating that the3 BLMIS investment advisory business has been operated4 as anything but a Ponzi scheme.5 A. Right.6 Q. Now, did anyone on behalf of the Trustee7 ever talk to you about the trades that you did in8 the 1980s?9 A. No.10 Q. Did the Trustee ever disclose to you that11 he, in fact, had some trading records from the12 1980s?13 A. No.14 Q. Now, when SIPC is using here the phrase15 Ponzi scheme, if you accept for a moment that a16 Ponzi scheme is a nonexistent business in which17 people invest where the sole source of paying18 returns on their investments is investments from new19 investors --20 A. Uh-huh.21 Q. -- on that definition was the split strike22 ever a Ponzi scheme? In other words, did you ever23 need new cash from new customers in order to redeem24 other customers?25 A. No.

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1 Q. Did you ever need new cash from new2 customers to pay the earnings that were reported on3 the statements?4 A. No. Let me make a statement that I have5 never to my recollection ever had a conversation6 with a Trustee, ever. The Trustee never met with7 me, never spoke to me, never asked me anything from8 the date of my arrest until currently. I've had9 meetings with the attorneys when the attorneys came10 down here after, you know, I don't know whether that11 was 2010 or some year in that, but there was12 nothing; but the Trustee, the only time I ever saw13 the Trustee was at my proffer meeting with the SEC.14 Q. In December 2008?15 A. December of 2008. And as far as I recall,16 he never asked me anything and I never said anything17 to him.18 Q. Okay. But did anyone from the Trustee's19 law firm --20 A. No. The law firm, yes. They came down at21 one period of time. David Sheehan could -- was22 present.23 Q. Okay. But did they ever ask you whether24 you actually executed the trades that were done in25 the convertible arbitrage strategy?

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1 A. I don't think they ever asked me that. The2 only conversation I had with them about trade at all3 was the David Kugel scrap of paper that I mentioned4 before.5 Q. Okay, okay. Did they ever ask you exactly6 when the -- when you stopped buying the securities7 for the split strike?8 A. No.9 Q. Did they ever ask you whether you needed10 the money from new investors in order to pay old11 investors?12 A. No.13 (Customers Exhibit Number 31 was marked14 for identification.)15 MS. CHAITMAN: I'm up to Exhibit 31, and16 this is the expert report of Bill Feingold. That's17 okay.18 MR. GOLDMAN: I'll take it easy.19 Q. (By Ms. Chaitman) Okay. Have you seen20 this document before?21 A. Yes.22 Q. Okay. Do you know Bill Feingold?23 A. No.24 Q. Did you ever hear about him?25 A. No.

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1 Q. I'd like to go through the substantive2 portion of this report and I'd like you to give me3 your insights on it; okay?4 A. Uh-huh.5 Q. So if you'd be good enough to turn to page6 two?7 A. Uh-huh.8 Q. And if you could just read paragraph 12 and9 then if you have any comments on that, I'd like you10 to tell me what they are.11 A. Yes.12 Q. Okay. Can you tell me what they are?13 A. What? What did you ask me?14 Q. Did you have any comments on this? Do15 you -- do you --16 A. Yeah. I think, you know, he pointed out,17 you know, the fallacy of what Dubinsky used, made18 statements about volume and so on. He's19 criticizing -- I think there were 41 points that he20 made that Dubinsky was incorrect in his analysis,21 which was basically very similar to all my comments22 when I analyzed the Dubinsky report.23 Q. Okay. In paragraph 13 he says that most24 trading and bonds, unlike stocks, takes place in the25 over-the-counter market and that's something you had

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1 testified to; right?2 A. Right.3 Q. And then he quotes the SIFMA website for4 the statement, quote, the OTC market is much larger5 than the exchange markets and the vast majority of6 bond transactions, even those involving exchange7 listed issues, take place in this market?8 A. Correct. I think this is -- he's9 reflecting very similar to the last time we had a10 deposition and I produced a very large book that was11 written. I gave -- you took as evidence --12 Q. Yes.13 A. -- that stated all of this.14 Q. Right.15 A. That was in complete contrast to Dubinsky's16 report.17 Q. Right. And if Dubinsky had spoken to18 anyone who did trading and convertible bonds in the19 1980s, would they have found this information out?20 A. Yes.21 Q. In paragraph 14 Feingold says in an OTC22 market investors do not trade directly with each23 other but with many individual dealers who24 continuously make markets, paren, buy and sell. As25 such, OTC markets are much less centralized and data

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1 are less readily available. Is that accurate?2 A. That's correct.3 Q. If you'd just take a look at paragraph 154 and if you'd just take a moment to read that and5 then I'd like your comments on it.6 A. Right. He's basically saying that, you7 know, that -- that convertible bonds and bonds in8 general do not trade for the most part on the floor9 of an exchange. They trade over the counter between10 dealers. Madoff is one of the largest convertible11 bond dealers in the country. We made more markets12 in convertible bonds than any other firm. He13 doesn't state that, but that was common knowledge.14 And he's saying that you couldn't get15 accurate information, you know, until 2002 because16 that was when TRACE came in. And even when TRACE17 came in, there was question as to whether or not the18 correct volume was reported even then. Bond dealers19 in general do not like to report their transactions20 or their volume because they consider it proprietary21 information.22 The SEC would like -- look, the SEC would23 like everything to be transparent. That's been a --24 in the 50 years I've been in this industry, that has25 been a debate that went on and still has not been

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1 resolved. And to a certain extent, you know, they2 blame me for a lot of -- a lot of this because of3 the fact that we were the ones that pioneered the4 form of electronic trading.5 Right now all of these problems that you6 have with this what they call that book that came7 out, Flash Boys, all the trading is done in dark8 pools and not -- when I came into this industry,9 98 percent of the business in securities was traded10 on the floor of an exchange and listed securities.11 The SEC was unhappy with that and I was12 given the responsibility for developing a more13 competitive marketplace. And that's how we started14 this electronic trading and that's how I developed15 NASDAQ originally. The volume on the -- on New York16 Stock Exchange's list of securities today is only17 about 30 percent on the floor of the exchange and18 70 percent if it is done over the counter.19 So and that's a constant problem. The20 whole marketplace has changed and will probably21 never go back to the way it was. And nobody wants22 to -- the goal of the industry is to have less23 transparency because people always -- always want to24 trade against somebody else. They're all competing25 with each other.

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1 So the idea is to conceal what you're2 doing, what you're buying, what you're selling. And3 because of what the SEC would like to do, they'll4 never change that. Business is done more in Europe5 now than ever before and it's -- that's where the6 industry is.7 Q. In paragraph 19 Mr. Feingold says, thus,8 when Mr. Dubinsky cites data from the New York Stock9 Exchange to support his arguments about bond volume,10 he is treating approximately one percent of the11 activity as indicative of the entire market.12 A. Really?13 Q. Is that --14 A. Yes.15 Q. In fact, I think that the book that you16 brought to the last deposition --17 A. Right, right.18 Q. -- said that one percent of the convertible19 bond trading was done on the New York Stock20 Exchange?21 A. Right.22 Q. And if Mr. Dubinsky or someone working for23 him had spoken to anyone who did convertible bond24 trading in the 1980s, would they have learned that?25 A. Look, without trying to be cruel, the

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1 Dubinsky report is an embarrassment. I mean, I just2 -- that's the only way to describe it. Quite3 frankly, I don't understand it because if you look4 at his background, you know, as an accountant and5 his so-called fraud order, I don't understand how --6 to me it's a mystery and would be for anybody a7 mystery that would read that report would be8 stunned, you know, at his -- at the report.9 I don't understand it. I mean, Feingold's10 background is certainly equal, if not better, than11 Dubinsky's and it's certainly more current. So but,12 quite frankly, you could find anybody that was13 familiar with the marketplaces that would be able to14 write the same kind of report that Feingold wrote15 that was critical of Dubinsky's report.16 He does state in the report if you read17 through the Dubinsky report, he does make comments18 that he doesn't have -- he doesn't have access to19 certain information. He can't find it, but that20 didn't prevent him from still coming -- drawing21 conclusions.22 So if you're going to -- if you're going23 to say, well, I only looked at the New York Stock24 Exchange volume, you know, and, therefore, I'm25 determined that Madoff could not have bought

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1 securities because he -- you know, it didn't match2 the volume of the New York Stock Exchange when3 everybody knows that you don't -- you can't just4 look at the New York Stock Exchange volume.5 I mean, how could you write a report that6 said that? What he should have said is I do not7 have access to the information to make a8 determination of whether these transactions took9 place or not. That's what -- that's what -- you10 know, that's what I would have done or anybody would11 have done.12 Q. In paragraph 27 Mr. Feingold writes in13 paragraph 99 Mr. Dubinsky inaccurately describes the14 process by which convertible securities become15 common shares. He writes that, quote, many16 convertible securities have the option for the17 company to call the security at a predetermined date18 or at the company's discretion, that is, the company19 has the right to convert the convertible securities20 into common shares.21 In instances where the bond or preferred22 equity is called, the shares are converted on the23 record date at a determined amount, end quote. In24 fact, except for a specific subcategory known as25 quote, mandatory, end quote, convertible securities,

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1 the securities are convertible at the investor's2 discretion, not the issuing company's. When a3 company calls a security, the investor is then given4 a period typically between 20 and 120 days in which5 to decide whether to convert the security into6 common shares or to accept the cash call price7 stipulated in the company's call notice. Do you8 agree with Mr. Feingold on that?9 A. Yes.10 Q. Now, in paragraph 30 Mr. Feingold writes11 footnote one of two of Mr. Dubinsky's report12 contends that a significant percentage of the short13 positions reported by Madoff customers exceed the14 amount of short interest in those stocks as reported15 at month end by the stock exchange. I found this16 very dubious.17 Going through the list I noticed that18 Pfizer, one of the world's largest drug companies,19 had short interests according to Mr. Dubinsky's20 table of 826,162 shares at the end of March 1992.21 Pfizer's closing price that month was $69.50 per22 share according to Yahoo Finance.23 Average daily trading volume in Pfizer was24 10.74 million shares. If Mr. Dubinsky's data are25 correct, the short interest in Pfizer then

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1 constituted less than eight percent of an average2 day's volume.3 A. I don't know what you -- I don't know what4 you're asking me. I mean, as I say, I'm at a loss5 to explain this whole Dubinsky report. I know, it's6 -- if it wasn't such a -- if his accusations weren't7 so serious, it would almost be comical.8 Q. Well, is it difficult to find out what the9 average daily volume in Pfizer was?10 A. Yes, I mean, because volumes were reported.11 The over the -- he's looking at volume that was12 reported on the exchange when over-the-counter13 dealers don't report the volume. I mean, you know,14 so you can't -- it's like adding apples and oranges.15 You can't -- you can't -- you can't find the16 information.17 Again, as I said before, the business of18 an exchange is to try and let people know exactly19 what has happened. That's what they advertise. You20 know, an exchange wants to make everything public21 because in theory, you know, the SEC would love, you22 know, the public to understand everything that goes23 on, how many shares trade, where they trade, at what24 price they trade. Institutions who do the majority25 of the business want to do just the opposite.

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1 They do not want to let, you know,2 everybody know what they're doing because it's no3 different than like insider trading. You know, the4 idea is you're in an industry where everybody is5 competing against each other, including -- including6 the public customers. You have to understand that7 the person who buys stock thinks he knows something8 that the person who's selling it doesn't understand.9 It's not a zero sum gain. Someone is10 going to be a winner, someone is going to be a11 loser. And it's the same. So information is the12 key. People are trying to get less information out13 as possible, you know, but that's the way the14 industry is done now. The markets are not --15 they're much less transparent today than they were16 20 years ago, you know.17 So you can't -- it's not an accident that18 people can't -- that Dubinsky can't find this19 information that he's trying to do because it's not20 available. I mean, quite frankly, I think that what21 happened was in fairness -- fairness to me, not the22 Trustee -- the Trustee drew conclusions from day one23 of what he thought he wanted to -- he wanted the24 outcome to be. He wanted the outcome to be that I25 was a fraud from the very beginning, that I never

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1 did any transactions. He made statements like2 because he couldn't find confirmations, therefore,3 from other broker-dealers. Therefore, the4 transaction never took place.5 All right. Him not understanding that the6 industry stopped producing confirmations to7 noncustomers. So when I bought stock from -- you8 know, in the open market from Merrill Lynch, we9 didn't send confirmations to each other. The10 industry discontinued that.11 Picard drew a conclusion because he12 couldn't produce a confirmation. Therefore, the13 trade never took place. He totally ignored the fact14 that, number one, confirmations weren't even15 generated any longer, which is something that is16 very obvious to anybody in the industry. Also, he17 totally eliminated the fact that nobody keeps18 records past six years any longer.19 They're destroyed, you know. So he -- you20 know, but he had a conclusion that he drew from day21 one very similar to what the U.S. Attorney did when22 he asked me do I ever short stocks and I said yes,23 of course, I short stocks. You know, he said did24 you ever sell to a customer that didn't know? Of25 course, I did.

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1 You know, and I had to explain to the U.S.2 Attorney that that's what the business of market3 makers are doing, you know; but so he wanted to4 determine, well, since I always shorted stock back5 in 1962, that I might have never bought stock. I6 mean, you know, I don't -- I think that what7 happened was Dubinsky was -- you know, the Trustee8 must have told Dubinsky this is what my conclusion9 was. This is what my theory is.10 And Dubinsky, whether he did it in a11 devious way or not, I don't think so. I just think12 that he just did the best he could. He wanted to13 get information, so he took whatever information was14 available. The fact that the information didn't15 exist didn't mean that, you know -- that, you know,16 the conclusion they drew, it didn't make any sense.17 I don't know what else to say.18 Q. Okay. Now, Mr. Dubinsky opined that you19 were insolvent as far back as 1983.20 A. I saw that.21 Q. Do you agree with him?22 A. No. I can tell you he stated how he came23 to that conclusion, you know. He just took whatever24 the -- you know, whatever -- he made the conclusion25 that I never did any transactions in '83. So,

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1 therefore, he said since the customer showed that,2 you know, balances in the account from transactions,3 he figured, okay, that was a liability that Madoff4 had. He totally eliminated the fact that I was5 doing business, you know, back in 1983 and so on.6 So, therefore, I had the assets to cover that.7 So he said, well, he knew what the8 liabilities were because it was a customer9 statement. He had no way of knowing what the assets10 that I had were because he didn't have any records11 going back then. I mean, who would possibly make a12 statement like that? I mean, the biggest mistake I13 made was not going to trial.14 Had I gone to trial rather than just15 saying okay, I'm going to eliminate the government16 spending millions of dollars and years in a trial17 with me, I'm just going to admit that I was guilty18 because I was from 1992 on, which was bad enough.19 You know, they for some reason, the Trustee wanted20 to determine that I was guilty from 1963.21 All right. Had I gone to trial, I would22 have called in any number of expert witnesses like23 this Feingold or anything else and the judge would24 have totally laughed the Trustee out of court. Why25 he even bothered writing -- 90 percent of his report

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1 deals with after 1992. I already admitted that I2 didn't do the transactions after '92. So why spend3 all that time on that, you know? What he did prior4 to that made absolutely no sense anyhow.5 Q. Now, did Dubinsky acknowledge that you held6 securities at Lehman, Bear Stearns, Morgan7 Stanley --8 A. No.9 Q. -- Fidelity and JPMC?10 A. No, no. That's not true. He did state11 that I had an account at Morgan Stanley, yeah. He12 stated that. He didn't give any details on it but,13 I mean, it was he had a copy of the Morgan Stanley14 report in his information here. So, therefore, he15 had to know that I had securities over there. He16 did state that I had securities at those -- at other17 firms, yeah. He did state that.18 Q. But did he acknowledge that you had19 purchased those securities --20 A. No.21 Q. -- with 703 account money?22 A. No.23 Q. Now, Mr. Dubinsky also opined that your24 firm was insolvent from 2002 on. Do you agree that25 you were insolvent as of 2002?

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1 A. In 2002 I did not have -- if he's -- I2 would say yes, I was insolvent because I did not3 have enough assets to cover the liabilities that I4 had with the customers in 2002.5 Q. If you had -- if everyone had demanded6 payment at one time?7 A. Yes. You have to assume that if I show the8 customers had a liability on that, whether they9 asked me for it or not, I was insolvent. You have10 to make the assumption that if you owe the money11 out, whether you have the ability -- if you don't12 have the ability to pay if called, you're insolvent.13 Q. Okay. Now, as of 2002 if the four families14 had paid you the money they owed you, would you15 still have been insolvent?16 A. In 2002? Yes, because the fund business17 was -- I wouldn't have been able to cover all my18 direct accounts, you know, other than the funds19 because the customers only had a liability of $520 billion whereas the funds had $14 billion.21 So, you know, I wouldn't have enough money22 to cover, you know, $19 billion; but I certainly23 wouldn't have had enough money to cover all my24 individual clients but, quite frankly, it doesn't25 make a difference. They're both the same.

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1 Q. Looking at paragraph 39 of Mr. Feingold's2 report, he says an active trader would likely have3 held many convertible arbitrage positions for4 substantially less than the period until the next,5 paren, usually, end paren, semi-annual coupon was6 paid. Most likely, bonds were either converted or7 sold into the open market.8 Again, an investor who sells a corporate9 bond receives accrued interest from the buyer10 instead of collecting on the coupon date from the11 issuer and the interest is built into the total cash12 inflow.13 A. Right.14 Q. Do you agree with that?15 A. Yes.16 Q. Is that the -- is that the strategy that17 you used?18 A. Yeah. It's what anybody would use at19 TRACE. It's not unique to Madoff. It's, you20 know -- it's, you know, standard operating21 procedure.22 MS. CHAITMAN: Okay. All right. We have23 to take a break because they have to change the24 disc.25 THE VIDEOGRAPHER: Going off the record.

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1 The time is 12:46 p.m.2 (A recess was taken.)3 THE VIDEOGRAPHER: Back on the record.4 This begins disc number three. The time is5 1:00 o'clock p.m.6 Q. (By Ms. Chaitman) Mr. Madoff, I just have7 one other area that I want to cover with you and8 that is Mr. Dubinsky's conclusion that the9 proprietary trading aspect of your business never10 made money.11 A. Yeah. I'm sort of at a loss for that12 because when I read that in his report, his own13 information was, and I don't -- do you have his14 report?15 Q. I do.16 A. And as I say, I'm overly sensitive to17 anybody criticizing the side of the firm that my18 sons ran, which was the proprietary and market19 making side. So where is the section --20 MS. CHAITMAN: I think it's at the very21 end.22 MR. SHEEHAN: I think there is an index.23 THE WITNESS: Don't try to be -- don't try24 to be accurate. I'm not used to that.25 MR. SHEEHAN: All right.

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1 THE WITNESS: Oh, here it is.2 MR. GOLDMAN: Bernie, tell us what page3 you're on. I'm sorry.4 MS. CHAITMAN: Just tell us, yeah.5 THE WITNESS: Page 116. He correctly6 states that the firm from 2000 to 2008 showed7 revenue of a billion three hundred thousand dollars8 in proprietary trading, but of that -- during that9 period it was 714, $715 million worth of income that10 came in from the 703, from the customer account.11 So if you eliminate that, the proprietary12 trading only had legitimate profits of $573 million,13 you know, after you eliminated the money that came14 from the customer accounts into the proprietary15 trading. So it still showed the firm made 57216 million, $573 million of profit.17 Stating that, how does he determine that18 proprietary trading was not profitable? I don't19 understand it. It's like saying one and one equals20 three.21 Q. (By Ms. Chaitman) Do you agree that 716 --22 $714 million was transferred from the 703 account to23 the proprietary trading?24 A. I agree with that. That really, you know,25 if you want to eliminate all the customer money that

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1 was -- that was funneled into the firm, you know,2 was from customers, was not from proprietary3 trading, I would say that would be correct; but that4 in itself is not really correct because what he has5 no way of knowing is he -- is that the big four6 accounts that owed me all this money, for example,7 with one account that had a six point some odd8 billion dollar out, you know, debit balance, when9 those accounts put me in a short -- what's called a10 naked short position, which is what created my11 problem why I had to start the fraud in '92, all12 right, those short positions were mark to market,13 got mark to market at the clearing house every day,14 which typically happened.15 So I was called for money to cover those,16 that deficit all the time. That was money that I17 was taking, so I did that by -- you know, part of it18 by transferring the money from the customer 70319 account to be able to meet those margin calls, which20 was -- which I would have done normally had I been21 showing all the figures correctly.22 So, you know, realistically, what I did23 was I penalized my proprietary traders' income, you24 know, but my proprietary traders as far as they're25 concerned, they made a million -- a billion two.

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1 And when I paid -- when I paid my -- the2 percentage of their -- when I paid their bonuses3 based upon their profits, I paid it on a billion4 three because proprietary traders, I had no reason5 to penalize my proprietary traders because of the6 problem that I put myself in with those big four7 clients. You understand what I'm saying?8 Q. I just want to clarify something. Staying9 on that page, the 714 --10 A. Million dollars.11 Q. -- million that Dubinsky found went from12 the 703 account, now, the proprietary trading didn't13 have their own bank account; right?14 A. No.15 Q. It went into the BNY account?16 A. Right.17 Q. Okay. So you agree that 714 million from18 the 703 account went into the BNY account?19 A. Right.20 Q. And as I understand your testimony, what21 you're saying is that some portion of that money was22 used by you to meet the margin calls --23 A. Right.24 Q. -- on the portfolio that you assumed from25 the four families?

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1 A. Correct.2 Q. That was subject to the hold harmless?3 A. Right. Which normally I would have done4 had I shown that that was going on, but I didn't.5 So Dubinsky is not -- Dubinsky is correct. That6 money did come from the 703 account, but what he7 doesn't have anything to do with, which he doesn't8 know about, was the whole problem that I had9 occurred -- you know, that created that problem.10 Q. But if the money went from the 703 account11 to the BNY account, then wasn't it commingled with12 all the money in the BNY account?13 A. Yeah.14 Q. So what is the basis of saying that any of15 it went to proprietary trading?16 A. Because the problem, the margin calls that17 I got was because of customer account. In other18 words --19 Q. But was that charged to the proprietary20 trading business?21 A. No. It was. It wasn't on the focus report22 because it shouldn't have been. In other words, had23 I shown all of this stuff properly, that's what the24 SEC would have said yeah, of course, you can take25 them. That money in the 703 account is actually

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1 part of that money is due me, was due Madoff. Not2 all of it, but part of it was. In other words, the3 monies that the four clients owed me, you know, from4 the hold harmless agreements, that money, part of5 that, the 703 account was their monies.6 So I was not wrong. Under normal7 circumstances I would have taken that money. The8 reason why I paid my traders, my proprietary traders9 on the billion three, because that's what they made.10 The proprietary traders made a billion three. They11 didn't only make 573 million. They made a billion12 three.13 And if my -- if I didn't pay my traders14 properly, they would have said -- they get15 25 percent of their trade. They would have said to16 me, listen, because you made this ridiculous17 agreement with your four big clients and they cost18 you all that money, don't penalize us. That's your19 problem, which would have been true.20 MS. CHAITMAN: Okay. I have no further21 questions. Thank you, Mr. Madoff.22 MR. SHEEHAN: You're done?23 MS. CHAITMAN: Yeah. I'm done. You want24 to change seats or --25 MR. SHEEHAN: No. I'm fine. I do need to

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1 get an outline out, but it will take just a second.2 EXAMINATION3 BY MR. SHEEHAN:4 Q. Mr. Madoff, before we get started, I just5 want to ask you a question that wasn't quite asked6 the way I wanted it to be. That is, are you on any7 medications that would impair your ability to8 testify here today?9 A. No, no.10 Q. Okay. That's not particularized towards11 you. It's asked at every deposition.12 A. Yeah. No. I understand.13 Q. Because people do take medications that14 sometimes doesn't render --15 A. No. I'm on lots of medication, but nothing16 that would impair my --17 Q. Okay. All right. Just so you and I agree18 on that. Okay. Let me sort of go back over some of19 the testimony --20 A. Right.21 Q. -- this afternoon before we get into some22 other stuff I want to talk about. On November 30,23 2008 your customer statements showed you to be owed24 your customers $64.6 billion, thereabouts; right?25 A. Right.

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1 Q. And when the Trustee looked at all of your2 bank accounts and stock they had available at that3 point, you had a little over 300 million left?4 A. Right.5 Q. So in the course of -- you're kind of6 short, yeah, like 64.3 billion dollars; right?7 A. Right.8 Q. Are you saying that that disappeared over9 -- that you actually could have covered everybody10 prior to 2002?11 A. No, no.12 Q. Okay. So what you did do, though, is that13 in 2008 according to our calculations you actually14 paid redemptions of close to $12 billion?15 A. Uh-huh.16 Q. About 11.7, I think, is what it was?17 A. Right.18 Q. Does that sound accurate to you?19 A. I guess so, yeah.20 Q. So there was a lot of money going out21 during 2008; right?22 A. Right.23 Q. But it wasn't anywhere near $64 billion --24 A. No.25 Q. -- that you said you were long?

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1 A. No.2 Q. And is it your testimony that that $643 billion shortfall occurred from 1992 through 2008?4 A. Yeah.5 Q. All right. Do you know what at the end of6 1992 you showed on your books and records assuming7 all trading is as you say it was, what was on your8 books and records then as what you were -- you9 yourself were long?10 A. Well, first of all, you have to understand11 that the -- there was -- the losses that I incurred12 from the short positions of the big four accounts,13 all right, that occurred from the 1987 through 199214 when the market had recovered from the crash in15 1987. That was -- that was substantial. That could16 have been, you know, as I said, I don't know how17 many billions of dollars it was at the time; but you18 have to take that into consideration, you know.19 Q. Right.20 A. So, you know, the $64 billion, don't21 forget, is -- the reason that number got so large22 was that I was generating falsely like 12 percent23 return on all the -- on the principal money that was24 invested. Let's say the total of almost25 $19 billion, you know, at 12 percent return from

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1 nineteen ninety -- from 1992 through 2008. That's2 where the $64 billion came in.3 Q. Okay.4 A. It was the profits that were being5 generated, the false profits that were being6 generated.7 Q. I understand that, but let's go back to the8 beginning.9 A. Uh-huh.10 Q. I think sometimes chronologically it helps11 when we talk about this stuff.12 A. Right.13 Q. So you started the business in 1960; right?14 A. '60, right.15 Q. That's when you first registered. And did16 you start out as a market maker --17 A. Yes.18 Q. -- or as a retail business?19 A. Well, I started, I did a retail business20 for the first three years until 1963. Then I became21 a market maker. After the market I had the 1962 new22 issue break, which was during the Cuban Missile23 Crisis and so on. When I had my first bad24 experience where I lost about $30,000 for some25 family accounts --

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1 Q. Right.2 A. -- then I had to borrow $30,000 worth of3 bonds from my father-in-law to be able to make my4 clients whole because I felt responsible for the5 losses that they incurred. That's why in like 19636 I decided I didn't really want to be in the retail7 business. I wanted to be a market maker. So I8 start making markets from 1963 on.9 Q. When did -- did there come a time when you10 went back into retail business?11 A. No.12 Q. When did you start what we call the13 investment advisory business?14 A. Probably '70s.15 Q. And you would not characterize that as a16 customer oriented business?17 A. Not really. I knew, yes, it would be.18 Q. Right.19 A. It would be, but it was never -- I never20 had a business where a customer would call me up and21 say I want to buy stock or what should I buy. In22 other words, when I started my business it was23 always sort of like a discretionary-type business24 where people would give me -- you know, basically it25 was family and friends who would give me a certain

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1 amount of money. And I would invest, started doing2 convertible bond arbitrage. I never did retail3 business, like if you called me up and said I want4 to buy IBM.5 Q. Right.6 A. It was always a hedge type of trading that7 I started doing.8 Q. So in the early '70s you started into the9 IA business? Let's just call it that.10 A. From starting with the big four accounts11 plus some family and friends.12 Q. Okay. So the big four accounts started13 with you in the early '70s?14 A. Yes.15 Q. Now, the strategy --16 A. Some of them.17 Q. Okay. We'll get into that later if it's18 important.19 A. Right.20 Q. But what were the strategies you initially21 engaged in? You mentioned convertible arbitrage.22 Were you doing that right away?23 A. Yes. That was right.24 Q. Okay. Were you doing other investment25 strategies at the same time?

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1 A. No.2 Q. Okay. I'm going to ask you some3 definitions just for --4 A. Uh-huh.5 Q. -- you know, the record. What's a discount6 arb?7 A. A discount arb is when -- well, a discount8 convertible it would be.9 Q. Yeah. A discount convertible.10 A. Yeah. A discount convertible is a11 convertible is selling at a discount to what it's12 worth, the stock. In other words, if a bond is13 convertible into stock let's say at $10 a share and14 you're able to buy there would be a hundred -- the15 bond would be trading at a hundred and the stock16 would be trading at let's say ten. All right.17 That's what they call on the money.18 Q. Right.19 A. If the convertible bond, if you could buy20 the convertible bond below par, below 100, let's say21 you bought it at 98 and sold the stock at 10, you're22 doing a discount arbitrage because you can make --23 you're making two points on it. So you would buy24 the bond, short the stock at 10 and you lock in a25 bona fide profit of two points.

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1 Q. In terms of convertible securities, there2 are different kinds of those; are there not?3 A. Well, for the most part they're all the4 same.5 Q. Well, they may have the same features, but6 some are --7 A. Some are trade in premiums.8 Q. Yeah, but what I meant by that is this.9 Some are bonds. Some are warrants. Some are10 rights. Some are preferred securities?11 A. Yeah. Well, they're not bonds, though.12 Arbitrage securities could be convertible bonds,13 convertible preferreds, units, warrants, rights.14 Q. All right.15 A. That's all hedge type of trading.16 Q. Right. And did you in your convertible17 arbitrage strategy use all of those types?18 A. All of those, yes.19 Q. You used all of those?20 A. Right.21 Q. And do you know whether bonds were a22 minority or a majority of the trades you engaged in?23 A. They were -- well, depending upon when it24 was, particularly bonds would be the majority of it.25 Q. Okay. What does that mean, when it was?

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1 A. I mean, when I -- when I was doing it,2 there was always more volume in convertible bonds3 than there would be let's say in warrants, units or4 rights; but depending upon when it was, depending5 on, you know, for example, when AT&T split up and --6 and, you know, and became all the baby Bells that7 they traded, we made a market.8 We were the primary market maker. As a9 matter of fact, I have a copy in my records here of10 an ad that we ran in the Wall Street Journal that11 said that we made markets, you know, to banks,12 brokers and institutions in all of the convertible13 securities. We did a very big business --14 Q. Right.15 A. -- trading all the various AT&T break-up16 issues.17 Q. In the normal course in the '70s, let's18 give it a time frame, are discount arbitrage19 opportunities plentiful?20 A. Yes. There were convertible bonds traded21 -- first of all, you have to understand that most22 convertible arbitrage trading did not go through the23 conversion process, which he even -- Dubinsky even24 states that in his report. In other words --25 Q. You mean you didn't go through the -- I'm

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1 sorry to interrupt you, but just to clarify, you2 didn't go through the conversion process or the3 industry?4 A. The industry. In other words, typically5 most convertible bonds should always trade at a6 premium. In other words, when a bond trades at a7 discount, it's sort of a freak.8 Q. That was my question. Thank you.9 A. Yeah, yes.10 Q. Okay.11 A. So that, you know, obviously, if you can12 buy a convertible bond at a discount, you would13 typically buy it and convert it because you have a14 guaranteed profit and you lock it up. All right.15 But most convertible bonds create premiums because16 nobody in their right mind should -- you know,17 should ever, you know, buy a -- should buy common18 stock if you could buy a convertible bond at a19 discount.20 Q. Right.21 A. All right. So typically, in other words,22 look, to give you an example, when I hired David23 Kugel when he -- David Kugel used to work for a firm24 of mine, for a friend of mine whose name was Mike25 Lieberbaum, all right, who had a firm called

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1 Lieberbaum & Company. When I first went into2 business we were friends. We went to high school3 together, college together, and his father had a4 business, Lieberbaum & Company. And David Kugel5 happened to work for him as a convertible bond6 trader, you know.7 So what happened was, but that firm went8 out of business. They decided to liquidate the firm9 and they all retired, you know. David Kugel was10 working for that firm and looking for a job. Now, I11 was trading convertible securities at that time, so12 Lieberbaum said to me can you do me a favor and hire13 David Kugel?14 Q. Right.15 A. And I said I don't really want to hire16 David Kugel. I'm not looking for another trader.17 And, quite frankly, David Kugel was sort of a pain18 in the ass. You know, nice guy, but he was very19 difficult to deal with because you couldn't have a20 conversation with him that made any sort of sense;21 but -- and we used to kid about that, you know.22 This friend said look -- he was my good23 friend, went to school. He said look, I'm trying to24 find this guy a job. You know, I feel bad we're25 closing the firm. Why don't you hire him? So I

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1 said I don't really want to hire him, Michael. So2 he said -- you know, so I said look, he had a Friden3 -- you probably are -- how old are you?4 Q. Seventy-three.5 A. All right. So you remember what Friden6 calculators were?7 Q. Sure.8 A. The old with the hand crank? This is9 before computers. Okay. Mike Lieberbaum's firm, he10 had a Friden calculator, which was expensive. And I11 was, you know, relatively young in the business. So12 I said I want -- if you're liquidating the firm, I'd13 like your Friden calculator because we used to use14 it to figure out all the convertibles, you know, you15 know.16 So he said I'll tell you what. Take David17 Kugel and I'll give you the Friden calculator. So18 we always used to tease David Kugel and say the only19 reason that we hired you is for the Friden20 calculator. He used to be very sensitive to that,21 but that was really a true story.22 Now, I came up with a concept of -- I said23 to David, I said this is your job. I said I want24 you to track every convertible security that exists,25 okay, and I want you to track and see what the

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1 historical prices of the convertibles. Most2 convertibles, we trade at premiums. So we used to3 have a -- and we used to have to do all this by4 hand, you know, before computers with this Friden5 calculator. We would track every convertible bond6 and see when it was trading at a discount or when it7 was trading at a premium.8 So historically if you knew that a9 particular convertible security traded let's say10 typically at a three point premium but now all of a11 sudden it went to a ten point premium, all right,12 you would know that that premium is too high. It13 should go back to historically to a three point14 premium.15 So we would go ahead and we would set up16 the trade. We'd buy the convertible, short the17 stock, all right, and then wait, hold them open,18 which immediately had a loss. So you're setting up19 a trade where you had a loss, but historically the20 bond would close up and go back to a three point21 premium.22 You would then unwind the transaction, all23 right, and you'd make a three point profit. It's24 called Chinese arbitrage. Don't ask me why it was25 called that. It was just ass backwards. So for

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1 some reason that was what the industry -- so most2 convertible trading went on at premiums, you know,3 where you set it up. You had a loss, but you knew4 what your loss was.5 It was no more than three points. And6 David Kugel used to have a huge spreadsheet7 literally like this long that had tracked all the8 convertibles. And we would just -- and that's what9 we would do. So we would do business with our10 customers, you know, doing this kind of trading.11 I was doing it for the big four clients12 and, quite frankly, it was like bending down and13 picking up money. All right. Now, most people on14 Wall Street didn't want to trade convertibles like15 that because your profit was limited, you know. You16 know, your loss was limited, but your profit was17 limited.18 Q. How scalable was that kind of trading?19 A. It was -- well, it was -- everything was20 relative. You know, when I first started in the21 business my -- you know, what I considered to be a22 great profit was different than let's say Goldman23 Sachs did. All right. So in that -- when I went24 into business all the convertible securities were25 handled by a handful of European arbitrageurs.

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1 The whole business was handled by Goldman2 Sachs, Rouss & Company. There were maybe ten3 foreign convertible firms. The joke in the industry4 was that when you called up and asked a convertible5 bond market maker what the price was, he would say6 what do you want to do? You know, that was what --7 they all had this heavy Jewish accent, but these8 guys were all money arbitrageurs in Europe.9 Q. Right.10 A. You know, and when they came to this11 industry, they started trading the convertible12 securities. All right. So after I got my brains13 beat in, which to me, $30,000 loss in 1963 was a14 lot, I said listen, I can't possibly -- you know,15 can't stay in this business like this because my16 father-in-law is not going to keep on lending me17 money to bail myself out.18 So I said I can't do retail business. As a19 matter of fact, the SEC said to me, Bernie, when20 they examined my firm, the first examination and21 they saw that I paid back the customers $30,00022 because they lost money, they said, you know, you23 really can't keep doing this because how many times24 are you going to do this? He said if you're going25 to be responsible for your clients, you know, that's

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1 not a business you want. So I said you know what?2 I looked around for what I could do that had limited3 risk. And convertible securities to me, I decided4 that that was a business I wanted to be in.5 So but the problem was it was controlled,6 that business, by Goldman Sachs, by all these7 handful of firms, by Bear Stearns and so on. So at8 that time I went and I had -- I went to see Gus9 Levy, who was the chairman of Goldman Sachs, you10 know, and I went to Bear Stearns, Cy Lewis, who was11 the chairman of that, and I said to them, you know,12 I did things that probably people today would think13 were stupid.14 I had them -- I went up there and I said --15 made an appointment with them and I said listen, I16 would like to trade convertible securities. And17 they said Bernie, you know, this is not a business18 for you. This is our business. You can't go into19 this business. And I told them the story and they20 -- I know it's hard for you to appreciate this now,21 but I was appealing to them in those days.22 And I said look, give me a break. Let me23 make something. I told them my tale of woe and they24 said okay. Look, you know what? If you want to25 trade, if you want to trade convertible bonds, he

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1 says I'll tell you what we'll do. We'll give you2 the odd lot pieces. We don't want to trade -- we3 don't want to buy ten convertible bonds and eight4 convertible bonds. We only want to buy 100 bonds5 and so on. So if you want the small ones, if you're6 willing to do the small pieces, you trade them.7 We'll send the customers to you.8 And I said that's fine with me because9 whatever I made was good business for me. So I10 started doing that and I developed this relationship11 with these European arbitrageurs and they started12 sending me the odd lot business. And then, of13 course, kept on doing -- you know, I grew the14 business and that's how I got started in the15 business.16 Q. I'll give you a break in a minute here.17 When you give an answer like that, and I'm not going18 to interrupt you because -- but it takes the court19 reporter a while to recover from that.20 A. Oh, I didn't realize you were still doing21 it.22 Q. She's constantly --23 A. I didn't realize. I didn't realize this24 was on the record.25 Q. Yeah. This is on the record.

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1 A. I thought it was just curiosity. I'm2 sorry.3 Q. No, no, no. Everything is on the record.4 Okay. Let's go back, though, just to the -- so5 we're back in 1970. You told us how this all got6 started, and the majority of your business at that7 point was premium arbitrage?8 A. Both. Whenever I --9 Q. Both. You were doing discounts, but you10 called discounts freaks just a moment ago; right?11 A. Right.12 Q. So when you spotted a discount opportunity13 by watching it as you did, did you not immediately,14 simultaneously, isn't that, you know, buy the stock15 or short the stock, I should say?16 A. Well, you always sort of did what's called17 legging. In other words, when you -- you would buy18 even -- you would always buy the -- if you thought19 the bond was -- the mark was going to go up and you20 thought the bond was going to appreciate, the stock21 was going to appreciate because you know how to do22 it, you would buy the bond first and then you'd sell23 the stock later. You'd sell the stock on the way24 up. You know, depending upon which way you thought25 the market was going to go, that's how you determine

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1 which piece to buy first.2 Q. But --3 A. You couldn't normally --4 Q. I'm sorry.5 A. You couldn't normally go in and buy the6 bond and short the stock and lock in the profit7 immediately. You had to take some degree of risk8 while you're setting it up.9 Q. Isn't the classic definition of a discount10 arbitrage simultaneous buying and selling?11 A. No.12 Q. No?13 A. I mean, no. That's not the way it14 realistically works. There's always -- I mean, if15 you could do it that way, that would be fine, but16 you're totally limiting your --17 Q. Profit.18 A. You're not only limiting your profit.19 You're limiting your ability to do it because you --20 you have to be able to judge the market as well.21 It's not just a simple of just going in and having a22 guaranteed locked-in profit because the arbitrageurs23 would close that up immediately. In other words,24 you're competing against these guys. Obviously, if25 you can do a trade and have a guaranteed immediate

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1 profit, that's the most -- that's the most ideal2 situation; but so you can do that, but even if you3 could do that, if you really want to be a good4 trader, you would buy it at a discount, you know.5 You start -- you buy the bond when it's a6 discount, but if historically it would always go to7 a premium, you wait, what's called lifting a leg, in8 other words, so you have a risk involved and then9 you'll unwind the transaction.10 MR. SHEEHAN: I want to get to that later.11 I agree with that.12 MS. CHAITMAN: I'm sorry to hear that.13 MR. SHEEHAN: No. I agree with what he14 just said.15 Q. (By Mr. Sheehan) If you hang onto it, that16 can happen, but isn't -- well, I won't say isn't.17 What's a fractional share?18 A. A fractional share is less than 100 shares.19 Q. When does that occur in an arbitrage20 situation?21 A. Not very often.22 Q. When you convert the bond, preferred,23 whatever you're converting, does it not always have24 a fractional share?25 A. Sometimes yes and sometimes no.

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1 Q. Do you credit a fractional share or what do2 you do with it?3 A. Yeah. I mean, if, in fact -- if, in fact,4 a customer -- depends upon if you're talking about5 doing it for a customer or doing it for the firm?6 Q. I'm talking about a customer here. Okay.7 You're now selling this arbitrage strategy to a8 customer. You go in. You buy the arb. I'm calling9 it an arb.10 A. Right.11 Q. And then you short the stock and you do it12 simultaneously. And when you do that, you get a13 fractional share?14 A. Yeah. Typically if customers do a15 fractional share, you would give them the fractional16 share.17 Q. Do you give them the stock or cash?18 A. You could do either, both.19 Q. There are actually fractional shares that20 trade on the exchange?21 A. You make a fractional share. Typically you22 would give them a cash credit for the fractional23 share.24 Q. Typical, right?25 A. Yeah.

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1 Q. But more likely cash a fractional share?2 A. Yeah.3 Q. Okay. When does that fractional share4 occur?5 A. I don't know when. I'm not sure.6 Q. Let me rephrase it. Does the fractional7 share not only occur when you sell the convertible8 security?9 MS. CHAITMAN: Objection to form.10 THE WITNESS: Does the fractional share11 ever occur?12 Q. (By Mr. Sheehan) No. I said does the13 fractional share only occur after you sell the14 convertible security?15 A. I'm not sure. I don't know the answer to16 that.17 Q. Well, if you don't sell the convertible18 security, there can't be a fractional share; can19 there?20 A. If you don't sell the security?21 Q. Yeah. So I'm not selling the convertible22 security. Can there be a fractional share?23 A. Probably not.24 Q. Okay. That was my point. Let me see. So25 let's go back to 1970. Again, you know, you were

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1 doing -- let me ask you, where were you doing the --2 and what I mean by this is market making or IA.3 Where were you initially doing the convertible4 arbitrage strategy.5 A. Where?6 Q. Yeah. Either market making -- where did it7 start, market making or IA?8 MS. CHAITMAN: Objection to form.9 THE WITNESS: Objection to form?10 MR. SHEEHAN: Yeah. She can do that, too.11 She can do that.12 THE WITNESS: Oh. It was one firm. You13 know, it was all done -- you know, at that time I14 was the only one doing it. It was I was the only15 trader when I first started, so it was me. It16 wasn't -- I didn't have -- David Kugel came in. You17 know, I don't remember when he came in, in '7018 something or other, but the whole firm was me. I19 was doing it.20 Q. (By Mr. Sheehan) I know it's one firm, but21 my point is you had the market making, which is you22 as a wholesale market maker; right?23 A. Right.24 Q. Over here you've got your IA business,25 which is your discretionary trading?

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1 A. It was -- but it was all done by me as one2 firm. It was always one firm. It may have been --3 you know, it was only later on when we had like4 different departments because the rules required you5 to have sort of different departments with different6 compliance procedures and so on and different7 supervisors, but when I started it was me.8 Q. Okay. Just trying to figure out how this9 worked. Okay. So you used the market making10 inventory. I think this is your testimony. Tell me11 if I'm wrong. You used a market making inventory12 and used that inventory of stock in connection with13 the convertible arbitrage strategy in the IA14 business?15 A. Correct.16 Q. Okay. So the initial purchase would take17 place in the IA business -- I mean, the market18 making business?19 A. Yeah, but if I was doing -- it was sort of20 one and the same. In other words, I was making a21 market around the customer security that I had.22 Q. Right.23 A. It depends upon sometimes if I -- sometimes24 I would just do the business for the market making25 for the profit and sometimes I would get a customer

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1 order and I would do it for the customer.2 Q. Right.3 A. It depends upon -- you know, it was sort of4 all mixed in together, but it depends upon what was5 available.6 Q. Well, when you're buying the stock in the7 market making business and, as you say, you're a8 market maker. You have to buy the stock. I9 understand how market making works.10 A. Well, the firm had a limited amount of11 capital.12 Q. Right.13 A. So I could only -- you know, once I used up14 the capital of the firm, all right, obviously, let's15 say my capital could have been $20,000 in the firm's16 capital. So I could only -- I could only -- once I17 finished buying -- I used that $20,000 up, you know,18 if Carl -- let's say if one of my clients gave me19 $100,000 to trade with, obviously, I would use that20 hundred thousand dollars for the client to do21 business.22 I might do also 20,000 for the firm's23 capital, but it was -- you know, I'm -- obviously, I24 was limited to what I can do for the firm.25 Q. So Shapiro, just use him. I know we're not

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1 supposed to name names --2 A. That's all right.3 Q. -- but that doesn't apply to me. It only4 applies to you.5 MS. CHAITMAN: Thank you.6 Q. (By Mr. Sheehan) So anyway -- because I'm7 not suing the Picowers, so there you go.8 A. Doesn't matter.9 Q. Can yell at me if she wants. All right. I10 don't know how we're supposed to comply with this.11 So Carl Shapiro comes to you, gives you a hundred12 grand, invest it at your discretion --13 A. Right.14 Q. -- right? How do you deal with that? So15 how would you take that hundred grand and put it16 into a convertible arbitrage strategy?17 MS. CHAITMAN: Objection to form.18 THE WITNESS: I would buy whatever was19 available, you know, for 50,000 or 100,000, whatever20 was available.21 Q. (By Mr. Sheehan) Of what?22 A. In whatever security that I was trading23 when that was available.24 Q. Available in what sense? As a preferred or25 as a discounted arbitrage?

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1 A. It could be any one of them. There was2 no -- it was up to me. It was usually -- sometimes3 it would be at a discount since it would be at a4 premium, sometimes doing a unit, a warrant or a5 right. It could be anything.6 Q. Would you take that hundred grand and buy7 that security we just talked about from your market8 making account?9 A. Well, it depends. You know, if it was --10 if it was the market making -- if it was trading11 with the firm's capital, you know, it would be for12 the market making account.13 Q. Right.14 A. If I was working a customer order, you15 know, or with the customer's money, it would go into16 his account.17 Q. Okay. Were you clearing those trades prior18 to DTCC yourself?19 A. Clearing them myself, yeah.20 Q. And how would you do that?21 A. Those days the bonds would come in over the22 window. It was a physical delivery.23 Q. Right.24 A. You would pay for it. And then if it was25 convertible, typically we would use -- we would have

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1 the bank convert the security. We would never2 convert the security ourselves physically because3 the convertible -- the clearing agent, the4 convertible agent may have been in Chicago. So we5 weren't going to get our trade until the Chicago.6 Q. Right.7 A. So we would use one of the banks. We would8 take the convertible security, send it over to the9 bank, give them instructions to convert.10 Q. All right. At the beginning then you have11 a fairly active box?12 A. Everything is relative. What do you13 consider active?14 Q. Well, with no DTCC and you're15 self-clearing --16 A. No.17 Q. -- so you had physical possession of all18 your securities?19 A. That's correct, right.20 Q. Right. So and you used the banks just to21 -- you know, to exchange as you say when you were22 buying and selling?23 A. Right.24 Q. All right. You didn't use banks as25 depositories?

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1 A. No. Well, if you were going to convert the2 security and use the bank to do that, you would send3 the security over to the bank and let them --4 Q. Convert?5 A. They would hold it. They would actually6 convert it. What the bank did depends upon what the7 bank's position was. The bank may have -- the banks8 may have been handling other customer accounts also,9 so they could actually borrow the securities,10 deliver you the securities.11 There's all sorts of various, you know,12 mechanisms of how they would handle it; but in the13 pure sense the bank would then take the security and14 deliver it, you know, to whatever method they use to15 Chicago or whatever it is.16 Q. Yeah.17 A. You know, they would what they call draft a18 collection. And then they would do the conversion,19 get the stock and they would deliver you the stock20 and then you would deliver the stock out.21 Q. To cover your short?22 A. Well, it wouldn't be covering -- yeah. It23 would be your fail to deliver.24 Q. Right.25 A. Right.

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1 Q. Okay. So how many customers did you -- in2 the IA, I'm calling it IA, in the IA business did3 you have to start?4 A. Probably, you know, let's say 25.5 Q. Okay. By 1980 how big was the IA and how6 many customers did you have then?7 A. Well, I had, you know, the four big clients8 for sure. I had European clients in France. I was9 dealing business with the Rothchilds with, you know,10 a number of French big clients. And then I had my11 father-in-law had sent up this account, Avellino &12 Alpern, which was a limited partnership where they13 had their clients.14 And they could have had typically probably15 50 or 60 of their clients in his limited partnership16 that I traded for that limited partnership.17 Q. Avellino & Alpern. Alpern is your18 father-in-law?19 A. Yeah.20 Q. Whose first name is Sam?21 A. Saul.22 Q. Saul, okay. And he had an account?23 A. Yes.24 Q. All right. Avellino, did he have an25 account?

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1 A. Well, they had -- he didn't have an2 individual account himself. I don't recall that he3 did. They had it -- they just had this limited4 partnership account and he was part of it.5 Q. What was the nature of the limited6 partnership, if you know?7 A. They had -- they had this -- they had a8 bunch of their accounts. They were all sort of, you9 know, somewhat wealthy individuals that they did the10 accounting work for. So they -- they formed a11 limited partnership. It was sort of like an12 investment club where they -- let's say they had13 $100 million. It's a round number.14 Q. Right.15 A. That might have had, you know, fifty16 clients. They couldn't have more than 100 clients17 because the regulations were that in order for you18 to not be an investment company, you had to have19 less than 100 clients, which they clearly had -- you20 know, that was never a problem for them. So let's21 say they had 50 or 60 different clients in there. I22 would -- I opened up an account.23 I had an Alpern and Avellino or Avellino24 and Alpern, whatever it was. That was the account.25 I would then treat that as one account, as a limited

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1 partnership account. I would buy, you know, various2 convertible bonds for them. I would then, you know,3 send them the confirmation on the transaction. They4 would get the -- they would then split that up.5 If they had 25 or 50 accounts, they would6 based upon the amount of money that each client had,7 that would be what percentage each client had of8 that -- of the limited partnership. And they would9 -- they would actually report the individual10 transactions. And each client would file his own on11 his tax return, which Avellino and Alpern would12 handle for them, being their accountant.13 Q. Right.14 A. They would show short-term capital gains,15 you know, on each -- on the transaction.16 Q. So from the beginning were you aware that17 there were all these people behind Avellino and --18 A. Oh, yeah, yeah, yeah. I knew them all.19 Q. Okay.20 A. That was before Mike Bienes got involved21 and my father-in-law retired. And then they went to22 that. That's how their problem started. They23 made -- he made a decision on his own without even24 telling me, you know, that they were issuing notes.25 They decided they would just pay them interest and

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1 they would, you know, take all the actual2 transactions themselves.3 Q. Let's talk about those notes. Would those4 notes guarantee interest to your knowledge?5 A. The first time I found out about that was6 in 1992 when the SEC, you know, told me that they7 had all of these, that they had a number of -- as8 far as I knew, they had like I don't remember9 whether it was three accounts or four accounts. All10 different Avellino and Alpern accounts, but they had11 like maybe three limited partnership accounts, but I12 wasn't aware of the fact that they were actually13 issuing notes --14 Q. Right.15 A. -- you know, to them because I had already16 told them that you can only have 100 clients in a17 limited partnership. Otherwise, you would have to18 register as a -- as an investment company. They19 claim that they thought that they were okay because20 they were -- although they think they had like maybe21 300 accounts as it turned out what the SEC said, but22 they were a lot of family accounts.23 So they said they were counting each family24 as one account, even though there could be a25 son-in-law, a son and so on and so forth. The SEC

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1 basically's position was that they said look, as a2 matter of fact, when they called me up to tell me,3 they said -- you know, they asked me, you know, I4 got a phone call from the SEC to say, you know, you5 have this account, you know, these accounts, these6 accountants, you know, and they have too much money.7 They have too much money, too many clients on there.8 It's an investment company.9 And I said -- and I told them how I was10 handling it and they said yeah, okay, that's fine,11 but these guys are paying notes. You know, it's12 different. So I said, well -- you know, I was upset13 with them. I said what the hell? They never told14 me. So when I called them up I said listen, I'm15 closing these accounts. I'm sending back the money.16 The SEC said to me at the time, you know,17 you don't have to do that. He said, you know, you18 can just tell them to register, but I said no. I19 don't want to do that. So, you know, I sent them20 back all their money, closed their accounts. As a21 matter of fact, the SEC when they -- as soon as this22 happened the SEC came up for the whole examination.23 They sent up the group chief from New York.24 They looked at the accounts. They saw that all the25 money was there. They saw that I was actually

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1 buying the securities because they were able to --2 they looked at the -- at my stock record. They3 looked at DTC. They saw that I had the securities4 and so on. And, you know, I said I'm closing the5 accounts, and I did. And I returned all the money.6 And then I took in the accounts.7 My father-in-law called me up and he said8 look, you know, these people are all crazy. They're9 sending -- they're hysterical. You know, they're10 relying upon the money to live on, these clients.11 And they said they didn't do anything wrong. This12 was all Mike Bienes's stupid -- so I said okay,13 fine. I'll open up individual accounts, you know,14 but I only want like $500,000. I don't want an15 account for 50,000 or 75,000.16 So I said the account -- each account17 could be 500,000 was the minimum. I said if they18 want to take a five -- if they want to form a family19 partnership, that's fine, but it can only be their20 family. I don't want anybody -- I don't want to21 have more limited partnerships. So they said fine22 and that was what we did. And they opened up a23 whole bunch of accounts, you know, like a few24 hundred accounts.25 Q. The three partnerships of Avellino and

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1 Bienes before the SEC, were you guaranteeing a2 return to them?3 A. No, no, no.4 Q. Were you trying to predetermine the amount5 that you would give them?6 A. No. They had -- I told them what the7 expected return was. In other words, look, when you8 did arbitrage, anybody did arbitrage, there was a --9 you had a what you would consider to be what would10 be the reasonable rate of return for doing11 arbitrage. It's no different than if you do a12 covered option right, which was like the split13 strike conversion was.14 Q. Right.15 A. You know, you're not going to do it for --16 you know, typically you would do it for double the17 long bond rate. So if long bonds and Treasury bonds18 were playing let's say five percent, you would19 expect to make like 10 percent return; but, you20 know, it depends.21 In 1980, for example, interest rates were22 12 percent. So, you know, unless you could do it23 for 25, 30 percent return, you wouldn't do the24 trade.25 Q. Weren't you asking David Kugel to actually

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1 look at convertible arb, arbitrage opportunities, to2 guarantee an outcome?3 A. Not -- there wasn't such a thing as a4 guarantee of return. It's what you expected to5 make, called an expect return.6 Q. Didn't David Kugel actually look7 historically backwards to take trades that had8 already happened --9 A. No, no.10 Q. -- and manufacture those into guaranteed11 results?12 A. No.13 Q. Why would he have testified to that?14 A. I have no idea. I told you that.15 Q. Why whatever the Trustee said or did16 influence David Kugel's testimony?17 A. I don't know what happened between the18 Trustee and David Kugel. You know, as I said, it19 was -- you know, I was -- my clients all knew, you20 know, there was no secret as to what our strategy21 was or what it was. It was a very common strategy.22 It wasn't rocket scientists.23 So people knew that if you're going to do24 hedge type of trading, whether it be any one of the25 different kinds of arbitrage or hedge trading, what

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1 your return would be. You wouldn't do it if you2 didn't make at least double the bond rate. It3 wouldn't pay to do it. So clearly David Kugel knew.4 All my traders know we're not going to tie up the5 firm's capital for ourselves or for a client unless6 we can -- we have a good reason to believe at least7 our goal was to make double the long bond rate.8 So depending upon whether the bond rate9 was -- let's say in 1980, for example, unless I10 thought I could make, you know, 25 or 30 percent11 return, you know, I wouldn't -- wouldn't do the12 trade. If the interest rates were five percent,13 then ten percent looked attractive to do it.14 So if I -- David Kugel or any of my traders15 knew, you know, don't tie up the firm's capital,16 don't do a trade for making two or three percent,17 might as well put your money in bonds.18 Q. Right.19 A. So, you know, David Kugel knew even if he's20 trading for his own account, if David Kugel or any21 of the traders came to me and said, well, okay, I'm22 tieing up the firm's capital and I'm making five23 percent return, I'd say what are you? Crazy? I24 mean, you know, we didn't do that. As a matter of25 fact, we used to send our client, we had what they

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1 call a portfolio evaluation report where we would --2 a customer -- would send them when we were doing3 arbitrage what the expected return was, what their4 actual return or how much was their over and under.5 You must have seen that these reports, they were6 part of our records that were generated.7 You saw that we said expected return, over8 and under return and so on and so forth. And9 depending upon the strategy and what you wanted to10 do, that's what you made. So all of our -- when11 people came to do arbitrage for us, it was always12 from day one that the return was going to be -- that13 the goal was to make double the long bond rate.14 Q. How could you guarantee that?15 A. We didn't guarantee it. It's what we16 expected. We didn't guarantee anybody.17 Q. Did you ever not do it?18 A. Of course. What do you mean did we ever19 not do it?20 Q. Did you ever not do what you expected?21 A. Sure, at times.22 Q. So if we go through your records, you will23 have losing periods of time?24 A. Look, let me -- I see where you're going.25 Let me -- let me tell you something. Let me give

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1 you an example; okay?2 Q. Yeah.3 A. When --4 MR. SHEEHAN: Are you okay?5 MS. CHAITMAN: Yeah.6 MR. SHEEHAN: All right.7 THE WITNESS: When we were doing --8 because nothing I'm telling you is not something9 that was widely known and was given to reporters, to10 people that wrote the books and so on. Nothing in11 Madoff is really a mystery. All right. When we did12 -- the only mystery was that we weren't actually13 doing the trades, but our strategy was always very14 clear.15 So I'm going to tell you an example, give16 you an example of one. The chairman of UBS, Union17 Bank of Switzerland, one of the world's great Nazis18 if you ever met him --19 MR. SHEEHAN: I did.20 THE WITNESS: -- came up to my office.21 All right. And because when we were doing the split22 strike trades, all right, everyone said, well,23 listen, you know, Madoff is making double -- he's24 making -- you know, you know, he's making like a25 12 percent return, which in those days, you know,

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1 was a very good return. And the guy never has -- he2 very rarely has a losing quarter, okay, which was3 true. He very rarely had a losing quarter.4 And he would say, well, how the hell do5 you always -- you know, how does that happen? I6 said wait a minute. You understand that -- you7 understand how the transaction works. And now8 literally the Chairman of Union Bank of Switzerland9 in my office and chairman of almost most of these10 banks along with the guys that ran their trading11 desk because when they were doing the due diligence,12 everyone wanted it figured out. Madoff can't be13 this smart, so what is the strategy, you know?14 Explain it to me.15 So I'd say okay, fine. And I would, you16 know, show them what the strategy was, very vanilla17 covered right with a quick wrapper. So that was18 something that we sort of started, but everyone19 understood what it was. They said -- I said and,20 all right, so you understand that your loss is going21 to be limited because the put is going to kick in.22 So your loss is limited basically to one23 or two percent on each trade and your profit is24 typically, let's say, three percent. So you have a25 two-to-one sort of ratio, all right, but you

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1 definitely from the day we start the trade, you2 definitely can lose. If the market goes against us3 and we're guessing wrong, we're going to lose one or4 two percent. If we're right, we're going to make5 three percent.6 You're never going to make really more7 than that because then you're going to be called8 away. Then that was the strategy. So let's say one9 percent loss, three percent, and everyone understood10 that. We said okay. Now, typically the strategy is11 like a three-month strategy because of the 90-day12 options and so on and so forth.13 We said so if you look at, you know, over14 the course of a year, maybe we'll have three or four15 losing quarters and the rest of it, you know, we16 have gains, which everybody said, well, that's still17 pretty good, you know. And we said you understand18 the reason why you don't -- that the whole -- the19 key to the strategy is that you're never forced to20 liquidate the strategy even -- you're going to be21 wrong.22 We're going to set it up and we think the23 market is going to go up. We may be wrong. You24 know, two days after we set the strategy up, the25 market may go against us and we may have a loss, but

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1 we don't have to sell it out because we have the2 put. Until the put expires we can keep the trade3 open, waiting for the market to reverse and go up.4 If the market goes up, then we're fine and we're5 going to make a profit.6 If the market doesn't go up and continues7 to go down, we're going to have a loss; but the big8 key is you're not forced to sell prematurely unless9 it happens within three months.10 Q. Can I ask you a question?11 A. Yeah.12 Q. Didn't all your puts expire?13 A. Huh?14 Q. Didn't all your puts expire?15 A. Eventually. Eventually they expired.16 Q. Because you never lost?17 A. No. What do you mean never? Wait a18 minute, wait a minute. Let me finish.19 Q. Then you never lose?20 A. Yes, of course, we lost.21 Q. But you -- all your puts expired. Saul22 Katz said to me that he asked you one time why are23 we buying puts, because we never lose. Do you24 remember that?25 A. Oh, a lot of my traders would say let's not

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1 buy the puts because why are we going to pay the2 premium on the puts?3 Q. Yeah.4 A. And I would say because that the key to the5 strategy is to be able to limit your loss.6 Q. Right.7 A. You know, you're not forced to sell.8 Q. So we're on the split strike now, and I9 want to go back to convertible arb, but just one10 thing. Isn't split strike strategy, which is11 common, it's not unknown, a conservative strategy?12 A. Yes.13 Q. Right. And you don't expect big returns14 from that; do you?15 A. No.16 Q. Because you capture --17 A. Right.18 Q. Yeah, okay.19 A. So let me finish --20 Q. Sure.21 A. -- the story; okay?22 Q. Didn't mean to cut you off.23 A. When they said -- you know, I said did you24 ever look at the strategy, you know, on a day-to-day25 basis and see what happened? So the guy said, well,

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1 no. I'm only looking at it, you know, over the2 course of a year or the course of months. And I3 noticed that over the course of a year we had three4 losing quarters, we had one losing quarter or we had5 one losing month.6 MR. SHEEHAN: Bless you.7 THE WITNESS: Really, we had very few8 losing quarters, but we did have losing months I9 said if we close the trade out. So I said let me10 show you -- let me show you a chart that shows you11 what the strategy did on a daily basis. And they12 would look and they would see that they had the13 strategy set up for 90 days, but it could be ten14 days where we actually had a loss had we closed it15 out.16 So if I was forced to close it out because17 the option was going to expire, the put was going to18 expire or not, I said there are lots of -- I said if19 you look at the trade, you would see that this --20 you would see it looks like this. Okay. Now, we21 would only close it out hopefully when we had it22 here, but if we closed it out when we were not here,23 we'd have a loss.24 Q. Right.25 A. So then he said ah. So there are loss --

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1 there would be loss trades. If they called me up2 and said to me I want my money back, close out the3 strategy, which no one -- very rarely did anyone do4 that except in 2008 when people were getting margin5 calls all over the place; but before that nobody6 ever called up and said sell it out because I would7 then say to them, listen, if you force me to sell it8 out, I'll sell it out. I'm sending your money back.9 Don't come back. Okay.10 Q. I want to go back to the -- but I want11 to --12 A. And let me just tell you one other thing.13 Q. Sure.14 A. You've heard of Jim Simons; right?15 Q. Of course.16 A. Okay. Now, I handled Jim's private17 account, his foundation account.18 Q. Yeah.19 A. Now, when Jim Simons, who's probably one of20 the smartest traders on Wall Street today, all21 right, you know, called me up and he said to me,22 look, he said, Bernie, he said you know what? He23 said I'd like you to handle all of Renaissance24 business as a dealer. Your market -- I want your25 market makers to trade because we're sending our

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1 business down on the floor of the exchange of the2 two Bear Stearns and, you know, they're clipping us3 left and right on commissions and so on. So Madoff4 has the fastest execution in the industry. I'm5 going to let you do our business.6 So I said really, Jim, I don't want your7 business because your traders are too good. So I8 don't really want Renaissance business. So he said9 come on, come on. We'll give you the good business.10 I said don't tell me you'll give me the good11 business. You aren't giving me all your business12 and I don't want my traders competing against yours13 because we're going to lose money.14 So he convinced me. He said look, just15 take it, you know, but also I also want you do my --16 handle my foundation personal account. So he set up17 an account, I don't remember, that was two million,18 ten million. I don't remember it anymore. You19 know, it wasn't a big account, but let's say I think20 it was in the neighborhood of 10 or $20 million.21 So he understood as every one of my22 clients understood the transaction. They saw it23 because they got the confirmations. They saw what24 was buying and selling. They had the ability to see25 whether or not the trades could be done or couldn't

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1 be done, and they -- so they saw the trade and the2 trade made sense. If you'll remember going back3 when you came down to visit me, I said to you when4 you told me we're going to sue all these funds and5 this, I said do yourself a favor.6 If you think -- if you're going to believe7 Harry Markopolos, who's one of the big idiots in our8 industry, the great whistleblower, and believe him9 that this strategy did not make any sense and if10 you're going to say the reason your funds should11 close out, you know, should have noticed a red flag,12 don't say the strategy didn't make sense because I'm13 telling you we had virtually every important trader14 on Wall Street and the chairman of every firm had a15 client -- had accounts with Madoff.16 They knew the transaction made sense to do17 it. They knew what my advantage was of being a18 market maker and doing all this volume.19 Q. But they also knew you weren't doing split20 strike; isn't that true?21 A. No.22 Q. Didn't they all know you weren't doing23 split strike?24 A. No, no.25 Q. They knew you were telling them that?

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1 A. No. And if you believe that anybody2 thought that I would -- why would anybody give me3 money thinking that I was committing a fraud?4 Q. Why did Jim Simon take his money out?5 A. Because I'll tell you why Jim Simons --6 because Jim --7 Q. You know, he's testified so I have sworn8 testimony of why he did, so let's hear what you9 think.10 A. Yeah. I know why. I'll tell you why he's11 closing money out. Because he had -- he got wind12 that the SEC was investigating me because they were13 investigating him. What happened was the SEC was14 investigating all of the hedge funds, had nothing to15 do with Madoff. All right.16 And the -- and Jim Simons, you know, was17 getting -- had an inquiry about his firm. All18 right. And one of the things was Madoff, was doing19 business with Madoff. So Jim Simons knew that the20 SEC was questioning me and, therefore, he wanted to21 close out the transactions.22 He had no idea that I wasn't doing the23 trades because -- and none of them did. I don't24 care what anybody says now. Well, I always knew.25 Believe me, none of these guys would have done --

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1 they're not crazy. Why would they want to be giving2 money to a firm that was committing a fraud? They3 didn't know. Now, there were some firms that didn't4 care whether I shorted the stock to them.5 As a matter of fact, as I -- as I told6 people, all right, I got a call from Switzerland7 once. This was -- I don't remember what year it8 was.9 Q. I think we're drifting from Jim Simons, but10 you're going to connect that up or --11 A. No, no.12 Q. Okay.13 A. This was from -- I get a call from14 Switzerland from one of the hedge fund managers in15 Switzerland and he says hey, Bernie, you know what?16 He said there's a rumor going around Switzerland17 that the reason that you are -- you're able to do18 these trades so successfully, which I never19 considered being so successful, was that you're20 front running -- you're front running all your --21 your market making orders, which, by the way, that's22 what Markopolos told the SEC.23 You know, because, obviously, you know,24 if, in fact, I was front running the orders, you25 know, that would be a great thing. It would have

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1 been, unfortunately, illegal and very easy to check2 whether anybody is front running. And believe me, I3 know that because I know what the rules are in the4 industry. And when Markopolos went to the SEC and5 said you're front running, the SEC said Bernie6 wouldn't be front running.7 So when they -- when they looked at it and8 they looked at all the information, they said no,9 no, this guy is not front running. And the reason I10 wasn't front running, because I wasn't doing the11 orders. So, of course, I wasn't front running12 because I wasn't actually doing the trades. So the13 SEC looked at that. They didn't know who was doing14 the trades, but they knew I wasn't front running.15 Now, let me finish. Switzerland thought I was front16 running.17 Q. I've been very good here.18 A. You know what they said, front running?19 They said if you're front running, that's great20 because front running isn't illegal in Switzerland.21 We don't care if you're front running. If the SEC22 closes you down for an SEC violation, so you'll give23 us our money back. We're happy. That's not our24 problem.25 Q. I'm aware of that.

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1 A. And I said I'm not front running. I wasn't2 front running because I wasn't doing the trades.3 Q. Right. And the reason you were always4 successful is you were using yesterday's newspapers;5 correct? You weren't actually trading, so you made6 those trades based on yesterday's newspapers?7 A. When I wasn't doing the trades, yes.8 Q. Yes.9 A. Yeah. That's no secret. I said that.10 Q. So, therefore, no one, including Jamie11 Simon, could replicate that; could he?12 A. He could have if he was a market maker,13 yeah.14 Q. How could he do it without yesterday's15 newspaper?16 A. Let me ask you, don't you think that17 they -- that they knew that I -- don't you think18 that they originally thought that I was doing the19 trades? Do you really believe that anybody gave me20 money and knew that I was committing a fraud?21 Q. People do it every day, Bernie.22 A. Not these guys.23 Q. All right. People do it every day.24 A. Not these guys. Don't believe that, David.25 MS. CHAITMAN: Is that what Simons

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1 testified to?2 MR. SHEEHAN: Simons testified he couldn't3 replicate what you were doing and got out.4 THE WITNESS: Yeah.5 MR. SHEEHAN: That's what he said.6 THE WITNESS: Yeah, but do you know why he7 couldn't? Because he wasn't a market making firm.8 He wasn't doing the volumes that we were doing.9 That's why he couldn't do it.10 Q. (By Mr. Sheehan) I mean, yours was all11 fictitious?12 A. Wait a minute. It was fictitious because13 -- all right. Let me --14 Q. It never happened.15 A. Since you want to know this.16 Q. No, no. Let's go back. We've got all day17 tomorrow to talk about this.18 A. Okay.19 Q. I want to get back to the early '80s. All20 right?21 A. But let me just finish. Let me explain22 something to you.23 Q. All right. Go right ahead. I won't cut24 you off.25 A. Okay.

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1 Q. I won't cut you off.2 A. The people always wanted to know how much3 volume I was doing. Okay. That was the big secret.4 How much money is Bernie Madoff doing? Okay. And5 typically they thought that I was doing $20 million,6 $20 billion.7 Q. Billion, yeah.8 A. That was the -- that was the consensus. I9 was doing 20 billion; okay?10 Q. Yeah.11 A. So it was about 20 billion because that --12 because when I filed an ADV report, the most I13 showed was 16 billion.14 Q. Right.15 A. All right. But so they thought that it was16 20 billion, but let's say it was when they finally17 got the ADV report in 2006, it showed 16 billion.18 So everybody said, well, 16 billion, that's a lot of19 money; but this is -- how does Bernie Madoff do the20 trades?21 Okay. Number one, typically he never had22 more than 50 percent of the money invested.23 Fifty percent was in T bills, 50 percent was in the24 marketplace. Sometimes it was 100 percent, but it25 most of the time was not 100 percent, but let's

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1 assume it takes 16 billion. Let's assume I invested2 16 billion at the most, which is what they thought.3 Okay. The $16 billion was invested over a period of4 four days, you know. So, you know, it's 4 billion a5 day, all right, at most, was 4 billion or 2 billion6 depending upon how you want to look at it.7 Q. Without an ounce of volatility?8 A. Huh?9 Q. No volatility?10 A. Four billion dollars, for me to invest $411 billion when you're doing 10 percent of the volume12 of the business is nothing. So the people that --13 believe me, everything that you're saying, when guys14 first came in, everybody figured, well, this guy15 must have -- must be doing something wrong because16 how could he possibly be making this profit? All17 right. So then I -- but I heard that all from day18 one when I was doing the trades, you know.19 Q. In the '80s?20 A. No. I wasn't doing this in the '80s.21 Q. You said you were doing the trades?22 A. You're doing convertible bonds.23 Q. Right.24 A. I wasn't doing split strike.25 Q. Right.

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1 A. I'm talking about when I was doing2 convertible bond trades, I wasn't doing it for3 funds. I was doing it for -- just for my clients,4 and that was no big deal for me to do that. I mean,5 you're not -- now, you can sit here and say that I6 never did the convertible bond trades because7 that -- I wasn't doing the convertible bonds trades8 to be a problem at all.9 I mean, I was the largest convertible bond10 trader in Wall Street at that time. Nobody thinks11 that I was -- I wasn't managing that much money in12 convertible bond trades even with the four big13 clients because I wasn't doing convertible bonds for14 them in 1980.15 Q. When did the big four start the margin16 accounts?17 A. What happened was I was doing the big four18 accounts when I started doing business for them.19 I've been doing -- it started in the '70s. Someone20 like Levy came in in the '90s and so on, and so but21 let's assume I started doing it let's say in the22 '80s when I was doing it. All right. And everybody23 was doing convertible bond trades. And in those24 days they were making, you know, 25, 35 percent. It25 was no big deal to do that.

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1 Q. All through the '80s, I just want to be2 clear, the big four did convertible bond? They3 didn't do different strategies besides that?4 A. No. Because what happened was --5 Q. Okay.6 A. -- you know, you know, in 1980, before that7 up to 1980 I was doing convertible bonds with them.8 All right. The four big accounts were doing9 convertible bonds. And what happened was in 198010 they came to me. They were doing straddles.11 Everybody that was doing short-term trading in Wall12 Street was hedging their trades using commodity13 straddles.14 Q. Right.15 A. You remember, you know what commodity16 straddles, silver straddles?17 Q. Yeah, of course.18 A. Okay. So they were doing silver straddles19 through Bear Stearns and through E. F. Hutton and so20 on.21 Q. The big four?22 A. Big four. All right. They were hedging23 because the arbitrage was all short-term capital24 gains. So they were making short-term capital gains25 making, you know, nice returns; but they -- you

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1 know, tax rates, you know, were 80-some odd percent,2 you know. So they -- they were using the silver3 straddles to hedge themselves. And that was fine4 until the IRS started challenging the silver5 straddles saying that there was no risk. These were6 sham transactions and so on.7 Q. Right.8 A. And they were doing them through -- we9 didn't do that business, but I was doing it for10 these clients. I had recommended them to Bear11 Stearns and Carl Shapiro had a son-in-law at E. F.12 Hutton, so they were doing the straddles.13 So in 1980 they came to me and they said14 look, you know, Bernie, isn't there anything we can15 make long-term capital gains, you know, because the16 short-term, the arbitrage, the profits are great,17 but the tax rates are killing us. And now we can't18 use the straddles because the IRS is challenging the19 commodity straddles for us.20 So what can you do to generate long-term21 gains? So I said wait a minute. Look, forget about22 the real estate shelters because that was being23 charged -- that was being -- that was being24 threatened. Picower was doing the leasing things.25 He had his leasing companies, cockamamie thing that

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1 he was doing. You know, everybody had their -- you2 know, was doing something. All right. So they came3 to me. Can you do -- what can you do to generate4 long-term gains? I said the only thing you can do5 for long-term gains is actually to put on long-term6 positions, not do the arbitrage.7 You can just -- you've got to buy8 portfolio of stocks, but in order for that to work,9 the market has to go up. And I can't tell you10 whether the market is going to go up, you know,11 from, you know, 1980.12 Q. Right.13 A. I said so you want to -- you know, that's14 the only thing that's available. I don't want to do15 any real estate tax shelters. I don't want you to16 do any silver straddles anymore. You know, this is17 the only game in town if you want to do that; but,18 you know, I don't know if the market is going to go19 up. I said I can put together a portfolio of20 stocks, a diversified portfolio. I happened to like21 the market, you know, in 1980, but there's no22 guarantee.23 And, you know, so I don't know what to24 tell you. So they said, well, can't you hedge it?25 You're supposed to be the great hedger. Can't you

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1 hedge it? I said yeah. You can hedge it. There2 are certain ways you can do it. You can go short3 against the box. You know, you can do, you know,4 pairs trading; but, again, you have to hold them for5 a one-year period. That was the holding period.6 So I, you know, explained to them all this7 stuff and I said and there's no guarantee. You want8 to do it, but, you know, it's better than nothing if9 you want to do it. So they said fine. Let's do10 that, you know. So I said so all right. Now,11 coincidentally at the same time they were doing12 that, I was doing a hedging strategy for a group of13 European investors.14 Q. I remember you telling this already.15 A. Yeah. So they as it turned out, it would16 have been -- they would have been a great17 counterparty for these other traders because they18 were doing the hedging strategy. As I explained to19 you, they had to be in -- they had to be in U.S.20 securities in order to hedge the French franc and so21 on and so forth. So, you know, I said to them okay,22 look, this is the deal.23 I can set up portfolios or strategies for24 you guys for the big four. I said I have25 counterparties that supply the liquidity to you on

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1 the other side, put you guys together. The only2 problem is you have to all understand that you can't3 unwind these strategies prematurely because these4 guys, you know, you're going to screw them up. So5 if you're going to unwind, you both have to be6 agreed to unwind at the same time.7 So Shapiro and the rest of these guys, you8 know, Picower, said okay, fine. It's a risk, but9 it's better than what we were doing anyhow. We have10 no other choice, so let's do it. So I put the11 portfolio on for the four big clients, which is not12 difficult to do.13 Q. When did you do that?14 A. 1980 I started doing that with them.15 Q. Okay.16 A. I put the portfolio on for them. You know,17 the portfolio and the French guys were doing it.18 Their side was great. It was fine. And the market,19 of course, started to march up from 1980 to 1987.20 Everything was going along fine. And, of course, my21 four big clients, being the greedy people that they22 were, never wanted to close out the transaction.23 They wanted to keep rolling it, which is24 very typical because everybody -- nobody wanted to25 close out the money. They just -- let's roll it,

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1 you know, just keep rolling it and because why2 should I pay the tax? Why do I have to pay the tax3 money? The rate was still, you know, even on those4 long-term gains were better than short-term gains.5 They didn't even want to pay that, so but6 the market accommodated everybody. So from 1980 to7 1987 everybody was making a lot of money doing this8 strategy and everything was fine. Comes the crash9 in 1987. The shit hit the fan or forget about10 repeating that, you know, and these -- my four big11 clients said holy cow. We've now, you know, had12 seven years of long-term gains.13 You know, we're going to get killed.14 We're going to give all that up with the market15 going down. I said relax. Don't worry about it.16 The market eventually will turn, I said, and you17 guys made a commitment to us. We have this18 commitment to, you know, to the French people. And19 I'm not going to unwind. I can't unwind them, you20 know.21 So these guys -- that's when they started22 to hold on. They said close out the -- sell the23 longs, don't worry about the shorts. The market is24 going to go -- continue to go down. We're not25 worried about it. We'll hold you harmless for any

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1 losses.2 MR. SHEEHAN: Okay. You want to take two3 minutes? I thought you would.4 THE COURT REPORTER: Yes.5 MR. SHEEHAN: All right. I know we have6 to leave soon, but I --7 MS. CHAITMAN: Yeah. No. Whatever you8 want, yeah.9 MR. SHEEHAN: I don't want this young lady10 to have her hands fall off because when you get on a11 roll, Bernie.12 THE VIDEOGRAPHER: Going off the record.13 The time is 2:14 p.m.14 (A recess was taken.)15 THE VIDEOGRAPHER: Back on the record.16 This beginning disc number four. The time is17 2:25 p.m.18 Q. (By Mr. Sheehan) Do you recall when you19 started using DTC?20 A. No.21 Q. Would it help if I called it NSCC instead?22 A. What year? Certainly before DTC because,23 you know, I don't remember the year. It's in the24 report somewhere.25 Q. Right. Early '80s? That work for you?

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1 A. Yes, yeah.2 Q. Early '80s. We'll work with that.3 A. Yeah, because I was -- I was chairman of4 NSCC 1984 through 1987, so --5 Q. Right. At that point you're still6 obviously -- were your stocks then on deposit at7 NSCC?8 A. No. NSCC didn't hold. They weren't a9 depository.10 Q. Okay. What function did they perform?11 A. Just the clearing and settlement, the12 settlement, money settlement, the netting. So13 securities weren't delivered there.14 Q. Uh-huh, okay. So were you still holding15 your securities physically at that point?16 A. Yeah. We were holding them physically or17 down at the banks.18 Q. Uh-huh, okay. Where were you located in19 the early '80s?20 A. 110 Wall Street probably. We moved up in21 sometime in the mid-'80s, I think, to 110 Wall -- I22 mean, to 885 3rd.23 Q. Okay. I wanted to clarify something else,24 too. You talked earlier about DTCC; right? You had25 a -- the account there was 646?

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1 A. Yes.2 Q. Did you have any other account?3 A. No.4 Q. Okay. You talked about all your stocks5 would be there except for bank loans. Do you6 remember that?7 A. Right.8 Q. All right. Would not the fact that there9 was a bank loan with regard to certain stocks also10 show in your account?11 A. There would be a what?12 Q. If you had a stock loan?13 A. Right.14 Q. All right. To the bank and the bank,15 therefore, had your stocks pledged --16 A. At DTC.17 Q. Yeah, DTC. It would also show in your18 account that you had so pledged those stocks; would19 it not?20 A. Yes, probably.21 Q. Okay. Could you pledge customer stocks?22 A. Could we?23 Q. Could you?24 A. Yeah.25 Q. You could use that for stock loan purposes?

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1 A. Yes.2 Q. Okay.3 A. Either at -- it depends upon whether we did4 it at DTC or we did it at our banks, at one of the5 banks.6 Q. Okay. So let's go back to the 1980s and7 the long strategy that you started --8 A. Right.9 Q. -- for the big four. The big four at the10 same time, were they still doing convertible arb --11 A. No.12 Q. -- at that point?13 A. They were -- some of -- I think Stanley14 Chase was doing it for some of his accounts. He was15 doing -- he was still doing convertible bonds. Oh,16 in 1980 you're talking about?17 Q. In the '80s when you started the long18 strategy.19 A. In the '80s. He may have been doing it.20 They may have been doing it for some of their21 accounts, some of their family accounts, you know,22 the kids' accounts and so on.23 Q. Yeah. Would you say the majority of your24 convertible arbitrage strategy in the '80s was25 premium trading?

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1 A. I don't know. Probably, probably.2 Q. Okay. And how many customers? You know,3 let's count Avellino and Bienes as one.4 A. Right.5 Q. And then you've got the big four. That's6 five. How many more customers did you have up to7 1987? I know that's hard, but just your best8 thought on that.9 A. My brain is a little fried to begin with --10 Q. Yeah.11 A. -- so but I don't know. Probably I would12 say no more than 50, I would say. I'm guessing.13 Q. Okay. So in 1987 there's a crash and14 you've testified to this. I'm not going to repeat15 it. You may, but I'm not going to; but seriously,16 why did you feel compelled to cover those shorts?17 A. Which shorts?18 Q. Well, when you were saying you would cover19 the short positions of the big four and they20 indemnified you, they were big boys. Why wouldn't21 you just say to them hey, you're in the game?22 A. Do you know how many times I ask myself23 that now?24 Q. Yeah.25 A. I mean, look, I'm not proud that I did what

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1 I did, you know. I spent a lot of hours with a2 psychologist here trying to analyze why I did what I3 did or I -- I had a -- a very special relationship4 with the big four clients, all right, particularly,5 you know, with Carl Shapiro and Norman Levy and Stan6 Chase.7 Picower was a little bit different, but8 look, one of my problems was I always wanted to9 please everybody. You know, that was my thing10 forgetting about whether it was my -- you know,11 whether, you know --12 Q. But this was a billion dollars, a billion13 dollars that you were going to go at risk for?14 A. Well, I was -- I had very special15 relationships with the people in France. I had a16 special relationship with Shapiro, and I had given17 my word. You know, something about the securities18 business, you know, the -- we -- everybody did19 business on trust.20 I know it sounds strange coming from me,21 all right, but when I went into business the first22 thing I learned from both Cy Lewis and Gus Levy is23 they said to me, Bernie, whatever you do, you know,24 in this business, never break your word because25 there was no such thing as written contracts in the

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1 securities industry. When everybody called you up2 and said I want to sell -- when Merrill Lynch called3 you and said I'm selling you a thousand shares of4 IBM or a thousand shares of Intel, there was no5 contract.6 You did the trade over the phone. You7 waited until you got your confirmation, which may8 have been, you know, two days later or it may have9 been five days later, and you waited and you assumed10 that they were going to deliver on time. And if11 they didn't, you were screwed. There was no written12 contract.13 And in 50 years that I was in business, I14 never, ever had anyone not honor their contract.15 You never thought about it. It was something that,16 you know, if you're in this industry, your word was17 your bond literally and that was it. You trusted18 everybody. And that's the way the industry operated19 and for the most part still operates that way today20 but not as much.21 All right. So when I started doing22 business with all my clients, I was a little guy23 with nothing. No one had any reason -- and Carl24 Shapiro always tells this story famously. When he25 gave me $100,000, people thought he was crazy. Why

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1 would anybody give me? I was this little kid from2 Brooklyn, didn't go to Harvard or so on. Why would3 anybody trust me to give me business, you know, turn4 their money over to me on a discretionary basis5 basically and, you know, and go with it?6 All right. They did. And because they7 showed -- he showed faith in me and guys like Levy8 and so on did, all right, I felt obligated to keep9 my word. And it was the same thing when I did10 business in Europe, you know. People showed a lot11 of faith in me. Now, I made them a lot of money.12 They weren't doing it, you know, as a philanthropy,13 but there was a special relationship I had with14 them.15 And all of these clients, I was like a son16 to them and they were like surrogate fathers to me.17 All right. So when the crash came in '87 -- and18 also I had went from nothing. You know, I started19 my business with literally $500, you know. You20 know, all of a sudden, you know, by '87 I was a rich21 guy.22 At least I thought I was very successful23 and everybody in the industry thought I was like,24 you know, this terrific, terrific success story,25 which I was. All right. So when the crash came in

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1 '87 and these guys panicked on me, which is not a2 surprise in hindsight because the one thing every3 one of them was, which is everybody in the industry4 is, they're greedy. All right. So they all5 panicked. They didn't want to give up their returns6 and I made the mistake. What I should have said to7 them was look, this is the agreements you have.8 Now, could I have sued them? There was no9 -- there was no written contract, all right, when we10 made these agreements to, you know, to not unwind,11 you know, prematurely. This was all, you know,12 arm's length agreements. These were not -- there13 were no contracts in that. So I didn't have the14 right to litigate with Carl Shapiro and Jeff Picower15 and say listen, you can't sell.16 You know, if they wanted to sell17 regardless of whether they were short, I could have18 said no, you've got to sell. I could have said19 cover your shorts, too, in other words, but I20 didn't. All right.21 Q. That was my question. Why didn't you tell22 them cover your own shorts?23 A. Because they said to me -- after we argued24 and argued for days, everybody says don't panic.25 Now, you have to understand also that everybody that

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1 was trading convertible bonds through me when the2 crash came in '87, they had a windfall because every3 convertible bond went to premiums. So the guys that4 were doing convertible bonds, they thought I was a5 goddamned codified genius because the market6 crashed, but all convertible bonds, you know, which7 you would expect them to do, went to premiums.8 These guys weren't doing convertible bonds9 except for some of their accounts, as I said, so10 they didn't -- you know, everybody said -- I said11 now, look, don't panic. The market will go up. We12 knew Reliant went down because of the United13 Airlines bust and the merger and so on. You know,14 they didn't want to. They just said look, let's15 sell and get out of it.16 All right. I didn't -- I couldn't force17 them to cover the shorts because I had the18 Europeans, the French guys on the other side of the19 trades. I couldn't close them out prematurely. So20 that's why I didn't unwind.21 So and then they said to me, look, as much22 as I -- all I can use is moral-suasion. And they23 didn't want to screw me either generally because,24 number one, we had a close, family-type25 relationship. And also I made them a lot of money.

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1 They didn't want to kill the goose that laid the2 golden egg. And they were so sure that the market3 was -- the shorts were not going to be a problem.4 So they said fine. We'll hold you harmless. Close5 out, sell the longs out so we get the advantage of6 the long-term gains.7 Let's not worry about the shorts. We'll8 take responsibility of the shorts because I said all9 right, the market eventually is recovered. You're10 going to lose money on the shorts. They said we're11 not worried about it. That's why. In hindsight now12 it looks like a stupid thing to do and it was.13 Q. You know, we've looked everywhere. Ellen14 has actually asked us for the hold harmless15 agreements. We can't find them. Would Price16 Waterhouse Cooper as you mentioned have yours? The17 likelihood, it's a long time ago so when it18 happened.19 A. No. I mean, you know, Ed Kostin,20 unfortunately, has been dead a long time by now. He21 did it. I don't know. You know, look, I mean, if22 you looked for the trust agreements, you would see23 that I was the -- I was the Trustee and the executor24 of all of their trust agreements. Now, they've25 probably changed it by now.

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1 Q. Right.2 A. But they -- look, there was meetings with,3 for example, I don't know whether -- Paul4 Konigsberg, did he ever go to jail or did he not go5 to jail?6 MR. GOLDMAN: He's in jail.7 THE WITNESS: He did not go to jail?8 MR. GOLDMAN: Konigsberg went to jail.9 MR. SHEEHAN: No. He walked.10 MR. GOLDMAN: Not Konigsberg. I'm11 thinking of someone else. Okay.12 THE WITNESS: Okay.13 MR. SHEEHAN: He should have gone to jail.14 THE WITNESS: Huh? Look, well, I don't15 think anybody should go to jail, but --16 MR. SHEEHAN: But anyway --17 THE WITNESS: -- look, these people, there18 were meetings held, you know, where the family19 because, look, when these guys made these agreements20 with me, all right, I said look, these guys were21 old. They were -- you know, Carl Shapiro thought he22 was going to die. He's still alive as far as I23 know.24 MR. SHEEHAN: He is.25 THE WITNESS: Carl, he must be 104, for

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1 crying out loud, but when he was 60 some odd years2 old he called me up hysterical when he had his first3 Bell's palsy attack to Boston and said look, I'm4 going to die and so on and so forth.5 And that's when I made Paul Konigsberg his6 accountant because, you know, at that time Coopers7 and -- PaineWebber, who is Coopers and Lybrand8 really, was his accounting firm; but he wanted, you9 know, a closer relationship with Paul Konigsberg,10 who became his accountant.11 Q. (By Mr. Sheehan) Who's he? I'm sorry.12 A. Carl Shapiro.13 Q. Oh, I'm sorry.14 A. All right. So all of these guys, most of15 them except for Picower, but Picower was unhealthy16 to begin with. He'd had three heart attacks and17 he'd had, you know -- what does he have? I forgot18 what the disease is, you shake all the time.19 MR. GOLDMAN: Parkinson's.20 THE WITNESS: Parkinson's, right. I said21 look, you know, we have these agreements. I said I22 want the family to make -- I want to make sure your23 children know this. They weren't really children.24 They weren't much younger than -- you know, younger25 than me, so I said -- but everybody knew of these

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1 agreements, these arrangements that they were2 responsible for any losses. And we had meetings and3 everyone knew that. So I wasn't even worried about4 having, you know, written agreements. We had them,5 but when I said to them, look, you know what? When6 you die, I said I want -- who's -- you know, you7 tell me I'm still handling your investments.8 So they -- Levy, for example, took JP9 Morgan off -- it wasn't JP Morgan. It was Chemical10 at the time. Took Chemical and its Trustee and11 executor of his estate off and he made me that. I12 was going to get to handle all and their kids had to13 sign agreements that I was the one that was going to14 handle, you know, all of their monies and I had no15 responsibility. So this was -- you know, that's16 what the agreements were. They all knew what was17 going on.18 Q. We're going to end with this today, all19 right, and we'll start tomorrow morning.20 A. Uh-huh.21 Q. Early in December you had a meeting in your22 office. The big four was there. Fred was there.23 Other people were there. What was the purpose of24 that meeting?25 MS. CHAITMAN: Early December of what

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CONFIDENTIAL

1 year?2 MR. SHEEHAN: '08.3 THE WITNESS: Oh, that was the foundation4 -- that was for the charitable thing that we had. I5 was -- we had -- I was raising the money for cancer6 then, you know, and Andy had been diagnosed --7 MR. SHEEHAN: Right.8 THE WITNESS: -- with cancer. And I9 forgot the name of our -- the Madoff foundation we10 had. And I -- they were on the board. It was a11 board meeting.12 Q. (By Mr. Sheehan) Did you not discuss the13 status of BLMIS that day?14 A. No, no.15 Q. You'd just paid out $11 billion. Two days16 later you're going to get turned into the FBI, and17 you didn't mention anything?18 A. Paying out $11 billion?19 Q. Pardon?20 A. What do you mean paying out 11 billion?21 Q. You had just paid out over the past year22 $11 billion in redemptions?23 A. Oh, yeah.24 Q. Here's the big four, Fred and other people25 as you're sitting here?

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1 A. No. The only one that was there was Fred.2 Shapiro wasn't there. One of his -- Bob Jaffey was3 there. I don't think Jeff Picower was there. I4 don't know if his wife was there. I don't think5 Picower was there. Either he may have been in6 Florida. No. We didn't -- I mean, I knew that I7 was in trouble, but no one else did, including my8 wife.9 MR. SHEEHAN: Okay.10 MS. CHAITMAN: When you say Fred, are you11 referring to Fred Wilpon?12 THE WITNESS: Yeah. He was on the board.13 He was on the board, my board.14 MR. SHEEHAN: Okay. Let's end it there.15 THE VIDEOGRAPHER: Okay. This concludes16 the deposition. Going off the record at 2:42 p.m.17 (The deposition was adjourned at 2:4218 p.m.)19 * * * * *202122232425

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1 C E R T I F I C A T E2 NORTH CAROLINA:3 GUILFORD COUNTY:4 I hereby certify that the foregoing5 deposition was reported, as stated in the caption,6 and the questions and answers thereto were reduced7 to the written page under my direction; that the8 foregoing pages 1 through 209 represent a true and9 correct transcript of the evidence given. I further10 certify that I am not in any way financially11 interested in the result of said case.12 I have no written contract to provide13 reporting services with any party to the case, any14 counsel in the case, or any reporter or reporting15 agency from whom a referral might have been made to16 cover this deposition. I will charge my usual and17 customary rates to all parties in the case.18 This, the 10th day of May, 2017.192021 <%Signature%>2223 K. Denise Neal, RPR

Registered Professional Reporter24 Notary Public No. 20051750010125

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15:16 20:3,6 21:227:15 31:9 38:164:22,23 65:2,8,11

68:3 88:1,4 89:1697:5 98:2,13,14103:17 105:10106:13 107:3,16113:9 114:4118:17,25 121:2122:5 124:16126:9 130:20135:13,18,19136:7,10,13,16,20136:22,23 137:3,9140:13 142:2,4,8143:11 145:9,21145:24 146:1,15146:18 147:1,4,6147:17,18,19148:9,12,14,15149:6 154:24155:14,17,18,24156:7,21 161:2,9177:24 178:1,5,7,8178:9,11,11180:19 186:12187:18 189:9199:18,19,21,24200:13,22 201:3201:10,19

businesses 96:13bust 203:13butner 1:21 5:4,6buy 12:9 21:11

26:16 27:1,1329:8,10,15,18 35:235:13 57:14,1566:14 68:7 105:20105:25 106:11,11111:24 136:21,21137:4 138:14,19138:23 141:12,13141:17,17,18144:16 148:3,4

149:14,17,18,22150:1,5 151:4,5152:8 156:8157:18 158:6163:1 175:1 190:7

buyer 125:9buying 11:12,14

11:24 12:2,3,1316:5 17:22 20:126:23 28:1 31:1134:9 35:7,11,1136:1,2 44:13 46:447:14 66:15 85:191:4 109:6 114:2150:10 156:6,17159:22 166:1174:23 178:24

buys 119:7

c

c 210:1,1calculations

133:13calculator 143:10

143:13,17,20144:5

calculators 143:6call 14:16 25:3,3

41:24 54:7 85:2187:24 113:6116:17 117:6,7136:12,20 137:9138:17 160:17165:4 170:1 181:6181:13

called 13:10 25:326:10 34:21 48:548:7,21 51:267:24 75:4 82:2589:17 105:24106:10 115:5116:22 122:22

124:12 128:9,15137:3 141:25144:24,25 146:4149:10,16 151:7165:2,14 166:7168:5 173:7 177:1177:6,21 194:21200:1,2 206:2

calling 152:8161:2

calls 25:5,6,11117:3 128:19129:22 130:16177:5

canada 4:17 75:5canadian 75:6,11cancer 208:5,8capital 156:11,14

156:15,16,23158:11 163:14169:5,15,22188:23,24 189:15

caption 210:5captioned 100:10capture 175:16care 20:24 42:8

82:16 180:24181:4 182:21

carl 156:18 157:11189:11 199:5200:23 202:14205:21,25 206:12

carolina 1:21 5:6210:2

carried 14:10case 5:7,11,13

210:11,13,14,17cash 44:13 54:9

55:17 60:21107:23 108:1117:6 125:11

[box - cash] Page 7



152:17,22 153:1cashiering 55:5category 45:24caused 45:22

81:17caution 9:19cd 56:25 62:14cds 57:17centralized 111:25centrex 69:18certain 9:15 16:8

18:9 27:25 67:2283:11 84:13 89:17113:1 115:19136:25 191:2196:9

certainly 65:12115:10,11 124:22194:22

certify 210:4,10cetera 106:24chairman 89:21

147:9,11 171:16172:8,9 179:14195:3

chaitman 2:3,4 3:95:20,20 6:13 7:197:21,24 8:4,510:21,24 11:120:17,20 21:138:20 39:3 41:2242:4,7,10,13,22,2451:15,25 52:5,2253:3,6,8 56:2157:21 58:5,8,10,1358:17,21,23 60:461:2,14,19 62:1862:24 64:6,10,1867:14 70:4,2272:2 73:11 74:774:17,22 75:3,19

76:3,6,13,16,2077:2 80:7 82:1682:20 86:1 92:2594:5,17,18 95:2396:1,8 99:3 101:8101:12 109:15,19125:22 126:6,20127:4,21 131:20131:23 151:12153:9 154:8 157:5157:17 171:5183:25 194:7207:25 209:10

chaitmanllp.com2:8

challenging 189:4189:18

change 34:10114:4 125:23131:24

changed 24:5113:20 204:25

characterize136:15

charge 57:9 87:1887:20 99:7 210:16

charged 130:19189:23

charitable 208:4charles 97:3,7,8,9

97:24chart 176:10chase 3:18,22,24

4:3,5,11 27:17,2032:18 38:15 44:1846:14 50:25 52:153:17,22 55:859:3 62:20 63:472:3,5,17 77:1782:4,6 95:2,10197:14 199:6

check 53:16 182:1checked 75:24checking 33:3checks 51:7,7chemical 32:19

54:25 55:21 59:5207:9,10

chicago 159:4,5160:15

chief 165:23children 206:23

206:23chinese 87:25

144:24choice 192:10chronologically

135:10circumstances

131:7cites 114:8citicorp 105:14claim 164:19claims 12:20clarify 129:8

141:1 195:23classic 150:9claw 5:21clear 32:8 41:17

41:19 52:3 171:14188:2

clearance 32:1333:5 105:1

cleared 101:6clearing 24:24

25:7,12,20 32:2,532:7,10 57:1065:25 79:1 98:698:10 128:13158:17,19 159:3159:15 195:11

clearly 17:4162:19 169:3

client 15:5,7 16:1721:8 23:18,1924:14 25:9 40:2183:13 88:1 106:3106:4,9 156:20163:6,7,10 169:5169:25 179:15

clients 9:14 10:816:15 17:25 18:1321:9,11 24:1131:25 45:18 69:391:21 92:16,17,20124:24 129:7131:3,17 136:4145:11 146:25156:18 161:7,8,10161:13,15 162:16162:16,19,21164:16 165:7166:10 168:19178:22 187:3,13189:10 192:11,21193:11 199:4200:22 201:15

clipping 178:2close 133:14

144:20 150:23176:9,16,21 177:2179:11 180:21192:22,25 193:22203:19,24 204:4

closed 165:20176:14,22

closer 19:16 206:9closes 182:22closing 117:21

142:25 165:15166:4 180:11

[cash - closing] Page 8



clothmasters 4:1574:9,9

club 162:12clvs 3:3cockamamie

189:25codified 203:5cohmad 66:1,3,4

67:21coincidentally

191:11collapsed 8:17,19collapsing 30:19collateral 24:16collecting 125:10collection 69:14

160:18college 142:3come 25:4 42:14

83:18 84:14 88:17130:6 136:9158:21 177:9178:9,9

comes 157:11193:8

comfortable 91:1391:15

comical 118:7coming 31:23

115:20 199:20commencing 1:22comments 110:9

110:14,21 112:5115:17

commercial 32:1554:25 55:1,2156:9 59:3,6 60:1362:14 63:4,14,22

commingle 34:4commingled 33:23

130:11

commissions178:3

commitment17:25 18:14193:17,18

committed 11:1818:12

committee 89:21committing 180:3

181:2 183:20commodity 188:12

188:15 189:19common 112:13

116:15,20 117:6141:17 168:21175:11

communicate86:20

communications69:20

communicator86:15

companies 117:18189:25

company 16:820:10 21:25 22:632:17 52:13116:17,18 117:3142:1,4 146:2162:18 164:18165:8

company's 116:18117:2,7

compelled 198:16competing 113:24

119:5 150:24178:12

competitive113:13

compilation 38:2241:24

complete 10:115:10 33:5 77:2179:14 111:15

completed 87:4,5completing 91:9compliance 155:6complicated 89:15complicit 9:17comply 157:10composite 4:9computer 13:6

14:13computers 13:16

14:16 49:19 143:9144:4

conceal 114:1conceivable 12:21concept 25:23

143:22concern 56:8concerned 45:2

90:16 96:23128:25

conclude 70:20concludes 209:15conclusion 120:11

120:20 121:8,16121:23,24 126:8

conclusions115:21 119:22

conditions 18:1018:11

confessed 6:19,226:25 7:3,6 8:6,1681:19 86:1

confessing 9:6confidential 1:1confirmation

35:22 36:20,2137:3 120:12 163:3200:7

confirmations120:2,6,9,14178:23

conflict 87:11confuse 99:9confused 40:23

96:2congressman

102:11connect 181:10connection 155:12consensus 185:8conservative

175:11consider 17:2 97:4

98:2 112:20159:13 167:9

consideration106:18 134:18

considered 93:4145:21 181:19

consistent 46:20consists 67:16constant 113:19constantly 18:15

148:22constituted 118:1consult 57:2contends 117:12contents 3:7continental 32:20continue 12:8

193:24continued 4:1 12:5continues 174:6continuing 20:23continuous 42:14continuously

111:24contract 200:5,12

200:14 202:9

[clothmasters - contract] Page 9



210:12contracts 199:25

202:13contrast 111:15controlled 51:3

96:13 147:5conversation 56:5

108:5 109:2142:20

conversion 11:733:2 83:5,16140:23 141:2160:18 167:13

conversions 28:2convert 33:2

116:19 117:5141:13 151:22159:1,2,9 160:1,4160:6

converted 116:22125:6

convertible 12:6,924:12 34:20 35:135:5 38:4 83:1,3,683:9,19,20,24 88:593:20,25 108:25111:18 112:7,10112:12 114:18,23116:14,16,19,25117:1 125:3 137:2137:21 138:8,9,10138:11,13,19,20139:1,12,13,16140:2,12,20,22141:5,12,15,18142:5,11 143:24144:5,9,16 145:2145:24 146:3,4,11147:3,16,25 148:3148:4 153:7,14,17153:21 154:3

155:13 157:16158:25 159:3,4,8163:2 168:1 175:9186:22 187:2,6,7,9187:12,13,23188:2,7,9 197:10197:15,24 203:1,3203:4,6,8

convertibles143:14 144:1,2145:8,14

converting 151:23convince 9:15convinced 178:14cooper 204:16coopers 206:6,7copies 3:16 4:20copy 39:5 123:13

140:9corner 100:14corporate 125:8corporation 1:5

5:8 24:25 25:7,1298:7

correct 8:21,249:5 11:9 12:7,1413:9 14:23 15:116:2,19,21,2217:15,19 18:219:5,8,10,19,21,2421:23 23:4 27:2132:3 38:19 41:1847:10 48:22 50:1260:19 67:8 70:2277:20,25 79:1384:3,19 102:6111:8 112:2,18117:25 128:3,4130:1,5 155:15159:19 183:5210:9

correctional 1:205:5

correctly 70:2591:16 127:5128:21

correspondence4:20

cost 39:21 131:17counsel 2:1 3:1 5:7

6:3 210:14count 198:3counter 110:25

112:9 113:18118:12

counterparties191:25

counterparty191:17

counting 81:6164:23

country 90:10112:11

county 210:3couple 7:10 8:13coupon 125:5,10course 71:12

120:23,25 130:24133:5 140:17148:13 170:18173:14 174:20176:2,2,3 177:15182:11 188:17192:19,20

court 1:1 5:12,176:6 122:24 148:18194:4

cover 24:21 25:2531:4 61:3 122:6124:3,17,22,23126:7 128:15160:21 198:16,18

202:19,22 203:17210:16

covered 23:1558:12 133:9167:12 172:17

covering 160:22covers 32:21 61:5cow 193:11crank 143:8crash 91:21

134:14 193:8198:13 201:17,25203:2

crashed 22:17203:6

crazy 166:8169:23 181:1200:25

create 39:12 85:19141:15

created 128:10130:9

creating 9:16credible 6:17credit 152:1,22crime 9:6 17:16criminal 6:23crisis 18:7 135:23critical 115:15criticizing 110:19

126:17cruel 114:25crying 206:1cuban 135:22curiosity 149:1current 15:24

115:11currently 108:8custodial 33:6,9custodian 96:22

[contract - custodian] Page 10



custody 25:2095:2,9

customary 210:17customer 15:10

16:7,8 25:2,5,2026:1,4,10,15,20,2126:25 27:3,628:24 29:19 30:730:12 31:14 35:2236:18 37:1,3,3,544:21 50:16,17,1852:7 71:25 74:1075:9 81:11 91:1895:17 96:6 97:8,997:23,25 98:1,16103:14 105:19,24106:1,5,13 120:24122:1,8 127:10,14127:25 128:18130:17 132:23136:16,20 152:4,5152:6,8 155:21,25156:1 158:14160:8 170:2196:21

customer's 30:15158:15

customers 1:172:2 3:15 4:2 11:1311:25 12:6 17:1017:10,18,22 18:2419:7,18 21:2024:23 27:10,1128:6,21 30:17,2031:18 33:7,10,1333:24 36:9 38:1338:24 40:3 44:144:20,24,24 45:7,845:15 46:5 52:2058:1 59:25 60:260:25 61:16 62:9

62:21 64:16 65:667:12 70:2 72:873:9 74:5 75:177:8 84:1 92:2394:3 97:7 101:23107:23,24 108:2109:13 117:13119:6 124:4,8,19128:2 132:24145:10 146:21148:7 152:14161:1,6 198:2,6

cut 175:22 184:23185:1

cy 147:10 199:22

d

daily 49:7,8,9 57:359:21 117:23118:9 176:11

dan 49:23 90:24dark 113:7data 96:15 102:15

111:25 114:8117:24

date 5:2 36:19,2136:23,23 37:14,1539:18 95:13 108:8116:17,23 125:10

dated 52:2 64:1164:12 68:20 69:1673:20 74:12

david 2:11 6:281:24 83:1 84:1184:16,25 86:5,1386:14,17 90:1591:1 108:21 109:3141:22,23 142:4,9142:13,16,17143:16,18,23145:6 154:16167:25 168:6,16

168:18 169:3,14169:19,20 183:24

david's 85:10davis 2:3 5:20day 1:21 15:15

24:25 33:4 35:335:13,15,19,2236:24 37:14,1750:20 76:15 97:2298:7,15 104:10,11119:22 120:20128:13 170:12173:1,11 175:24175:24 183:21,23184:16 186:5,17208:13 210:18

day's 118:2days 35:25 37:16

37:18 84:8 117:4147:21 158:21171:25 173:24176:13,14 186:4187:24 200:8,9202:24 208:15

dead 204:20deal 142:19

157:14 187:4,25191:22

dealer 69:6 106:4177:24

dealers 97:2111:23 112:10,11112:18 118:13120:3

dealing 55:7 161:9deals 123:1debate 112:25debit 53:10,15

56:14 58:25 59:960:12 81:7 128:8

debt 16:17 17:9,1726:12 80:12

debtor 1:13deceased 80:5december 6:19

9:25 30:25 31:1,649:11 61:6,9,15,2380:24 81:2 96:1296:12 108:14,15207:21,25

decide 117:5decided 136:6

142:8 147:3163:25

decision 9:13 35:4163:23

decisions 57:6106:15

deemed 34:3defendant 1:9

5:10defendants 5:21deferred 27:16deficit 21:13

128:16define 16:25 20:18

96:25 97:16defined 35:17defining 98:21definitely 173:1,2definition 15:22

97:18 107:21150:9

definitions 138:3defrauding 82:5degree 150:7deliver 26:2

160:10,14,19,20160:23 200:10

delivered 66:12195:13

[custody - delivered] Page 11



delivery 26:4,641:15 158:22

demanded 124:5demanding 30:7denise 1:18 5:17

210:23department 29:18

55:6 69:12,2087:12,19,20 88:2

departments155:4,5

depending 28:1728:24 50:1 78:1780:15 89:16 97:18139:23 140:4,4149:24 169:8170:9 186:6

depends 16:2540:17 41:3 49:2296:24 97:15 152:4155:23 156:3,4158:9 160:6167:20 197:3

deponent 2:19deposed 11:6deposit 27:19

54:20,24 59:1362:1,12 195:6

deposition 1:165:4,22 38:2293:12 111:10114:16 132:11209:16,17 210:5210:16

depositions 90:1893:21

depositories 14:633:12 159:25

depository 195:9deposits 57:11

derivatives 63:1763:20

derive 12:15describe 59:16

62:15 82:22 115:2describes 116:13desk 85:23 172:11destroyed 120:19details 106:24

123:12determination

106:22 116:8determine 79:6

92:19 102:3 121:4122:20 127:17149:25

determined 84:24115:25 116:23

determining 85:17developed 105:12

113:14 148:10developing 113:12devious 86:14

121:11diagnosed 208:6die 205:22 206:4

207:6died 64:2,5difference 25:1

37:2 124:25different 32:11

35:15 41:25 43:943:9,16,17 46:2461:4 62:16 66:767:17 69:23 87:1789:9,23 97:13119:3 139:2145:22 155:4,5,5,6162:21 164:10165:12 167:11168:25 188:3

199:7differential 21:19differently 45:19difficult 118:8

142:19 192:12diligence 172:11dipascali 29:12,17

38:18 42:25 43:543:22 73:5

direct 44:3 45:1951:16 124:18

direction 210:7directly 38:17

47:9 67:25 69:2573:3 111:22

director 49:2490:24

disappeared 133:8disbursements

51:3 106:23disc 57:25 58:4

125:24 126:4194:16

disclose 17:17107:10

discontinued120:10

discount 138:5,7,7138:9,10,11,22140:18 141:7,12141:19 144:6149:12 150:9151:4,6 158:3

discounted 157:25discounts 149:9,10discretion 116:18

117:2 157:12discretionary 27:5

136:23 154:25201:4

discuss 37:25208:12

discussed 95:10disease 206:18dishonest 10:4district 1:1 5:12diversified 190:20document 4:17

39:8 50:21 64:1967:15,16 68:1472:3,10 75:4 93:493:11 94:19 98:2398:24 99:1,4109:20

documents 4:939:4 69:14 93:3

doing 11:7,11,1515:6 18:22 26:2334:19,25 76:1288:3 92:10 103:18104:9,9 114:2119:2 121:3 122:5137:1,7,22,24138:22 140:1145:10,11 146:23148:10,13,20149:9 152:5,5154:1,1,3,14,19155:19 158:4167:10 170:2171:7,13,21172:11 179:18,19179:22 180:18,22182:10,12,13183:2,7,18 184:3,8184:8 185:3,4,5,9186:11,15,18,20186:21,22,24187:1,2,3,7,13,17187:18,19,21,22187:23 188:7,8,10

[delivery - doing] Page 12



188:11,18 189:8,9189:12,24 190:1,2191:11,12,18192:9,14,17 193:7197:10,14,15,15197:19,20 200:21201:12 203:4,8

dollar 56:14 128:8dollars 7:10 8:13

15:18 27:20 28:928:25 57:20 65:1165:13 70:24 71:1475:6,11 83:20122:16 127:7129:10 133:6134:17 156:20186:10 199:12,13

dot 67:24,24double 167:16

169:2,7 170:13171:23

doubt 75:8,8draft 160:17drafting 79:24drafts 33:3drawing 115:20drew 119:22

120:11,20 121:16drifting 181:9drug 117:18dtc 13:14 40:25

73:6 77:24 78:9,978:11,13 79:8,11166:3 194:19,22196:16,17 197:4

dtcc 158:18159:14 195:24

dubinsky 4:1822:25 24:22 36:1236:17 37:19 85:793:6,12 110:17,20

110:22 111:17114:8,22 115:1,17116:13 118:5119:18 121:7,8,10121:18 123:5,23129:11 130:5,5140:23

dubinsky's 90:293:2 111:15115:11,15 117:11117:19,24 126:8

dubious 117:16due 131:1,1

172:11duly 6:6,10

e

e 2:12 188:19189:11 210:1,1

earlier 27:2478:22 92:9 195:24

earliest 106:7107:1

early 11:21 17:2118:4 19:11 20:220:11 31:12 81:2392:11 137:8,13184:19 194:25195:2,19 207:21207:25

earn 59:24earned 19:18 21:9earning 21:20

53:23 55:11,1559:19 62:10

earnings 100:12108:2

easy 109:18 182:1eat 75:20 76:17economy 8:17ed 80:3 204:19

edward 80:3effect 35:5effected 37:5 49:9effective 21:25efficient 89:1egg 204:2eight 60:7 93:10

93:15 118:1 148:3either 17:21 21:12

40:24 81:23 83:485:16,16 95:18,19106:3,3 125:6152:18 154:6197:3 203:23209:5

election 33:3electronic 34:11

49:16 113:4,14electronically

52:16eliminate 122:15

127:11,25eliminated 120:17

122:4 127:13ellen 42:17 204:13embarrassment

115:1employees 24:1,4enacted 34:16ends 57:25 58:18engaged 102:13

137:21 139:22enjoy 12:22enriqua 90:17

91:1entered 22:14

79:21entire 31:10

106:14 114:11entities 23:2 95:12

96:24

entity 23:5entries 61:9entry 53:8 54:16

60:10,11 63:1,15101:2

equal 115:10equals 127:19equipment 69:18equity 74:19

106:22 116:22eric 29:12 38:18

39:16 44:4erin 42:16,18,19error 37:12errors 90:2escaped 8:9esq 2:3,11,12,20essence 57:8establish 54:24established 106:19estate 189:22

190:15 207:11estimate 28:22et 106:24europe 114:4

146:8 201:10european 45:3

145:25 148:11161:8 191:13

europeans 203:18evaluation 170:1events 21:5eventually 174:15

174:15 193:16204:9

everybody 22:1922:24 116:3 119:2119:4 133:9173:16 185:18186:14 187:22188:11 190:1

[doing - everybody] Page 13



192:24 193:6,7199:9,18 200:1,18201:23 202:3,24202:25 203:10206:25

evidence 67:4107:2 111:11210:9

exact 81:3exactly 84:24

98:20 109:5118:18

examination 3:86:12 132:2 146:20165:22

examined 6:10146:20

example 35:2536:16,22,22 40:1187:1,18 88:11,1989:25 90:2 96:19103:1 128:6 140:5141:22 167:21169:9 171:1,15,16205:3 207:8

exceed 117:13exchange 66:17,18

111:5,6 112:9113:10,17 114:9114:20 115:24116:2,4 117:15118:12,18,20152:20 159:21178:1

exchange's 113:16exchanges 65:24exclusively 23:18excuse 10:22

71:10,12,12execute 15:8 18:10

26:17,19 27:8

40:21 41:19 67:22executed 26:20,21

26:22 27:2 34:139:7 43:2 49:2365:6,24 66:1871:23 93:19 98:5105:5 108:24

executing 97:7execution 39:6

178:4executions 103:2,7

104:19executor 204:23

207:11exhibit 3:16,18,20

3:22,24 4:3,5,7,94:10,11,13,15,174:18,20,21 38:2138:24 52:1,2058:1,6 60:2,5,2561:4,15,16 62:1962:21 64:11,1667:12,15 70:2,571:25 72:3 73:973:12 74:5,8 75:175:4 92:23 93:1,294:3,6 109:13,15

exhibits 3:14 4:1exist 121:15existing 69:18exists 143:24expect 167:19

168:5 175:13203:7

expected 167:7168:4 170:3,7,16170:20

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f

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first 6:10 9:1115:4 24:1 32:639:15 45:7 67:2071:2,3 82:1384:22 87:3 89:2134:10 135:15,20135:23 140:21142:1 145:20146:20 149:22150:1 154:15161:20 164:5186:14 199:21206:2

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four 9:20 10:7,910:12,16 11:214:10 19:16,1728:11 35:13,15,1935:25 37:16,1852:25 53:2 58:1458:20 61:20 72:2279:21 80:9,1384:8 91:19,2198:23 124:13128:5 129:6,25131:3,17 134:12137:10,12 145:11161:7 164:9173:14 186:4,10187:12,15,17188:2,8,21,22191:24 192:11,21193:10 194:16197:9,9 198:5,19199:4 207:22208:24

fractional 151:17151:18,24 152:1

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frame 140:18franc 191:20france 161:8

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fraud 11:6 12:1612:21 16:23,2517:2 26:13 81:2281:24 91:8 102:13115:5 119:25128:11 180:3181:2 183:20

freak 141:7freaks 149:10fred 207:22

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friden 143:2,5,10143:13,17,19144:4

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funds 7:4 18:1430:6 45:8,9,20,2345:24 46:1,2,3,551:9 53:18 60:24124:18,20 179:4179:10 180:14187:3

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generated 23:950:1,2 68:15104:25 105:17

120:15 135:5,6170:6

generating 49:2184:25 85:12,14134:22

genius 203:5getting 177:4

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78:13 79:13 81:383:4 84:3 86:1094:10 110:2123:12 136:24,25140:18 141:22143:17 147:22148:1,16,17152:15,17,22159:9 167:5170:25 171:15178:9,10 180:2182:22 193:14201:1,3 202:5

given 28:5 50:2079:15 113:12117:3 171:9199:16 210:9

gives 157:11giving 84:18,19

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golden 204:2goldman 2:20 5:25

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good 6:14,1586:15 94:21 95:20110:5 142:22148:9 151:3 169:6172:1 173:17178:7,9,10 182:17

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guys 146:8 150:24165:11 172:10180:25 183:22,24186:13 191:24192:1,4,7,17193:17,21 201:7202:1 203:3,8,18205:19,20 206:14

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hand 94:22 100:14143:8 144:4

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88:6 188:12,22191:12,18

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i

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ibm 13:10,1288:14,14,15103:12 105:21106:11,12 137:4200:4

idea 69:19 95:21114:1 119:4168:14 180:22

ideal 151:1identification

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idiots 179:7ignored 120:13illegal 14:25 16:3

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income 70:2471:14 102:19127:9 128:23

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initial 155:16initially 17:2

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investor 1:4 5:834:16 117:3 125:8

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jpmc 123:9jpmorgan 3:18,22

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k

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207:12kill 204:1killed 193:13killing 189:17kind 12:15 14:13

27:15 43:9 47:1765:2 115:14 133:5145:10,18

kinds 139:2168:25

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know 9:14 12:114:15,17,17,1815:5,6,14,16 17:317:3 18:6,2119:14,16,25 20:1522:11,12,13 25:2526:21 27:8 28:228:24 31:3,8,2332:15 33:3,5,2134:2 35:7,20 36:236:8 40:6,12,1543:11 44:22 45:1646:6,8,24,25 47:247:25 48:24 49:2252:4 53:14,2554:8 56:2,3,8,9,2157:10 61:20 62:1563:13,13,21,2264:7,24,25 65:5,665:8,20,22 68:1268:24,25 69:21,2169:22 70:10 72:1272:14 75:15,16,1675:18 76:11 78:1778:24 81:4 84:1185:3,8,8,10,1786:12,13,14,2387:3,15 88:2489:7,12,19 90:4,1190:19,21,23 91:1291:16,22 92:7,1696:3,18 97:4,8,1197:17,21,23 98:20101:9 104:8,9,11104:12,12,13,23104:23 108:10,10109:22 110:16,17112:7,15 113:1

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24:25 25:2 26:1631:21 72:4 87:2488:18 128:10

160:7 165:1positions 16:15

24:15,24 77:2380:20 87:16 88:1088:13,14,15,17,1789:9 91:23 117:13125:3 128:12134:12 190:6198:19

possession 34:7159:17

possible 119:13possibly 85:4

122:11 146:14186:16

post 12:1pouring 45:21pr 68:12practice 33:13

35:14 55:13pre 106:23predated 38:9predetermine

167:4predetermined

116:17preferred 116:21

139:10 151:22157:24

preferreds 139:13prematurely

174:8 192:3202:11 203:19

premium 73:17141:6 144:7,10,11144:12,14,21149:7 151:7 158:4175:2 197:25

premiums 139:7141:15 144:2145:2 203:3,7

prepare 88:8prepared 75:14present 5:15 16:20

108:22preserve 7:20pretty 28:17 32:20

47:3,7 173:17prevent 30:7

115:20previously 10:7

79:20price 35:17,18

37:6,9 80:1 83:1184:14 85:9 117:6117:21 118:24146:5 204:15

prices 35:15 36:17144:1

primarily 18:13primary 140:8primex 105:12,15principal 45:12

134:23prior 10:11 14:9

31:1 91:4,16106:19 123:3133:10 158:17

prison 9:8private 46:5

177:16probably 11:15

14:1,5 15:1817:13 19:14,1520:11 28:13,1430:19 64:25 65:1366:21 69:1,1,1170:13 78:24 80:2180:21,22 81:15,1685:18 101:24113:20 136:14143:3 147:12

153:23 161:4,14177:19 195:20196:20 198:1,1,11204:25

problem 9:1611:16 45:22 56:1090:13 113:19128:11 129:6130:8,9,16 131:19147:5 162:20163:22 182:24187:8 192:2 204:3

problems 22:4113:5 199:8

procedure 89:15125:21

procedures 155:6proceed 5:19proceeding 5:13process 86:2

116:14 140:23141:2

processors 14:18produce 120:12produced 42:10

67:15 70:12111:10

producing 120:6product 45:10productions 41:25professional 1:18

210:23proffer 108:13profit 127:16

138:25 141:14144:23 145:15,16145:22 150:6,17150:18,22 151:1155:25 172:23174:5 186:16

[places - profit] Page 28



profitable 127:18profits 21:9 45:13

127:12 129:3135:4,5 189:16

progressed 33:15proper 83:5,16properly 17:17

18:10 85:9 130:23131:14

proprietary 23:329:22 47:13 48:348:25 50:4 65:466:21 67:1 68:269:12 70:1 75:787:20 88:1 102:14103:16 112:20126:9,18 127:8,11127:14,18,23128:2,23,24 129:4129:5,12 130:15130:19 131:8,10

proprietorship20:4,10 22:7 24:2

prosecution 8:927:17

prosecutor 86:1086:11

protect 44:19,2546:4

protecting 45:2protection 1:5 5:8

34:16proud 198:25provide 32:24

96:15 102:15106:24 210:12

providers 14:4psychologist 199:2public 1:19 43:8

43:19 118:20,22119:6 210:24

purchase 26:138:12 39:20 40:753:10,19 54:1,5,2559:2,5,9 60:1262:3 63:4 101:16101:18 155:16

purchased 16:919:9 39:24 46:947:9 50:9,1066:24 67:5 73:374:2 77:4 100:21123:19

purchases 38:1338:17 41:17,20

purchasing 56:2257:17 74:23

pure 160:13purpose 44:8

207:23purposes 196:25pursuing 102:12put 11:17 17:25

28:21 42:2 44:1144:14,14 54:957:13 83:25104:20 128:9129:6 157:15169:17 172:21174:2,2 176:17190:5,19 192:1,10192:16

puts 174:12,14,21174:23 175:1,2

putting 25:1045:24

q

quantify 104:2quarter 172:2,3

176:4quarters 173:15

176:4,8

question 7:2510:10 29:5 38:852:10 53:20 86:2295:11,21,21 96:3,8102:9 106:17112:17 132:5141:8 174:10202:21

questioning180:20

questions 6:1820:23 38:4 52:12131:21 210:6

quick 172:17quite 33:13 115:2

115:12 119:20124:24 132:5142:17 145:12

quote 111:4116:15,23,25,25

quotes 111:3

r

r 210:1raise 58:11raising 208:5ran 85:22 126:18

140:10 172:10rarely 46:23 172:2

172:3 177:3rate 19:12 63:9

167:10,17 169:2,7169:8 170:13193:3

rates 167:21169:12 189:1,17210:17

ratio 83:6 172:25ratios 83:16read 82:8,23 90:18

93:13 95:21 110:8112:4 115:7,16

126:12readily 112:1reading 70:25

95:7 96:9ready 76:7real 189:22 190:15realistically

128:22 150:14realize 22:3

148:20,23,23really 22:14 45:7

90:7,19 114:12127:24 128:4136:6,17 142:15143:1,21 146:23151:3 171:11173:6 176:7 178:6178:8 183:19206:8,23

reardon 42:16,1742:18

reason 84:20122:19 129:4131:8 134:21143:19 145:1169:6 173:18179:10 181:17182:9 183:3200:23

reasonable 167:10recall 8:17 79:24

100:20 108:15162:2 194:18

received 31:1266:12 100:17

receives 125:9recess 58:1 76:24

126:2 194:14recognize 8:11

39:4 52:22 68:1893:24

[profitable - recognize] Page 29



recollection 11:2414:23 28:4 31:571:15 92:9 108:5

recommend 83:25recommended

189:10recommending

22:23record 8:1 41:23

42:2 47:19 48:5,648:16,16 49:457:24 58:3 75:1076:22,25 116:23125:25 126:3138:5 148:24,25149:3 166:2194:12,15 209:16

records 47:1749:11,16,17,2567:9 77:24 79:884:5,12,17 85:587:13 89:11104:21 107:1,11120:18 122:10134:6,8 140:9170:6,22

recover 18:21148:19

recovered 134:14204:9

red 179:11redacted 59:10

70:10redeem 30:15

107:23redemption 30:8

30:12 31:3,13redemptions

30:24 133:14208:22

reduced 210:6refer 82:25reference 53:10

59:5referenced 34:10referral 210:15referred 23:17referring 55:18

95:16 209:11reflect 16:15 48:12

48:16 103:6reflected 19:22,25

26:20 48:2reflecting 21:14

103:16 111:9reflects 74:14regard 196:9regardless 202:17register 164:18

165:18registered 1:18

135:15 210:23regular 15:15,16

65:5regularly 17:8

75:13regulations 89:23

162:17regulators 22:22regulatory 102:20relate 22:1related 51:14

95:12 100:11relating 67:6relationship 36:18

148:10 199:3,16201:13 203:25206:9

relationships199:15

relative 145:20159:12

relatively 24:1833:20 143:11

relax 193:15relevant 104:15reliant 203:12relying 166:10remember 34:13

51:10,12,13 80:292:22 101:25143:5 154:17164:8 174:24178:17,18 179:2181:7 188:15191:14 194:23196:6

remove 82:18renaissance

177:23 178:8render 132:14rent 23:22repeat 198:14repeating 193:10rephrase 7:24

153:6replicate 183:11

184:3report 4:19,22

24:22 36:15 37:2140:16 50:11 75:1387:4,6 93:3109:16 110:2,22111:16 112:19115:1,7,8,14,15,16115:17 116:5117:11 118:5,13122:25 123:14125:2 126:12,14130:21 140:24163:9 170:1

185:12,17 194:24reported 44:6

102:19 103:2104:18,18,22,24105:7,9,18 108:2112:18 117:13,14118:10,12 210:5

reporter 1:19 5:176:7 51:17 148:19194:4 210:14,23

reporters 171:9reporting 105:2,2

210:13,14reports 17:7 18:19

40:11 49:5,9,2188:9,9 91:3 92:1,292:3 102:20,21,23103:4,5,15,24,24170:5

represent 5:17 6:1210:8

representing 5:25:18

represents 67:19repurchased

46:24request 31:3,13

83:2requested 30:20

30:22requesting 26:1required 48:1

87:12 155:4requirements

87:10requires 15:13

18:9resistance 31:25resolved 113:1respect 38:11

[recollection - respect] Page 30



response 94:995:10 106:24

responsibility43:24 49:25113:12 204:8207:15

responsible 9:129:16 49:20 55:755:10 136:4146:25 207:2

rest 9:7 89:1390:21 173:15192:7

restitution 9:14restricted 69:17result 9:7 95:13

210:11results 168:11retail 106:2

135:18,19 136:6136:10 137:2146:18

retired 88:25142:9 163:21

retirement 70:17return 9:18 21:8

21:21 31:24134:23,25 163:11167:2,7,10,19,23168:4,5 169:1,11169:23 170:3,4,7,8170:12 171:25172:1

returned 166:5returning 21:7,10returns 107:18

175:13 188:25202:5

revenue 102:18,25127:7

revenues 23:9102:16

reverse 174:3review 32:4 70:17

77:2 107:1reviewed 17:5rich 7:12 8:6,8

201:20ridiculous 131:16right 5:24 7:22 8:3

13:8,18 14:2115:21 16:1,2419:3 20:2,4,2524:3,3,5 25:1830:4 37:7 38:1639:16,18,22 41:2142:8 43:17,2146:12,15,16 47:1247:15 50:14 52:1452:19 53:5 54:1754:21,23 55:1,2,2356:18 57:21 59:1560:14,15 61:11,1261:25 62:4 63:663:10,17 68:9,1070:11 71:5,6,11,1371:20 72:18,23,2573:1,4,6 74:175:12 76:1,5 77:977:12,14,16 78:879:2,2,5,10,12,2381:13,13 83:5,1483:17 84:1,16,2186:3,8,11 87:288:22 91:10,1392:12 93:8 94:1394:14,23 95:496:4,11 97:2598:4,19 99:10,1299:13,15,16,23,25100:3,7,9,23

101:20 102:10103:19,20 107:5111:1,2,14,17112:6 113:5114:17,17,21116:19 120:5122:21 125:13,22126:25 128:12129:13,16,19,23130:3 132:17,20132:24,25 133:4,6133:7,17,21,22134:5,13,19135:12,13,14136:1,18 137:5,19137:22,23 138:16138:18 139:14,16139:20 140:14141:14,16,20,21141:25 142:14143:5 144:11,17144:23 145:13,23146:9,12 149:10149:11 152:10,24154:22,23 155:22156:2,12,14 157:2157:9,13,14 158:5158:13,23 159:6159:10,19,20,23159:24 160:24,25161:24 162:14163:13 164:14167:12,14 169:18171:6,11,21,22172:17,20,25173:4 175:6,13,17176:24 177:14,21178:3 180:15,18181:6 183:3,23184:13,20,23,23185:14,15 186:5

186:17,23,25187:22 188:8,14188:22 189:7190:2,12 191:10194:5,25 195:5,24196:7,8,13,14197:8 198:4 199:4199:21 200:21201:6,8,17,25202:4,9,14,20203:16 204:9205:1,20 206:14206:20 207:19208:7

rights 139:10,13140:4

risk 56:10 147:3150:7 151:8 189:5192:8 199:13

robert 29:13 38:1843:3 44:4

rockefeller 2:14rocket 168:22roll 192:25 194:11rolling 192:23

193:1romer 29:13 38:18

43:3 44:4room 5:16 51:23rothchilds 161:9round 162:13rouss 146:2route 69:24routinely 15:9rpr 210:23rudely 7:25rules 89:23 155:4

182:3rumor 181:16run 84:10 103:23

[response - run] Page 31



running 84:9181:20,20,24182:2,5,6,9,10,11182:14,16,18,19182:20,21 183:1,2

rush 22:21ruth 8:13 99:14rye 2:22

s

s 80:5sachs 105:13

145:23 146:2147:6,9

salaries 23:25sale 15:8,22 54:25

59:2 60:12sales 26:18,19,21sam 161:20saul 161:21,22

174:21saw 27:9 87:4

108:12 121:20146:21 165:24,25166:3 170:7178:22,23 179:1

saying 11:22 27:229:24 91:13,1593:22 112:6,14122:15 127:19129:7,21 130:14133:8 186:13189:5 198:18

says 53:9 54:18,2459:2,13 63:2068:7,11,21 69:1775:6 95:8,16100:19 101:3102:18 103:1106:25 110:23111:21 114:7125:2 148:1

180:24 181:15202:24

scalable 145:18scheme 106:20

107:4,15,16,22school 142:2,23schwab 97:3,8,9

97:24 98:1schwab's 97:7scientists 168:22scope 105:10scott 94:7,9,25scrap 83:8 84:4

109:3screw 192:4

203:23screwed 200:11sean 98:16search 84:5seats 131:24sec 6:25 17:4,5

89:18,22 105:9108:13 112:22,22113:11 114:3118:21 130:24146:19 164:6,21164:25 165:4,16165:21,22 167:1180:12,13,20181:22 182:4,5,13182:21,22

second 66:6 68:4,674:16 94:11 132:1

secondly 9:12secret 168:20

183:9 185:3section 95:10

126:19securities 1:4,8 5:8

5:10 11:12,2412:4,10,13 16:5,21

17:22 18:16 19:2319:25 21:12 24:1224:13 25:25 26:226:3,5,6,9,9,11,2428:21 29:8,11,1529:19 31:11 33:233:7,10,11,15,1633:18,20,22,2534:5,7,11,11,1635:1,8,11 38:1240:6,24 43:2544:9,14,19 46:4,1046:21 47:6,14,1847:20 48:5,14,1750:8,10,19 55:1557:9 66:1,6,7,9,1566:24 67:4,7,2172:19 73:2,2274:20,24 77:4,7,1977:22 78:2,7,1579:7,14 80:16,1983:24,25 87:991:5 100:21 101:6101:17 102:1109:6 113:9,10,16116:1,14,16,19,25117:1 123:6,15,16123:19 139:1,10139:12 140:13142:11 145:24146:12 147:3,16159:18 160:9,10166:1,3 191:20195:13,15 199:17200:1

security 15:2141:17,20 49:453:23 66:19 83:684:2 88:13 89:19116:17 117:3,5143:24 144:9

153:8,14,18,20,22155:21 157:22158:7 159:1,2,8160:2,3,13

see 52:13 53:1155:2 56:15 61:2368:22 71:8 72:2087:15,23 91:694:12 95:3 98:2498:25 100:13143:25 144:6147:8 153:24170:24 175:25176:12,19,20178:24 204:22

seek 37:22,25seen 11:21 72:11

82:24 93:4 94:18109:19 170:5

seg 68:7segregate 40:6segregated 25:19

26:10 33:12self 32:7 159:15sell 14:25 15:4,5

16:1,12 27:1368:11 111:24120:24 149:22,23153:7,13,17,20174:1,8 175:7177:6,7,8 193:22200:2 202:15,16202:18 203:15204:5

selling 15:21,2347:14 114:2 119:8138:11 150:10152:7 153:21159:22 178:24200:3

[running - selling] Page 32



sells 125:8semi 125:5send 16:3,6 35:21

120:9 148:7 159:8160:2 163:3169:25 170:2

sending 148:12165:15 166:9177:8,25

sense 80:25 85:385:15,20,25 86:24104:16 121:16123:4 142:20157:24 160:13179:2,9,12,16

sensitive 126:16143:20

sent 161:11 165:19165:23

separate 13:6 23:223:5 72:5 87:1387:21

september 39:1894:8

serious 118:7seriously 198:15service 32:11services 32:24

73:18 210:13set 144:15 145:3

173:22,24 176:13178:16 191:23

setting 144:18150:8

settle 41:4settled 11:2 98:7settlement 41:6

105:1 195:11,12195:12

settling 57:10

seven 58:14,1971:9 95:6 193:12

seventy 143:4shake 206:18sham 189:6shapiro 156:25

157:11 189:11192:7 199:5,16200:24 202:14205:21 206:12209:2

share 94:13117:22 138:13151:17,18,24152:1,13,15,16,21152:23 153:1,3,7153:10,13,18,22

shares 83:10 84:1384:15 85:9 88:2088:21,22 89:12103:12 104:3,12105:21 106:11,12116:15,20,22117:6,20,24118:23 151:18152:19 200:3,4

sharing 45:12sheehan 2:11 3:10

5:24 6:2,2 7:14,207:22 8:2 10:22,2520:14,18,21 39:241:23 42:6,8,12,2042:23 51:18,21,2352:19 56:20 57:2358:16,19,22 64:1364:15 76:7,10,1476:19 94:14 95:2095:24 99:2 101:4108:21 126:22,25131:22,25 132:3151:10,13,15

153:12 154:10,20157:6,21 171:4,6171:19 176:6184:2,5,10 194:2,5194:9,18 205:9,13205:16,24 206:11208:2,7,12 209:9209:14

shelters 189:22190:15

shit 193:9short 14:25 15:5,5

15:8,9,13,15,18,2015:21,22 16:1518:16 19:15 24:1224:17,23,25 25:233:25 48:15 63:1663:20 80:20 83:1088:14,21 117:12117:14,19,25120:22,23 128:9128:10,12 133:6134:12 138:24144:16 149:15150:6 152:11160:21 163:14188:11,23,24189:16 191:2193:4 198:19202:17

shorted 121:4181:4

shortfall 134:3shorting 18:18shorts 16:1,12,18

193:23 198:16,17202:19,22 203:17204:3,7,8,10

show 40:11,14,1550:8,8 56:1373:21 98:14 124:7

163:14 172:16176:10,10 196:10196:17

showed 17:9 29:184:22 89:11 122:1127:6,15 132:23134:6 185:13,17201:7,7,10

showing 42:1570:23 128:21

shown 16:5 130:4130:23

shows 48:14176:10

shut 7:22side 23:21 24:17

29:22 50:4,5,794:22 126:17,19192:1,18 203:18

sifma 111:3sign 207:13signature 210:21signed 80:9 87:5significant 30:23

117:12silver 188:16,18

189:2,4 190:16similar 110:21

111:9 120:21simon 180:4

183:11simons 177:14,19

180:5,16,19 181:9183:25 184:2

simple 35:24150:21

simply 17:16simultaneous

150:10simultaneously

149:14 152:12

[sells - simultaneously] Page 33



sipc 94:25 102:17107:14

sit 187:5sitting 59:18

208:25situation 18:21

22:11 85:19,20151:2,20

six 19:12 27:2044:17,18 63:18,1981:11 97:22 98:24120:18 128:7

skill 35:8skipping 43:7slash 59:2 60:12slump 18:5small 14:15 24:19

29:20 33:20 148:5148:6

smart 172:13smartest 177:20smb 1:7 5:14smoking 82:25sold 16:18 26:3

46:23 66:11 84:784:10 125:7138:21

sole 20:4,9 22:724:1 107:17

solely 23:8solicit 31:17solicited 31:23soliciting 70:19solutions 5:2,18somebody 89:13

113:24somewhat 162:9son 87:18,19

164:25,25 189:11201:15

sons 126:18soon 165:21 194:6sophisticated 89:3sorry 58:20,21

82:19,20 99:9127:3 141:1 149:2150:4 151:12206:11,13

sort 14:19 22:2327:5 63:14,22126:11 132:18136:23 141:7142:17,20 149:16155:5,19 156:3162:8,11 172:18172:25

sorts 88:6 160:11sound 95:5 133:18sounds 199:20source 107:17sources 13:13,23

13:25 14:20southern 1:1 5:12speak 9:20 86:17special 199:3,14

199:16 201:13specialized 88:7specific 26:16,25

27:1 55:25 89:790:20 116:24

spell 80:4spend 123:2spending 9:7

122:16spent 199:1split 11:7,12,13,22

11:25 12:4,1216:5,7,13 18:924:13 26:14 27:1128:1 31:11 35:2,650:9 74:19,21

77:6 88:4 91:5,1091:11 92:10107:21 109:7140:5 163:4167:12 171:21175:8,10 179:19179:23 186:24

spoke 108:7spoken 111:17

114:23spotted 149:12spreadsheet 145:6staff 28:16stamp 61:22stan 199:5standard 125:20standpoint 45:16stanley 4:10 28:10

38:14 46:14 70:770:12,18,20 71:571:16,24 77:1182:4 100:8,23123:7,11,13197:13

start 28:1 35:4,1135:24 128:11135:16 136:8,12151:5 154:7 161:3173:1 187:15207:19

started 11:11,1411:14 12:1,16,2118:16,22 22:9,2327:25 35:23 36:164:24 89:1 91:1991:24 113:13132:4 135:13,19136:22 137:1,7,8137:12 145:20146:11 148:10,11148:14 149:6

154:15 155:7163:22 172:18187:18,19,21189:4 192:14,19193:21 194:19197:7,17 200:21201:18

starting 18:631:11 32:8 137:10

state 36:16 112:13115:16 123:10,16123:17

stated 37:3 80:17111:13 121:22123:12 210:5

statement 3:19,203:23,25 4:4,6,7,104:13,15 16:4,626:20 52:1,2358:6 60:5,8 61:1562:20 64:11,2066:5 70:5,8,2073:13,15,20,2174:8,12,14 108:4111:4 122:9,12

statements 11:2116:24 17:18 19:2228:24 29:1 67:672:13 77:8,11,1377:15,18 102:4108:3 110:18120:1 132:23

states 1:1 5:1297:20 105:5,16127:6 140:24

stating 127:17status 208:13stay 146:15staying 129:8stearns 4:7 8:19

28:10 38:14 46:13

[sipc - stearns] Page 34



64:11,20,22,2365:3,9,11,12,18,2065:25 66:14,17,2066:23 67:23 68:168:15 69:5 77:978:3 100:2,22123:6 147:7,10178:2 188:19189:11

step 29:6 74:1583:18 84:4

stephen 94:7stipulated 27:18

117:7stock 8:25 15:10

18:18 22:16 25:125:16,19 27:135:19 36:1,24,2548:6,15,16 49:366:17 68:9 83:1084:13 88:21 89:12105:25 113:16114:8,19 115:23116:2,4 117:15119:7 120:7 121:4121:5 133:2136:21 138:12,13138:15,21,24141:18 144:17149:14,15,20,23149:23 150:6152:11,17 155:12156:6,8 160:19,19160:20 166:2181:4 196:12,25

stocks 16:8 22:1827:13 110:24117:14 120:22,23190:8,20 195:6196:4,9,15,18,21

stop 11:12 101:4stopped 11:24

12:3,13 16:517:22 77:7 91:4109:6 120:6

story 143:21147:19 175:21200:24 201:24

straddles 188:10188:13,16,16,18189:3,5,12,18,19190:16

strange 199:20strategies 35:16

89:4 137:20,25188:3 191:23192:3

strategy 11:7,1511:18 18:1,8,9,2319:2 21:8 26:2327:7,9 34:20 35:135:5,6,8 36:8,1036:13,15 74:1388:7 108:25125:16 137:15139:17 152:7154:4 155:13157:16 168:20,21170:9 171:13172:13,16 173:8173:10,11,19,20173:24 175:5,10175:11,24 176:11176:13 177:3179:9,12 191:12191:18 193:8197:7,18,24

stratus 50:2street 65:14

140:10 145:14177:20 179:14

187:10 188:12195:20

strict 87:10strike 11:7,12,13

11:22,25 12:4,1216:6,7,13 18:924:13 26:14 27:1128:1 31:11 35:2,750:10 74:19,2177:6 88:4 91:5,1091:11 92:10107:21 109:7167:13 171:22175:8,10 179:20179:23 186:24

structured 45:10stuff 130:23

132:22 135:11191:7

stunned 115:8stupid 147:13

166:12 204:12suasion 203:22subcategory

116:24subject 130:2submitted 17:6substantial 134:15substantially

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181:19 183:4201:22

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sudden 144:11201:20

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sued 202:8suing 157:7sum 119:9summary 4:12

72:4supervisors 87:17

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surprise 202:2surprised 90:1surprising 90:13surrogate 201:16suspended 17:13

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55:19,19 57:18swept 54:8switch 11:11switzerland 7:11

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[stearns - system] Page 35



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tax 163:11 189:1189:17 190:15193:2,2

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42:2 54:1,12 56:257:1 63:12 74:1375:5 76:8 85:2493:14,18 104:8110:10,12 121:22127:2,4 143:16148:1 155:10165:2,18 170:25171:15 177:12178:10 180:5,10190:9,24 202:21207:7

telling 86:16 94:25163:24 171:8179:13,25 191:14

tells 200:24temporary 18:20ten 88:12 96:21

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tended 60:21term 19:15 63:16

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thank 39:1,2 62:2394:17 131:21141:8 157:5

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think 14:24 17:117:21,24 24:19,2132:20 42:4 47:364:4 65:13 70:1570:19 75:8 76:1478:20 82:10,1385:11,13 86:13,22109:1 110:16,19111:8 114:15119:20 121:6,11121:11 126:20,22133:16 135:10147:12 155:10164:20 173:22178:19 179:6180:9 181:9183:16,17 195:21197:13 205:15209:3,4

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thursday 35:12,23thursday's 36:23tick 104:19ticket 43:12 53:10

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tickets 3:17 38:22tie 169:4,15tieing 169:22tiletnick 54:22

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time 5:3,15 6:186:22,25 7:3,6 8:58:16 10:3,22 11:514:22,24 15:19,2417:24 18:7,1720:8 28:5 30:1032:1 36:11 37:21

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times 15:10,1424:6 31:24 60:20146:23 170:21198:22

today 5:3 92:9113:16 119:15132:8 147:12177:20 200:19207:18

told 34:15 56:682:24 84:23 89:18121:8 147:19,23149:5 164:6,16165:9,13 167:6168:14 179:4181:5,22

tomorrow 184:17207:19

tony 54:22 55:456:2,3 57:2 59:2060:17 63:25

top 94:22 95:7total 80:12 125:11

134:24totally 23:1 120:13

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town 190:17trace 112:16,16

125:19track 143:24,25

144:5tracked 145:7trade 3:17 36:19

36:21,23,23 37:1438:22 39:6 40:1741:4 48:7,8,12,1966:18 67:24,2473:17 74:19 83:1384:25 85:2,4,6,1385:14 87:14 97:1103:2,6,10,11104:19 105:2109:2 111:22112:8,9 113:24118:23,23,24120:13 131:15139:7 141:5 144:2144:16,19 145:14147:16,25,25148:2,6 150:25152:20 156:19159:5 167:24169:12,16 172:23173:1 174:2 176:9176:19 177:25179:1,2 200:6

traded 36:24 65:565:13 83:21 113:9140:7,20 144:9161:16

trader 39:16 42:1643:19 86:19 87:2488:19,20 125:2142:6,16 151:4154:15 179:13187:10

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trades 10:12,1914:9,14 24:1338:5 40:13,18,2141:5 65:6,2467:22 71:23 82:492:10,17,20 93:20104:8 107:7108:24 139:22141:6 158:17168:7 171:13,22177:1 178:25180:23 181:18182:12,14 183:2,6183:7,19 185:20186:18,21 187:2,6187:7,12,23188:12 203:19

trading 15:17 23:329:22 43:13 47:1448:1,4,14,20,21,2448:25 50:4,13,2350:24 52:6 66:2567:2 68:2 69:1270:1 74:13 75:784:2,5,12 85:2287:12,16,20 88:1,5

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transacted 64:2264:23 97:21

transaction 34:135:17 37:6,9,1041:7 43:10 45:1374:21 120:4144:22 151:9163:3,15 172:7178:22 179:16192:22

transactions 32:837:5 66:11 85:2491:9,11,18 97:6,2298:5,6 101:7103:14 104:10,11104:21,22 105:4111:6 112:19116:8 120:1121:25 122:2123:2 163:10

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transcript 210:9transcripts 93:12transfer 7:4transferred 51:5

101:13 127:22transferring

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112:23 119:15travel 7:7treasuries 21:12

28:1,6,14 29:2044:15 57:14,16,1871:17,19 72:15101:18,21

treasury 18:2519:9,11,23 21:2124:16 28:21 29:829:10,15 38:1239:21 41:17,2043:13,13,25 44:944:18 46:4,10,2146:25 47:5 57:165:22,23 66:2467:4,6 70:13 71:572:6,14,18 73:2,2277:4,19 100:21102:1,5 167:17

treat 162:25treatable 36:9treating 36:8

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122:13,14,16,21

tried 31:24trillion 65:13trouble 209:7true 8:20 9:1,4

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trust 32:16,1799:17 199:19201:3 204:22,24

trusted 200:17trustee 2:10 5:23

6:3,5 11:2 12:2037:20 38:3,7 42:142:11 49:14 67:1670:12 84:20 85:16106:23 107:2,6,10108:6,6,12,13119:22,22 121:7122:19,24 133:1168:15,18 204:23207:10

trustee's 106:25108:18

truth 10:1try 9:9,15 118:18

126:23,23trying 36:17 70:9

85:19 104:16114:25 119:12,19142:23 155:8167:4 199:2

tuesday 35:12turn 52:25 94:21

110:5 193:16201:3

turned 56:10164:21 191:15208:16

turning 9:17 31:22turret 69:18twenty 64:13,14

64:15,18 95:6two 20:15 28:9

38:23 43:2 53:1,256:13 58:4 61:962:19 64:14,15,1866:23 95:1,9,1098:23 99:24 102:8110:6 117:11128:25 138:23,25169:16 172:23,25173:4,24 178:2,17194:2 200:8208:15

type 22:22 86:1489:16 136:23137:6 139:15168:24 203:24

types 32:11 69:2385:23 139:17

typical 15:6 25:1233:4,23 36:772:14 89:24 90:990:13 106:2152:24 192:24

typically 15:1725:4 35:3,1340:14,25 41:1157:14,19 72:1278:8,19 83:17,21105:3 106:8 117:4128:14 141:4,13141:21 144:10152:14,21 158:25161:14 167:16172:24 173:10185:5,21

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u

u.s. 9:24 28:6 56:973:22 96:14120:21 121:1191:19

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53:7,13 55:956:16,18 59:1,7,1160:16 61:8 62:2,662:11 63:3,6 64:966:13 68:8 69:1570:21 71:6 72:973:14,19 74:179:16 86:6 93:1694:24 99:10,19100:1,5,15,24101:15 102:22103:8 107:20110:4,7 133:15135:9 138:4195:14,18 207:20

unable 30:11unbrokered 33:1underneath 101:3understand 8:8

29:5 52:9 85:1886:9,22 87:3 90:8115:3,5,9 118:22119:6,8 127:19129:7,20 132:12134:10 135:7140:21 156:9172:6,7,20 173:17192:2 202:25

understanding17:23 36:12 120:5

understood 24:2236:15 90:12172:19 173:9178:21,22

unfortunately182:1 204:20

unhappy 113:11unhealthy 206:15union 96:19

171:16 172:8unique 36:5

125:19unit 158:4united 1:1 5:11

97:20 105:5,16203:12

units 139:13 140:3unknown 175:11unlimited 16:1,12unsure 92:13unwind 144:22

151:9 192:3,5,6193:19,19 202:10203:20

upper 100:13upset 165:12usao 43:8,19use 14:17 25:24

29:15 34:20 35:1636:22 51:18 56:673:17 83:12 101:6125:18 139:17143:13 156:19,25158:25 159:7,24160:2,14 189:18196:25 203:22

usual 210:16usually 27:3 33:4

101:18 125:5158:2

v

valid 90:19value 8:25 16:20vanilla 172:16

varied 80:15varies 104:7various 32:2

140:15 160:11163:1

vast 111:5vault 33:18vaults 33:17veritext 5:2,18versus 5:9 21:21videographer 3:2

5:1 57:24 58:3,858:11 76:22,2582:14 125:25126:3 194:12,15209:15

videotaped 1:16view 17:16violation 17:1,4,12

18:17,18 182:22virtually 179:13virtue 12:22visit 179:3voice 6:8volatility 186:7,9volume 1:17 37:12

37:13,15,17,18103:10 104:17110:18 112:18,20113:15 114:9115:24 116:2,4117:23 118:2,9,11118:13 140:2179:18 185:3186:11

volumes 102:15,19118:10 184:8

vs 1:7

w

wait 144:17 151:7172:6 174:17,18184:12 189:21

waited 200:7,9waiting 174:3walked 205:9wall 65:14 140:10

145:14 177:20179:14 187:10188:11 195:20,21

walls 87:25walter 64:3want 6:17 7:15

9:19,21 10:8,1011:20 17:23 25:1438:23 48:18 52:352:11 56:6 57:2175:17 76:3,4,16,1779:19 80:7 82:1891:7 92:8 106:11106:11 113:23118:25 119:1126:7 127:25129:8 131:23132:5,22 136:6,21137:3 142:15143:1,12,23,25145:14 146:6147:1,24,25 148:2148:3,4,5 151:3,10165:19 166:14,14166:18,18,20,20175:9 177:2,10,10177:24 178:6,8,12178:15 181:1184:15,19 186:6188:1 190:13,14190:15,17 191:7,9193:5 194:2,8,9200:2 202:5

[u.s. - want] Page 39



203:14,23 204:1206:22,22 207:6

wanted 44:2545:17 50:18 67:377:3,21 79:386:11,17 119:23119:23,24 121:3121:12 122:19132:6 136:7 147:4170:9 172:12180:20 185:2192:22,23,24195:23 199:8202:16 206:8

wants 113:21118:20 157:9

warrant 158:4warrants 139:9,13

140:3watching 149:13waterhouse 80:1

204:16way 7:12 15:6

22:1 33:24 82:2192:19 98:15 104:7104:20 113:21115:2 119:13121:11 122:9128:5 132:6149:23,24 150:13150:15 181:21200:18,19 210:10

ways 191:2we've 39:11

184:16 193:11204:13

wealthy 9:3 162:9website 111:3wednesday 35:12week 31:5,8

went 19:4 24:7,2040:13 41:5 67:2590:6 97:6 98:6,9104:25 112:25129:11,15,18130:10,15 136:10142:1,2,7,23144:11 145:2,23147:8,8,10,14163:21 182:4199:21 201:18203:3,7,12 205:8

whistleblower179:8

wholesale 154:22wholesaler 65:7widely 171:9wife 7:11 65:20

209:4,8willing 148:6wilpon 209:11wind 180:11windfall 203:2window 158:22winner 119:10witness 3:8 5:14

5:19 6:6,17 51:2051:22,24 52:9,1452:17 53:7 64:970:21 74:18 75:2175:23 76:1,5,9,1176:21 77:10 80:582:21 96:2 101:5101:9 126:23127:1,5 153:10154:9,12 157:18171:7,20 176:7184:4,6 205:7,12205:14,17,25206:20 208:3,8209:12

witnesses 122:22woe 147:23wonder 99:7wondering 70:6word 14:17 199:17

199:24 200:16201:9

words 50:9 83:787:9 104:17 106:1107:22 130:18,22131:2 136:22138:12 140:24141:4,6,21 149:17150:23 151:8155:20 167:7202:19

work 9:9 11:1742:24 44:4 89:22141:23 142:5162:10 190:8194:25 195:2

worked 43:5 90:9155:9

working 11:1918:15 38:3,7114:22 142:10158:14

works 150:14156:9 172:7

world's 117:18171:17

worried 22:11193:25 204:11207:3

worry 193:15,23204:7

worth 83:20 127:9136:2 138:12

wound 36:1wrapper 172:17

write 83:8 115:14116:5

writes 116:12,15117:10

writing 77:7122:25

written 94:7111:11 199:25200:11 202:9207:4 210:7,12

wrong 99:3,5131:6 155:11166:11 173:3,21173:23 186:15

wrote 115:14171:10

y

yahoo 117:22yeah 22:3 29:4

42:7 47:25 49:1551:2 52:5 53:3,1356:20 66:8,867:10,11 68:2371:13 75:21 76:2093:23 94:17100:19 102:25103:21 104:6110:16 123:11,17125:18 126:11127:4 130:13,24131:23 132:12133:6,19 134:4138:9,10 139:8,11141:9 148:25152:3,14,25 153:2153:21 154:6,10155:19 158:19160:16,22 161:19163:18,18,18165:10 171:2,5174:11 175:3,18

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year 60:20 65:1165:13 100:11108:11 173:14176:2,3 181:7191:5 194:22,23208:1,21

yearly 71:14years 33:19 44:23

64:25 84:22 90:11102:14 112:24119:16 120:18122:16 135:20193:12 200:13206:1

yell 157:9yesterday's 183:4

183:6,14york 1:1 2:6,6,15

2:15,22 5:1323:13,14,24 24:824:20 25:8,1032:17 41:1,1266:16 78:17,1999:12 113:15114:8,19 115:23116:2,4 165:23

young 143:11194:9

younger 206:24,24

z

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[yeah - zero] Page 41



Federal Rules of Civil Procedure

Rule 30

(e) Review By the Witness; Changes.

(1) Review; Statement of Changes. On request by the

deponent or a party before the deposition is

completed, the deponent must be allowed 30 days

after being notified by the officer that the

transcript or recording is available in which:

(A) to review the transcript or recording; and

(B) if there are changes in form or substance, to

sign a statement listing the changes and the

reasons for making them.

(2) Changes Indicated in the Officer's Certificate.

The officer must note in the certificate prescribed

by Rule 30(f)(1) whether a review was requested

and, if so, must attach any changes the deponent

makes during the 30-day period.

DISCLAIMER: THE FOREGOING FEDERAL PROCEDURE RULES

ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY.

THE ABOVE RULES ARE CURRENT AS OF SEPTEMBER 1,

2016. PLEASE REFER TO THE APPLICABLE FEDERAL RULES

OF CIVIL PROCEDURE FOR UP-TO-DATE INFORMATION.


VERITEXT LEGAL SOLUTIONS

COMPANY CERTIFICATE AND DISCLOSURE STATEMENT

Veritext Legal Solutions represents that the

foregoing transcript is a true, correct and complete

transcript of the colloquies, questions and answers

as submitted by the court reporter. Veritext Legal

Solutions further represents that the attached

exhibits, if any, are true, correct and complete

documents as submitted by the court reporter and/or

attorneys in relation to this deposition and that

the documents were processed in accordance with

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Exhibit B

08-01789-smb Doc 18151-2 Filed 11/01/18 Entered 11/01/18 18:04:08 Exhibit B Pg 1 of 212

1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

23

In re: )4 )



)7 vs. ) 08-01789 (SMB)



Defendant. )10 )

)11 In Re: )


)13 Debtor. )

)141516 Videotaped Deposition of BERNARD L.17 MADOFF, VOLUME II, taken on behalf of the Customers,18 before K. Denise Neal, Registered Professional19 Reporter and Notary Public, at the Federal20 Correctional Institution, 3000 Old Highway 75,21 Butner, North Carolina, on the 27th day of April,22 2017, commencing at 9:11 a.m.232425 * * * * *

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1 APPEARANCES OF COUNSEL:2 On Behalf of the Customers:3 HELEN DAVIS CHAITMAN, Esq.4 Chaitman, LLP5 465 Park Avenue6 New York, New York 100227 (908) 303-45688 [email protected] On Behalf of the Trustee:11 DAVID J. SHEEHAN, Esq.12 AMANDA E. FEIN, Esq.13 Baker Hostetler14 45 Rockefeller Plaza15 New York, New York 10111-010016 (212) 589-462117 [email protected] On Behalf of the Deponent:20 PETER A. GOLDMAN, Esq.21 12 Fairlawn Parkway22 Rye Brook, New York 1057323 (914) 935-685724 [email protected]

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1 APPEARANCES OF COUNSEL:2 Videographer:3 Ken Morrison, CLVS45 * * * * *67 CONTENTS8 THE WITNESS: BERNARD L. MADOFF EXAMINATION9 BY MR. SHEEHAN 21610 BY MS. CHAITMAN 36811 BY MR. SHEEHAN 3811213 * * * * *1415 INDEX OF EXHIBITS16 FOR THE TRUSTEE: PAGE17 Exhibit 1, Customer statements 23018 Exhibit 2, Customer statements 23419 Exhibit 3, Copies of Rolodex cards 26120 Exhibit 4, Customer statement - 8-7-84 29921 Exhibit 5, Customer statement 30522 Exhibit 6, Customer statements 31023 Exhibit 7, Focus reports - 1984 3332425

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1 INDEX OF EXHIBITS (Continued)2 FOR THE TRUSTEE: PAGE3 Exhibit 8, MC Disbursements notes 3414 Exhibit 9, MC Disbursements account 3485 statements67 * * * * *8910111213141516171819202122232425

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1 THE VIDEOGRAPHER: This is Volume II of2 the deposition of Bernard L. Madoff. My name is Ken3 Morrison representing Veritext Legal Solutions. The4 date today is April 27th, 2017 and the time is5 9:11 a.m. This deposition is being held at Butner6 Federal Correctional Facility located at 3000 Old 757 Highway, Butner, North Carolina 27509 and is being8 taken by counsel for the Customers and Trustees.9 The caption of this case is Securities10 Investor Protection Corporation, Plaintiff-Applicant11 versus Bernard L. Madoff Investment Securities, LLC,12 Defendant. This case is being held in the United13 States Bankruptcy Court, Southern District of New14 York, Number 08-01789 (SMB).15 At this time would attorneys please16 identify themselves and whom they represent and the17 witness is still under oath.18 MS. CHAITMAN: Helen Davis Chaitman on19 behalf of numerous former customers.20 MR. GOLDMAN: Peter A. Goldman on behalf21 of Bernard Madoff.22 MR. SHEEHAN: David Sheehan, Baker23 Hostetler, for the Trustee.24 MS. FEIN: Amanda Fein, Baker Hostetler,25 for the Trustee.

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1 BERNARD L. MADOFF,2 having been previously sworn, was further examined3 and testified as follows:4 FURTHER EXAMINATION5 BY MR. SHEEHAN:6 Q. Good morning, Mr. Madoff. How are you7 today?8 A. I'm good.9 Q. Good. I want to just put something on the10 record because Helen was so strict with it yesterday11 and I agree with it, that the judge entered an order12 we're not supposed to mention certain people's13 names, and we were pretty good about that yesterday.14 I intend to follow it here today.15 A. Uh-huh.16 Q. In fact, I may show you some documents that17 I've redacted, but we're not going to get into the18 person involved --19 A. Okay.20 Q. -- because I expect just as you did21 yesterday, Helen, I want to strictly adhere to that22 order. All right. So just want to put that on the23 record, and you'll see the documents when we get24 there. Just to put things in a little context, I'm25 about to show you some statements, but before I do

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1 that -- in fact, some that you've seen before from2 Mr. Blecker; but before we do that I want to go back3 to a little bit of where we were yesterday because I4 had the chance to review yesterday's transcript and5 just to clarify a few things about the convertible6 arbitrage strategy.7 A. Uh-huh.8 Q. All right. One of the things that would be9 helpful is this -- is that it may be better with my10 putting it would have been, when would you receive11 cash in lieu of fractional shares?12 A. Actually, you know, I can't really tell you13 because I didn't handle the operations side of the14 business. So, you know, I don't know when that was15 -- when that was done.16 Q. But would it be fair to say that there is17 no fractional share until you sell the convertible18 security?19 A. Well, it depends upon -- you know, it20 depends upon whether it's actually converted,21 whether -- whether it's just unwound or whether it's22 swapped. In other words, the strategies don't23 necessarily involve physically converting it where24 you would get a fractional share. There were times25 that the strategy is unwound where you're just

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1 closing out the long and short position for the2 customer either through the open market or you swap3 it with another dealer and just swap -- swap the4 position. So it's only if you were actually5 converting it would you get the fractional share.6 Q. Okay. Thank you. The strategy of a7 discount convertible --8 A. Uh-huh.9 Q. -- is that scalable? And what I mean by10 scalable is that you can take it from like ten11 customers and then expand it to a thousand?12 MS. CHAITMAN: Objection to form.13 THE WITNESS: When you say scale it, you14 mean -- I'm not sure what I understand what you're15 talking about.16 Q. (By Mr. Sheehan) Okay. Well, let's try17 the reverse and under Helen's objection over there.18 How would you define scalable?19 A. Well, you're not scaling. If you're -- if20 you're going to -- whatever you're buying, that's21 the most that you can actually break up. So if you22 bought 100 bonds, you may break that up for23 argument's sake into five customers. You're not24 scaling it. You're not -- you're not increasing,25 you know, the trade other than what you actually

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1 bought.2 Q. What I was focusing on was your comment3 yesterday when you referred to discount convertibles4 as freaks. Are there enough of those, I guess, is5 what I'm asking? Are there enough of those that you6 could expand and sell a lot of those?7 MS. CHAITMAN: Objection to form.8 THE WITNESS: Well, clearly as I said9 yesterday, the most -- most convertibles should be10 trading at a premium because in theory you would not11 -- you would not buy -- if you're a client, you had12 a choice of buying the -- you know, the convertible13 bond or buying the stock, if you can buy the14 convertible bond at a discount, then you would15 always want to buy the -- even if you weren't going16 to sell the stock.17 In other words, if you had a choice, do I18 want -- I like this company. Do I want to buy, you19 know, the stock or do I want to buy -- and it could20 also had a convertible bond also and you could buy21 the convertible bond, which would theoretically give22 you the right to exchange that for stock, it would23 be foolish, you know, to not buy the bond because24 the bond gives you the protection of the coupon. So25 but there are times like anything else that bonds,

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1 you know, do trade at discounts, you know. It2 depends upon people, you know, you know, they make3 that decision up; but, I mean, the fact is that4 convertible bonds sometimes trade at discounts,5 sometimes trade at premiums, but clearly more of6 them would trade at premiums than at discounts. It7 also, by the way, depends upon whether you leg into8 a trade.9 In other words, it's a fallacy to think10 that you're buying the convertible bond, you know,11 at 10:00 o'clock in the morning and you're selling12 the stock at 10:00 o'clock in the morning. It's not13 a simultaneous transaction. Most trading that's14 done in convertible securities I explained yesterday15 is legging into it.16 You're making a decision as to what the17 market is going to do at the time. That's why it's18 imperative that you have volatility. So and19 depending upon whether you think the market is going20 up or the market is going down, that's -- you would21 start one leg versus the other leg.22 Q. Following up on legging in, was it your23 normal practice to buy the convertible security on24 one day and not buy the short on the same day?25 A. Not sell the short you mean?

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1 Q. Not sell the short. Not sell the short on2 the same day?3 MS. CHAITMAN: Objection to form.4 THE WITNESS: Sometimes yes, sometimes no.5 It depends upon what was available.6 Q. (By Mr. Sheehan) If you bought the -- or7 sold the short the next day or day after --8 A. Uh-huh.9 Q. -- would that increase your risk?10 MS. CHAITMAN: Objection to form.11 THE WITNESS: Would it increase your risk?12 Yes, of course.13 Q. (By Mr. Sheehan) And why would that be?14 A. Because you -- if the market collapsed, you15 know, and the bond would go down, you wouldn't have16 anything on the short side of the market to hedge17 yourself with.18 Q. All right. Okay. I believe that on19 December 20th you used this term, but what's the20 term VWAP stand for?21 A. VWAP is volume-weighted average price.22 That's when a firm puts in a lot -- basically, it23 would be an institutional order where they decide24 they want to buy 100,000 shares or sell 100,00025 shares.

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1 They give their order to a broker, you2 know, and say I want a volume-weighted average3 price. And the brokers, the fellow on the floor,4 typically the floor broker would -- would sell that5 out at his discretion over the course of the day.6 And they -- they're competing against what7 the volume-weighted average price, you know, of that8 security sold during the day. We didn't do any9 volume. We didn't do any VWAP orders basically.10 Q. Okay. I wrote this down so I'd get it11 right, so here it comes. Would it be your12 expectation that prices you were able to get on13 purchases of the convertible and sales of the common14 would be more favorable, less favorable or15 approximately equal to VWAP in those securities?16 MS. CHAITMAN: Objection to form.17 THE WITNESS: To VWAP?18 Q. (By Mr. Sheehan) Yeah. To VWAP.19 A. We didn't -- our general rule was we never20 did handle VWAP orders.21 Q. All right. Did you ever apply a VWAP22 analysis to your trading?23 A. No. Other -- I mean, the funds would --24 might do that or some of our wholesale customers25 would do that. We developed a system called time

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1 slicing, which was -- had never been done before.2 We built a system that we would -- someone would3 give us a -- this was not part of basically an4 arbitrage strategy.5 There would be someone like Fidelity would6 give us an order to sell 100,000 shares of stock.7 And what we would do is we built a system, my sons8 built a system where the order would be 100,0009 shares would go into our technology platform and it10 would -- they would say to us we want to sell this11 hundred thousand shares over a period of12 three-minute intervals.13 It would go into the system. We would14 program the order into the system and every three15 minutes part of that order would come down into our16 system and be -- go against our market makers'17 quotes. And the average -- and the same strategy as18 a VWAP, only it turns out that the -- instead of the19 floor broker controlling the order, when to execute20 the order, it would be the client who put the order21 in like Fidelity were doing it.22 It became very popular to do that because23 it always for the general rule, you know,24 outperformed the VWAP on the floor. And that was25 the system that we had to get the approval of the

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1 SEC to build that system.2 Q. Uh-huh, thank you.3 A. It's called time slicing.4 MR. SHEEHAN: Let's get out the first5 exhibit.6 MS. FEIN: This was marked in the last7 deposition as 14.8 MS. CHAITMAN: Thank you.9 Q. (By Mr. Sheehan) Yeah. Mr. Madoff, you've10 just been handed an exhibit that was previously11 marked on December 20th, 2016 as Exhibit Number 14.12 It purports to be a 6-30-86 statement for an Arthur13 Blecker?14 A. Right.15 Q. Okay. Just take your time and look at that16 and then we're going to ask you a few questions;17 okay? Okay?18 A. Okay.19 Q. Okay. Directing your attention to the20 first entry at 6-30, 610 long 1501, do you see that?21 A. Yes.22 Q. What do you understand that entry to be?23 A. It looks like a purchase of -- on 6-03 of24 1501 shares of Interco 46.25 Q. Okay. What's right underneath it? It says

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1 preferred. What is that referring to? Do you see2 that?3 A. Preferred?4 Q. Uh-huh. Preferred, sir.5 A. Oh, that's just the -- it says preferred6 convertible, preferred series D convertible.7 Q. Right. So then go down to --8 A. That's the full name of -- of the --9 Q. Okay, fine.10 A. Uh-huh.11 Q. Then there's two further items down that12 are both 6-5 --13 A. Right.14 Q. -- to 6-12. Could you tell us what those15 two entries are?16 A. Those look like sales on the 12th at -- of17 the common stock.18 Q. Okay. Now, it appears there's several days19 difference --20 A. Uh-huh.21 Q. -- between the purchase of the convertible22 security and the sale of the short?23 A. Right.24 Q. Is that something that would commonly25 occur?

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1 A. Yes.2 Q. And why is that?3 A. That's part of the legging transaction.4 Obviously, you know, we bought the bond and then we5 anticipated the stock going higher. So we waited6 two days to sell the stock. You're at risk during7 those two days that it's open --8 Q. Okay.9 A. -- but that's what we just discussed;10 right?11 Q. Right, okay. If you go on down, there's12 another entry on 6-12 to 6-25. Do you see that,13 Interco, Inc.?14 A. Uh-huh.15 Q. And it says fractional shares?16 A. Right.17 Q. Do you see that?18 A. Yes.19 Q. And it has a credit for it looks like20 $14.18?21 A. Right.22 Q. Do you see that?23 A. Uh-huh.24 Q. When do fractional shares occur?25 A. Well, I would assume it is -- I assume that

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1 it would come when it was converted.2 Q. I see. But if you go down to the bottom --3 A. Uh-huh.4 Q. -- and the positions, isn't the preferred5 still being held by you?6 A. It's hard for me to read this thing.7 It's --8 Q. It's the same entry?9 A. Yeah, yeah.10 Q. All right.11 A. Yes.12 Q. Okay. So how could you have an entry for13 fractional shares if you haven't sold it?14 A. If we haven't sold it?15 Q. Yeah, or you haven't converted it. I'm16 sorry. You haven't converted the convertible17 security. How could you have a fractional share?18 A. I can't give you the answer to that because19 I don't know what the procedure was. That's an20 operations department procedure of what -- of how21 they handled the fractional shares.22 Q. One last question or maybe a couple more23 questions. See at the beginning of the debit column24 the price is 277 and change? See that?25 A. Uh-huh.

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1 Q. And then down at the bottom it's still2 showing it at 277 at the end of the --3 A. The last positions are mark to market. At4 the end, those positions at the bottom are the5 current market price at that time. It wouldn't6 necessarily reflect what the market was at the time7 this trades. In other words, they're now -- it's8 showing that this is a -- that this is a long9 position and a short position at what the market10 price was at the end of the -- at the end of the11 month.12 Q. Isn't it unusual that the trade and the --13 A. No.14 Q. -- mark to market be the same?15 A. No.16 Q. No?17 A. It depends upon what the market is. If the18 stock didn't change, you know, I mean, you're19 talking about, you know, what the price of the stock20 is at the end of the month as opposed to, you know,21 when it was purchased, you know, on 6-5. So you're22 talking about, you know, the three-week period of23 time.24 Q. Who operationally would have handled this25 trade?

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1 A. The operation department?2 Q. Yeah.3 A. Well, depends upon when it was done. If it4 was done in 1986, it would typically be probably5 Annette's department. One of the -- I don't know6 who would -- physically would have been doing it.7 Q. Okay. Annette or someone working for her?8 A. Someone, you know, on that -- you know, in9 that area.10 MR. SHEEHAN: Okay. Let's go -- I don't11 know that we've marked the next one. Have we? So12 let's mark it now. What's that?13 MS. FEIN: Should we do it as Trustee 1 or14 do I --15 MR. SHEEHAN: Yeah. We're going to do16 Trustee 1. Okay, Ellen? We're going to go Trustee17 1.18 MS. CHAITMAN: Yeah. That's fine.19 Whatever you want to do.20 MS. FEIN: Just two pages.21 MR. SHEEHAN: That's fine. Why don't we22 do this? Why don't you mark them all together?23 MS. FEIN: Yeah.24 THE WITNESS: Is it warm in here now?25 Much warmer than today -- yesterday.

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1 MS. FEIN: Yesterday was freezing.2 THE WITNESS: I put on this shirt3 underneath it because I was so cold yesterday.4 MR. SHEEHAN: Mark all of these. That's5 Trustee 1. This is going to be Trustee 2.6 MS. FEIN: That will be Trustee 1.7 MR. SHEEHAN: How should we mark this?8 MS. FEIN: Trustee 1.9 (Trustee Exhibit Number 1 was marked for10 identification.)11 Q. (By Mr. Sheehan) Okay, yeah. All right.12 We're good. I apologize. Take a look at Trustee 1.13 This actually consists of two pages. Do you see14 that?15 A. Uh-huh.16 Q. Okay. Looking at the first page, could you17 -- have you had a chance to look at it?18 A. Yeah.19 Q. Okay. If you look down at the -- this is20 now for the following month. It's July 31, the end21 of the month '86. Do you see that?22 A. Right.23 Q. All right. It's again Mr. Blecker's24 account?25 A. Uh-huh.

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1 Q. And what is it showing as the end positions2 there?3 A. Right.4 Q. What are they showing?5 A. It's showing him long Interco convertible6 preferred and short the common stock.7 Q. So what does that mean to you?8 A. What does it mean to me?9 Q. Yeah.10 A. He's still -- he still owns this -- the11 bond and he sold short the stock.12 Q. And that is -- so he --13 A. The position is still open, in other words.14 Q. Still open from early June?15 A. From when it was -- yes.16 Q. All right. Do you see under the debit17 column again the amount of 277,309.75?18 A. Uh-huh, right.19 Q. Is that not supposed to be mark to market20 there?21 A. It would be the market, I'm assuming, you22 know.23 Q. So the market never changed from that24 price?25 A. It's possible.

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1 Q. Okay. Let's go to the second page if we2 could. Oh, what's that? It's a double-sided page3 on mine.4 MR. GOLDMAN: For you.5 MR. SHEEHAN: Yeah. Not for you, though.6 Q. (By Mr. Sheehan) Okay. So let's take a7 look at that. Could you take a look at the top and8 tell us what you understand this statement to be?9 A. It shows the same types of securities,10 Interco preferred, convertible preferred, and then11 there's receive and delivery of the positions.12 Q. Uh-huh, okay. Did a conversion take place13 here?14 A. I have no idea. It was either converted or15 it was -- it was unwound or swapped. I can't see16 whether it was -- if it was unwound, it would have17 been -- it would have been actual prices that would18 appear. I mean, I'm having a hard time reading this19 thing.20 Q. Yes.21 A. But it would either be unwound or could22 have been -- it could have been swapped. They could23 have exchanged the positions to close them out24 without going into the open market. We can swap25 them with another dealer or we can swap them with a

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1 bank and so on.2 Q. Can you explain on the first statement that3 we looked at that was -- it was number 14. It4 showed that there was a -- the fractional shares are5 shown there?6 A. Right.7 Q. Can you explain why those appeared six8 weeks before?9 A. I told you I'm not sure how they handled10 the fractional -- the fractional shares. They11 might -- for all I know is they might because12 they're planning to convert it and they know they're13 going to get a fractional share, they credit the14 account with the fractional share.15 I'm not familiar with the operations side16 of the business, so I don't know how they physically17 handle that. And also how they might have handled18 it in 1986 might be different than how they handled19 it, you know, at a later date because there were20 different operations people and we had different21 systems.22 Q. I guess the question I have is how would23 you get the price and the fractional share six weeks24 before you converted it?25 A. It depends upon whether -- I don't know how

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1 they handled the fractional shares. So they might2 be getting -- they value the fractional share and3 what the price was at that time or, you know, I4 don't know how they determined that.5 Q. Okay. The next document, this is a6 different, TRW?7 MS. FEIN: Uh-huh.8 MR. SHEEHAN: Okay. We're going to skip9 it, try to get Pete out of here early.10 MS. CHAITMAN: We're skipping 9-30-86? Is11 that what you're doing?12 MR. SHEEHAN: Yeah.13 MS. CHAITMAN: Okay.14 MR. SHEEHAN: All right. We don't need --15 MS. CHAITMAN: There was a reference on16 the record that this was a two-page document, but17 it's much longer.18 MR. SHEEHAN: Yeah, yeah. And I19 apologize.20 MS. CHAITMAN: No. Okay. I just wanted21 to --22 MR. SHEEHAN: It is indeed five pages.23 MS. CHAITMAN: Okay.24 MR. SHEEHAN: Okay. Sorry about that.25 (Trustee Exhibit Number 2 was marked for

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1 identification.)2 MR. SHEEHAN: Put on the record what we're3 doing; okay?4 MS. FEIN: I'm marking as Exhibit 2 a5 couple of consecutive customer statements, six6 pages, the first page MF 00367785.7 Q. (By Mr. Sheehan) I'll let you know for the8 record that this is actually a six-page document.9 A. Uh-huh.10 Q. And take your time looking. You can look11 at the first page, all the pages now, and just let12 me know when you're ready; okay?13 A. Okay. All right.14 Q. So directing your attention to -- or15 perhaps we should identify it first. This purports16 to be a June 30, 1983 customer statement of Leonard17 Alpern?18 A. Uh-huh.19 Q. And I'm directing your attention to the20 entry 6-7, 6-14, Bancorp Hawaii, Inc. Do you see21 that?22 A. Yeah.23 Q. What do you understand that entry to24 represent?25 A. You're talking about the journal, where it

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1 says journal?2 Q. No. It's --3 A. You're talking about above that, the 6-7?4 Q. 6-7, 6-14.5 A. Okay. It looks to me like the purchase of6 a convertible bond.7 Q. Well, before that, though --8 A. Oh.9 Q. -- the 220, the short position?10 A. Okay, yeah.11 Q. What's that?12 A. Looks like a sale of 220 shares of Bancorp13 common at 27.14 Q. And then on that same day just below that,15 another short. What's that?16 A. Same thing, stock at different price for a17 larger amount of stock, 4,331 shares at 27.18 Q. And then on 6-8 --19 A. Uh-huh.20 Q. -- there's a purchase there --21 A. Right.22 Q. -- of a long position. What's that?23 A. That's the purchase of the -- of the24 convertible.25 Q. Is that consistent with the convertible

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1 arbitrage strategy to sell the short before you buy2 the convertible security?3 A. Yeah. As I said, it depends upon what4 direction you think the market is going to go.5 Sometimes we would sell the stock before we bought6 the bond, you know, and sometimes we'd buy the bond7 first. That's a common practice in convertible8 bonds, verbal trading.9 Q. So when you buy and sell the short first,10 you're at risk; are you not?11 A. Yes.12 MR. SHEEHAN: Okay.13 MS. CHAITMAN: Objection to form. I think14 you meant buy the -- didn't you mean --15 MR. SHEEHAN: No. You sell the short.16 MS. CHAITMAN: Oh, okay.17 THE WITNESS: These are not ever18 considered riskless trades, by the way, these types19 of trading. The client is well aware of the fact,20 you know, how the strategy works. That's legging.21 That's the reason you can do these trades for the22 most part successfully.23 It is not -- you know, it is -- it would24 be very, very difficult to have a simultaneous25 transaction in a convertible security and generate

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1 the kind of returns that we're anticipating, that2 the strategy is designed for. So that's where the3 skill of trading comes in and everybody that -- that4 was sophisticated enough, theoretically every client5 should have been, you know, the strategy was aware6 of the fact. That's why the strategy made sense.7 Q. (By Mr. Sheehan) Isn't the -- I'll put8 this the correct way. If you sell -- buy the9 convertible security and it's at discount and you10 sell the stock short the same day, all right?11 A. Right.12 Q. Isn't that a risk-free transaction?13 A. No, because depends upon what time, if you14 may have bought the bond at 10:00 o'clock in the15 morning and sold the stock at 2:30 in the afternoon.16 Q. What if you did it simultaneously?17 A. If you did it simultaneously --18 Q. Yes.19 A. -- it wouldn't be a risk providing you20 bought it at a discount.21 Q. Right, okay. Why wouldn't you always do22 that then?23 A. Because it might have -- the market24 wouldn't allow you to do that. It wasn't available.25 Q. All right. One thing I noticed is that

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1 going back again to the sales of the shorts, do you2 see the two entries?3 A. Uh-huh.4 Q. There are two different prices. Do you see5 that?6 A. Yeah.7 Q. Why didn't you average them?8 A. Because this -- this transaction, you know,9 again, depending upon whether this order was part of10 a larger -- of a larger order or not. I can't tell,11 in other words. This might have been a stand-alone12 order. In other words, there may have not been13 other customers involved in this transaction or we14 may have been -- you know, may have been able to buy15 it all at the same price.16 Q. As I understand, your criticism of Mr.17 Dubinsky is that he didn't understand you were18 average pricing; is that correct?19 A. It depends upon whether you're talking20 about the split strike or whether you're talking21 about the convertibles and it depends upon when you22 were doing and what individual order.23 Q. Let's take that piece at a time. Why would24 it be different between split strike and convertible25 arbitrage?

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1 A. Because of the size of the -- the size of2 the orders, the size of the order that we were3 executing, the number of clients involved in the4 transaction.5 Q. So the larger the order, what would happen?6 A. The more you would spread it out over a7 period of days and buy it -- or even if you did it8 in the same day, you're buying it, you know, from9 different brokers at different prices. You go into10 the market to buy a thousand shares. You may be11 able to go -- to buy all at the same price or you12 may have to buy it at different prices from the same13 broker or from different brokers.14 Q. All right. And if you were doing the15 convertible arbitrage strategy?16 A. Do the same thing.17 Q. Same thing. Okay. Since we're going to18 end up going through all these, I'm just going to19 direct your attention to the bottom of the page20 again.21 A. Uh-huh.22 Q. And it shows the end positions. Do you see23 that?24 A. Right.25 Q. Could you tell me what the two end

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1 positions are?2 A. It looks like you're long -- you're talking3 about the Hawaii?4 Q. Right.5 A. You're long the Hawaii convertible6 preferred and you're still showing an open short7 position of Hawaii common stock.8 Q. And look at the price there at the end of9 the positions.10 A. Uh-huh.11 Q. Is it your testimony that's mark to market12 there?13 A. I would assume it's mark to market.14 Q. Okay. Now, what -- and you can look at all15 these, so and I'm just representing for the record I16 always say the documents speak for themselves, that17 if we were to go through each of these, as I18 understand it what we would see is that the -- well,19 maybe I shouldn't try to do that, try to speed20 things up and I shouldn't. Let's go to the next21 page if I could. All right? And this is a22 statement from 7-29-83. Do you see that?23 A. Yes.24 Q. And again, the end positions are what?25 A. Hawaii. You're short Hawaii common stock

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1 and you're long convertible bonds, uh-huh.2 Q. Okay. So that means that you're still3 holding them since the 6-30, the 6-7 and 6-84 transactions?5 A. Correct.6 Q. Okay. And again, the price there under the7 close-out is a mark to market price?8 A. I'm assuming that they're mark to market9 prices. You know, I'm not sure going back into '8310 how they handled the -- whether they actually mark11 to market at that stage or they just carried it12 forward at the same price that it was bought at. I13 don't know.14 Q. Aren't you supposed to tell the customer15 what their market value is?16 A. No.17 Q. And their positions?18 A. No. You're not -- you're not obligated to19 tell them. You're obligated to tell them -- you20 know, obviously, what you wouldn't be able to do was21 put a price on it that was totally unrelated to the22 market, that would be unrealistic to the market23 price; but typically our systems, you know, I'm24 assuming that they were the same in '83 or, you25 know, as they were, you know, at a later date. They

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1 get mark to market by the system.2 Q. Okay.3 A. So that's why, you know, typically I've had4 no reason to believe that it wasn't handled that way5 in '83, but I can't tell you for sure.6 Q. Again, would that be Annette or one of her7 people doing this operational work?8 A. It would be the -- it depends upon whether9 the system did this or they did it manually.10 Q. Okay. But would Annette Bongiorno be11 responsible for the operational --12 A. Someone in the -- well, someone in that13 department. Back in '83, you know, there were14 different people. It could have been Dan Bonventry,15 you know. I don't know.16 Q. Right. Let's go to the next statement.17 This is August 31, '83 and there are three entries18 there on August 8th. Do you see them?19 A. And by the way, let me just correct20 something so you know. Annette Bongiorno is21 basically a bookkeeper. She's not really what we22 would deem to be a senior operations person,23 particularly in 1983. She's more of a bookkeeper24 clerk. She's not a systems person or she's not a25 cashier, an operations person.

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1 Q. Let me clarify that then because when I2 asked you earlier who would be responsible, you told3 me Annette. Is there someone else who would have4 been responsible?5 A. She's responsible for the client. She6 handles the client business. She doesn't -- like7 she's not in the back office type of an operations8 that receive or deliver or even the mark to the9 market. That's not something that she would handle.10 Q. In this '83/'84 time frame --11 A. At any time.12 Q. I understand that, but my question was13 going to be in that time frame who would have been14 that back office person?15 A. I don't remember. It could have been Dan16 Bonventry. It could have been, you know, Irwin17 Lipkin. It could have been, you know, Sylvia18 Hendel.19 Q. All right. Let's turn as I was just going20 to to August 31, 1983. Again, this purports to be a21 statement for Leonard Alpern of that date. If you22 would look at the entries for August 8th and tell me23 what they represent to you?24 A. August 8th?25 Q. Yep.

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1 A. Oh, it looks like the -- a purchase --2 well, these are receiving -- this is a transaction3 of warrants, forum group warrants. And these are4 just receive and deliver of positions of forum5 warrants.6 Q. Yeah. Do you see what the entry there is7 on 8-8 with regard to the preferred security?8 A. On 8-8?9 Q. 8-8.10 A. Yes.11 Q. There's an entry where it is you're12 selling. Do you see that?13 A. Monsanto?14 Q. No. The Bancorp Hawaii preferred?15 A. This looks like a receive and deliver.16 Q. Right.17 A. Uh-huh. That's not a buying or a sell.18 That's a receiving.19 Q. So you delivered in the convertible20 securities?21 A. That's the accountant was -- right.22 Q. Does that mean you converted it?23 A. It could have been converted, it could have24 been swapped.25 Q. What's a swap?

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1 A. A swap is when you go in and you exchange2 the position with -- for the customer with another3 -- with another client or another -- a bank or4 another dealer.5 In other words, you had someone on the6 other side of the transaction that -- if I have --7 if a client is long on bond and short common stock8 and you -- the trader is -- I determine that I want9 to close out that transaction and rather than go out10 and physically convert it into the other, I just11 want to go ahead and go into the marketplace or go12 into another dealer and say look, I'm willing to13 convert -- I'm willing to exchange my bonds for14 stock and so on and so forth. You wouldn't want it15 that way.16 Q. Okay. Let's go back to the 6-30-8317 statement here of Mr. Alpern. So it's two back, I18 think. June 30. And there's an entry there on19 June 8th that's showing fractional shares being20 credited to the account. Do you see that?21 A. 6-30? Oh, the statement. Okay. Yeah,22 right, uh-huh.23 Q. The statement is 6-30, but the entry is24 6-8?25 A. Right, yeah.

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1 MR. SHEEHAN: I'm sorry.2 MS. CHAITMAN: Which line are you looking3 at?4 MR. SHEEHAN: I apologize. It's 6-15.5 THE WITNESS: Okay.6 MR. SHEEHAN: I'm looking at the wrong7 line. I apologize.8 MS. CHAITMAN: Okay. 6-15, okay.9 Q. (By Mr. Sheehan) Yeah. 6-15, do you see10 fractional shares?11 A. Uh-huh.12 Q. See that? Would that indicate to you that13 it had been converted?14 A. I'm responding the same way I said before.15 I don't know whether it was converted or whether --16 I don't know how they handled the fractional shares.17 Q. And do you have an explanation of why you18 would have fractional shares showing on 6-15 when,19 in fact, the preferred wasn't delivered until 8-8?20 A. I can't respond to that. I don't know how21 they handled that. I'm not an operations person.22 MR. SHEEHAN: Okay. All right.23 (Discussion off the record.)24 MR. GOLDMAN: I can see.25 Q. (By Mr. Sheehan) Yesterday Ms. Chaitman

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1 asked you about a meeting with the attorney's office2 shortly after your arrest. Do you remember that?3 A. Yes, yeah. Oh, yeah. Okay.4 Q. Okay. Well, let me put it in context. I'm5 going to represent to you that that meeting took6 place on December 16th, 2008.7 A. You're talking about down here?8 Q. No, no. I'm talking about --9 A. Oh.10 Q. -- 2008, December 16th, days after your11 turning yourself in as --12 A. Right.13 Q. Did you meet with -- do you recall meeting14 with the U.S. Attorney and other representatives of15 the SEC, et cetera?16 A. Up in my house, in my apartment?17 Q. No. I'm not sure the location. I wasn't18 there.19 A. Yes. It was in my apartment.20 MR. SHEEHAN: Okay.21 MR. GOLDMAN: Wait. Don't -- I don't22 know, but are you confusing the FBI with the U.S.23 Attorney's office?24 THE WITNESS: No. There was a meeting25 that was held that had a lot of people. They had

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1 the FBI was up there. Marc Litt was on a conference2 call, who was the prosecutor. There was a whole3 bunch of people. There must have been 20 people up4 in my apartment.5 Q. (By Mr. Sheehan) That's the meeting I'm6 referring to. I didn't know it was in your7 apartment. I forgot you weren't incarcerated. You8 were --9 A. The only Trustee I remember being there was10 the Trustee, I think, from London or from -- I don't11 know if it was -- it wasn't Picard.12 Q. No. He was not there.13 A. No.14 Q. Do you mean Mr. Akers?15 A. I don't remember his name, but I remember16 he was the Trustee from Price Waterhouse, I think.17 Q. Okay. All right. And what was the purpose18 of that meeting?19 A. I don't really -- I don't know.20 Q. Do you recall before the meeting signing21 what's called a proffer statement?22 A. Yes. That was at the -- that wasn't -- the23 proffer meeting was, you know, before that.24 Q. Right. What did you understand the proffer25 statement to be?

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1 A. That basically to just, you know, explain2 to them what happened, how the fraud began and3 started and so on. It was --4 Q. Right. And were you aware that someone --5 that the FBI was taking notes of that meeting?6 A. I was aware that they were there. I don't7 remember whether they were taking notes or not.8 Q. Are you aware of the fact that they reduced9 those notes to what they call a 302 statement?10 A. No.11 Q. Okay.12 A. I don't know what that is.13 Q. All right.14 A. I think the FBI was standing at my piano.15 They didn't seem to be taking notes because I16 remember they were looking through the pictures of17 my family at the piano. They didn't seem to have18 much of an interest in what was going on. I don't19 know why they were even there, quite frankly.20 Q. Okay. And I think Ms. Chaitman already21 asked you this, but when you spoke to that group22 that day did you tell them the truth?23 A. Uh-huh, yes.24 Q. Okay. Let's -- I want to go back to25 operations. We'll go back to 302 later, but the

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1 operations of the business. And just to get some2 clarity on that, and I want to start with house3 five. All right. We call it house five. Did you4 call it house five?5 A. It sounds familiar, but yeah. That's not6 my area.7 Q. Okay. We understood that you called the8 market making and proprietary operation house five.9 A. That's what the operations department10 called it, I guess.11 Q. Okay, fine. It's not a term that's12 unfamiliar to you; is it?13 A. Slightly. I'm not sure.14 Q. Okay. Well, then let's just call it market15 making.16 A. Uh-huh.17 Q. When I say that, I mean both market making18 and proprietary unless you tell me I'm wrong.19 A. No. It sounds about right.20 Q. Okay. And what I need to know is I'm going21 to ask you some names and if you could just tell me22 as you understood it, and I'm focusing on the '80s23 now because we already talked about post-'92,24 focusing on the '80s, what the work assigned to them25 was, what they were required to do, et cetera, what

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1 their jobs were. All right? And the first one is2 Marty Joel.3 A. He was a trader.4 Q. Okay. In the market making?5 A. Correct.6 Q. Okay. David Kugel, I think we've heard7 about him?8 A. Same.9 Q. Okay. Did he ever provide any assistance10 in the investment advisory side?11 A. Other than -- other than giving Annette's12 department the correct formula to use when you were13 handling a trade for a client.14 Q. Okay. Andrew Madoff?15 A. I think he started after '87; didn't he?16 Q. Yeah. He was later.17 A. He would have been proprietary trading and18 market making at that time.19 Q. What about Mark?20 A. The same.21 Q. What about Peter?22 A. Peter was at one point a market maker,23 involved in market making. I'm not sure of the --24 I'm not sure of the dates. And then he also was a25 compliance, handled the compliance for the firm and

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1 systems. He did a lot of things, my brother.2 Q. Okay. Now, how were the market make -- the3 traders in market making, how were they compensated?4 A. They get -- typically got a percentage,5 25 percent of their net trading profit.6 Q. And how was that calculated?7 A. By whatever, you know, the back office8 would come up with a figure of what the net profit9 was based upon after deducting trading expenses.10 Q. Okay. So let's say I did -- I'm going to11 give you a hypothetical. You can correct it if I12 say something wrong, but the trader does a trade for13 50,000 shares of General Electric and he generates a14 profit of $25,000. All right?15 A. Uh-huh.16 Q. And then you take that 50,000 shares and17 you move it over to the IA business as taking18 inventory from market making; right?19 A. Uh-huh.20 Q. You said that's what you would do. How21 does he get compensated at that point?22 A. He doesn't -- the market making doesn't --23 isn't compensated for anything dealing with a24 client. The market makers get compensated on25 basically what their profit was when they bought and

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1 sold the stock, you know, from other dealers. The2 market makers did not handle the customer3 transaction. They weren't selling it. So the4 market makers typically only dealt with other5 broker-dealers.6 Q. Okay. Did the traders have limits on the7 amount of capital they could invest?8 A. Yes, uh-huh.9 Q. Would they be different for each trader?10 A. Yes.11 Q. Do you remember what David Kugel's was?12 A. You know, I don't remember. Depends upon13 the time frame, you know, we've been talking about.14 They vary.15 Q. I want to go back to Marty Joel for one16 question.17 A. Uh-huh.18 Q. Did he do convertible arbitrage?19 A. Yes.20 Q. He did. Let's go to house 17, right, which21 is the investment advisories?22 A. Right.23 Q. Okay. And if you can give me sort of the24 employment history background of the following25 people, what their jobs were, et cetera, which may

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1 have changed over time.2 A. Right.3 Q. And if you could tell me that, that would4 be good, too.5 A. Uh-huh.6 Q. Frank DiPascali?7 A. What time frame are you talking?8 Q. Let me start with when Frank started and9 how his roles changed over time.10 A. He started basically as a clerk.11 Q. When was that?12 A. I don't remember when he started, quite13 frankly.14 Q. Approximately. In the '70s, '80s?15 A. Probably, I guess, in the '80s.16 Q. Okay, fine.17 A. I don't know.18 Q. Okay. So he started as a clerk and then19 what?20 A. He started as a -- well, he started as an21 assistant trader or clerk. He was, quite frankly,22 never particularly -- he wasn't particularly23 talented as a trader. He also had a problem with24 attendance. He -- for some reason Frank had a25 difficult time making the opening.

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1 Q. Right.2 A. So he -- he worked as a desk assistant,3 which is basically a clerk for one of the other4 market makers. That's how they get experience and5 they learn. And depending upon what -- what the6 trader that they're assisting thinks of his ability,7 they then move up to being -- get a list of stocks,8 you know, on their own as a market maker.9 He never really had that. He was never --10 he was never -- we never felt he was capable of11 being a risk, what we call a risk trader, market12 maker.13 Q. So did he ever become a trader in your14 market making operation?15 A. No.16 Q. So what he did do was -- I don't want to17 put words in your mouth. He assisted? Would it be18 fair to say he assisted the traders?19 A. Yeah, yeah. He did. He assisted any20 number of different traders, which was common. We21 would move him around from different traders to22 learn different aspects of the market making23 business.24 Q. Did there come a time where he did more25 than being an assistant to a trader?

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1 A. On the trading desk?2 Q. No, outside. Did he move on?3 A. He did move on. He moved on to handling4 the clients, handling the actual, you know, breaking5 up the strategies for the clients.6 Q. Okay. Would he work on the convertible7 arbitrage strategy?8 A. Yes. At times, yep.9 Q. Okay. And then did he work on the split10 strike conversion strategy?11 A. Yes.12 Q. When did he -- as best you can recall, when13 did he make that move to the customer side?14 A. He was doing it in probably the maybe late15 '80s to early '90s.16 Q. Okay. What role did -- if any, did Frank17 DiPascali play in turning to a split strike18 conversion strategy?19 A. He would have played a major role at that20 stage, you know.21 Q. What did he do?22 A. He supervised all the other people. He23 took instructions from me as to when we were going24 to go into the market. And he was -- he was very25 talented when it came to helping to build the system

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1 that tracked the various baskets of securities and2 so on. He did pretty much everything.3 Q. Okay. So let's turn to Annette Bongiorno,4 sort of the same thing. When did she start and what5 was her employment history?6 A. She started basically almost as a7 receptionist when the firm had very few employees.8 She was a bookkeeper, receptionist. People did9 multiple jobs, you know.10 Q. And did there come a time when she passed11 beyond being just a receptionist and did other12 things?13 A. Yeah. I mean, you know, she learned --14 because she came to work for us, you know, right out15 of school. So she didn't know anything about16 bookkeeping really or, you know, the stock market17 and so on. So it was just a gradual process.18 Q. Did she work on the market making side?19 A. No.20 Q. Did she always work on the customer side?21 A. Yes.22 Q. What -- when she went past being the23 receptionist, what have you, what was her next role?24 A. She -- I would say she moved from starting25 to being sort of a combination secretary,

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1 bookkeeper, you know. She did a lot of -- you know,2 we didn't have a lot of people working for us. And3 then she -- you know, she handled the customers.4 She spoke to them on the telephone. They got5 instructions. She answered questions about their6 accounts and so on and so forth.7 Q. Did Annette Bonjourno work on the split8 strike conversion strategy?9 A. For the most part she didn't have a major10 role in that, no.11 Q. What were the customers she was talking to12 and working with?13 A. She handled the big four clients was her14 particular role. And also she ran a whole15 department of other bookkeepers, you know, that16 handled -- that were involved in doing the17 processing of the split strike trades.18 Q. Okay. Just a couple more. Jodi Crupi?19 A. Jodi Crupi worked as an assistant to Frank20 DiPascali and basically in the split strike, in the21 convertibles. Primarily it was on the -- she was on22 the 17th floor and she handled the checkbook, checks23 in, checks out for clients and so on.24 Q. Okay. And then, lastly, Joanne Sala?25 A. Joanne Sala was in Annette's department,

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1 basically was a bookkeeper.2 Q. Okay. She reported to Annette?3 A. Yes.4 Q. Okay. Who -- I think you've already5 answered this, but I want to just be sure. The6 financial reporting --7 A. Uh-huh.8 Q. -- that was required of you as you ran it9 individually or later as an LLC, who was responsible10 for that financial reporting?11 A. Financial reporting where? You're talking12 about the focus reports?13 Q. Like focus reports or any other SEC14 inquiries or things like that.15 A. Basically, that would have been -- well,16 certainly me always from day one --17 Q. Right.18 A. -- you know, was the one that signed the19 focus reports and reviewed the focus reports. It20 would have been Irwin Lipkin, who was the --21 considered to be the cashier originally. Then there22 was a girl named Sylvia Hendel, who happened to have23 been killed by a bus leaving the office one day.24 That was in the '90s. She was the -- she had the25 job that Enriqua Pitz took over.

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1 Q. Okay.2 A. So she compiled the focus reports at one3 point. She worked with Irwin Lipkin.4 MR. SHEEHAN: Okay. Let's take a break5 right here; okay?6 MS. CHAITMAN: Sure.7 THE VIDEOGRAPHER: Going off the record.8 The time is 10:11 a.m.9 (A recess was taken and Trustee's Exhibit10 Number 3 was marked for identification.)11 THE VIDEOGRAPHER: Back on the record.12 The time is 10:25 a.m.13 Q. (By Mr. Sheehan) Mr. Madoff, you're about14 to be handed Exhibit Number -- the Trustee's Exhibit15 Number 3.16 A. Uh-huh.17 Q. And for the record, I will identify this as18 a document that is copies of a Rolodex set of cards.19 And the reason you have all, but we're not going to20 ask you about all these pages here, we're going to21 ask you about the first couple, but is that this is22 a complete set of what was in that Rolodex. All23 right. So we wanted to give you that.24 A. Uh-huh.25 MS. CHAITMAN: Whose Rolodex was it?

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1 MR. SHEEHAN: It's Mr. Kugel's.2 MS. CHAITMAN: David Kugel's. All right.3 Q. (By Mr. Sheehan) So turning to the second4 page, and these are double-sided so it's on the5 left-hand side.6 A. Uh-huh.7 Q. Take a -- I'm going to actually only ask8 you about the left and the right-hand side, those9 two cards at this point. And take your time. Take10 a look at it first. So my first question --11 A. Uh-huh.12 Q. -- is do you recognize the handwriting?13 A. It's certainly not David Kugel's.14 Q. Okay.15 A. No.16 Q. Do you know who it is?17 A. No.18 Q. Is any of this handwriting yours?19 A. No.20 Q. Okay. So it says on this, it starts -- and21 I'm just going to read it. Obviously, the card22 speaks for itself, but it says prices and then one23 that's circled. It says look on calendar for work24 to be done Tuesday through Monday. Do you see that?25 A. Uh-huh.

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1 Q. And then it says two, go back two Fridays.2 A. Uh-huh.3 Q. And three, that will give you your date to4 start to present for instances 6-5 through 6-11?5 A. Uh-huh.6 Q. Start at 5-25-84 --7 A. Uh-huh.8 Q. -- through present?9 A. Uh-huh.10 Q. Now, what, if anything, does that mean to11 you?12 A. I'm assuming that they're giving whoever is13 setting up the transaction instructions as to when14 to look through the trading ledgers to see when we15 -- what stock we bought or bonds we bought.16 MS. CHAITMAN: David, if I can just17 interrupt, whose handwriting is this? Do you know?18 MR. SHEEHAN: Not -- I don't know.19 MS. CHAITMAN: But you said it was David20 Kugel's --21 MR. SHEEHAN: It's his Rolodexes. He's22 identified them in the past. I don't know whose23 handwriting.24 THE WITNESS: He would not have this.25 This is not -- this would have nothing to do with

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1 David Kugel. This is something that is -- would be2 in Annette's department because David Kugel doesn't3 even have a Rolodex. This would not be up in his --4 you know, on his desk.5 These were instructions to whoever is6 actually going to put the trades through and it's7 telling them to search through the firm's trading8 ledgers and investment ledgers. It's looking9 through the inventory to pick out, you know, what10 prices or what stocks to use.11 Q. (By Mr. Sheehan) Mr. Kugel has testified12 that he would go back two weeks to find trades that13 gave a predicted outcome?14 A. Yeah. He could be looking at, you know, at15 his market making trades in which, you know, what16 bonds we bought, which then would go into the firm's17 trading ledger.18 So if, in fact, Annette would call him or19 whoever called and say look, David, we have money in20 that we need a million dollars' worth of21 transactions for a convertible security, he would22 look into his -- you know, his market making, you23 know, trading which he had -- he had sheets as to24 what he bought and sold and look at what -- what25 stocks, what strategy was available, you know, for

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1 that. So that's what they're asking him to do.2 They're asking him to pick out a convertible that --3 that he was able to set up, long the bonds and short4 the stock at a particular price. That was his --5 that was his job. That's where he made money.6 Q. The testimony that he's given is that this7 was done to give a predetermined profit to somebody?8 A. No. Look, I tried to explain that to you9 yesterday. That's not the way the trades are done.10 Let me explain it to you. The market maker is11 making -- that trades convertible bonds or whether12 he trades stock, it doesn't matter. He's trading13 convertible bonds.14 The convertible bonds trader, whether it be15 Marty Joel, whether it be David Kugel, whether it be16 Mark Feldman or any other number of convertible17 traders, their job is making a market and trading in18 that convertible security, at which point they are19 -- they're quoting to the -- out to the immediate20 world what they want to buy bonds and short stock.21 And they may turn around and set up the22 trade. They'll buy bonds on Monday and sell stock23 Monday afternoon or maybe they'll sell it Tuesday or24 Wednesday and they have a -- they have a position, a25 market making position being long on bonds and short

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1 of stock. And they may have a -- as I said, they2 may be planning to do this eventually to convert or3 they may want to turn around and just unwind the4 transaction, having nothing to do with the client.5 You know, everything that the market makers buy and6 sell doesn't typically go to a client.7 It goes to the firm's account, and he8 doesn't care whether we sell it to a client or not.9 His profit and loss is based upon what he's able to10 buy that stock. Then, you know, then that stock11 goes into the firm's trading inventory. All right.12 And at that stage of the game it's the firm's13 inventory.14 If, in fact, we have a customer that we15 wanted to set up a trade for, what typically we do16 is Annette or whoever would contact David and say17 listen, we have money that we want to set up for a18 client in a convertible bond. Did you have any19 trades that you -- that looked like that would be a20 good trade for a customer, you know?21 He would -- you know, he would say yes.22 Okay. I did trades in Bancorp or whatever it is and23 he'd say just, you know, if you're going to set up a24 trade in Bancorp, you have to buy the bonds, you25 know, X number of bonds, short X number of stock.

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1 They then would go and turn around, the next step2 would be the person let's say on the 17th floor or3 wherever they were located would then search through4 the firm's ledgers and inventory or blotters, you5 know, discount, and pick out those securities. And6 then we're doing that.7 All right. Now, that's -- then it becomes8 a client trade. The market maker doesn't get9 involved in that unless we're taking it out of his10 inventory. And you then -- and the reason why the11 market maker doesn't get any compensation on that,12 because that's -- the firm is now charging the13 customer a mark-up, which is a little -- can be14 considered a commission equivalent.15 And that's what the investment advisory16 side is making their profit. The market maker17 doesn't participate in that.18 Q. Wasn't a mark-up just four cents a share?19 A. It varied. It depends upon -- the20 convertible bond market was different than the split21 strike was -- used to be three cents, four cents,22 three cents, then it went down to two cents; but the23 convertible bond market could be a maximum of five24 percent, which was what the NASD was. This was25 years ago, but then we typically would be less than

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1 it would typically be, a couple of percent.2 Q. So when the traders trade with -- you know,3 looking back to find a trade that's going to give a4 profit to your customer --5 A. Uh-huh.6 Q. -- and you move that out of inventory, the7 trader loses his income off of that?8 A. No. He doesn't lose his income. He loses9 that position.10 Q. And does he get paid for the profit that11 he's generated?12 A. Yeah. Of course, he gets trade for the --13 Q. I thought you said a moment ago he didn't?14 A. He gets trade for his profit, what he's15 buying and selling, you know. Once -- if the --16 depends upon whether it remains in the trader's17 inventory or whether it's moved out of the trader's18 inventory.19 Q. That's my point. If it goes into the20 customer account --21 A. Right.22 Q. -- you give the profit to the customer;23 right?24 A. We give the profit of the trade to the25 customer, yeah.

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1 Q. Right. So how do you compensate the2 trader?3 A. He doesn't get compensated. His4 compensation comes from his trading with our5 customers. Most of his market maker's trades, you6 know, have nothing to do with clients. It goes in7 and out, you know, bought and sold and never even8 appears in the customer transaction.9 Q. But if you're using your inventory, if the10 customer inventory is, in fact, market making11 positions --12 A. Right.13 Q. -- are you paying twice on the profit?14 A. No. He's -- once it's in his -- if it's in15 the inventory and is not in a customer -- it's not16 been used for a customer, then if the trader gets17 mark to market, you know, and that profit or loss is18 the trader's. Once it goes out of, once it's taken19 out of our inventory --20 Q. Right.21 A. -- or out of the trader's inventory, he's22 finished with it. That's it.23 Q. Does the customer then get the same profit?24 A. The customer gets the profit based upon25 whether the -- you know, what happened with the

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1 transaction, whether it was unwound, whether it was2 converted and so on. They're two separate trades.3 Q. Well, you mean you can actually realize4 profit before the conversion or before the5 unwinding?6 A. No, not until the customer's trade is7 closed out. Look, let me give you an example.8 Let's assume -- let's assume you're forgetting about9 a convertible trade or bond. Let's look at common10 stock. Bear Stearns or Merrill Lynch, you know, has11 a market making department. All right. The market12 makers are trading the stock for the firm's account13 and they're making profit or loss, you know, on14 their -- whatever they're trading. All right.15 Q. Yeah.16 A. They then -- they then, you know, take17 from -- the market makers shows the position of long18 a thousand shares of stock at ten. If that -- if19 that now goes -- you know, the salesman is looking20 to buy stock for one of his clients at ten.21 Q. Right.22 A. He goes in and he's going to buy it from23 the firm's inventory at ten and charge the customer24 a commission. Once the stock is taken out of the25 firm's inventory for the market maker, he's out of

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1 the picture anymore depending -- you know, because2 the stock is now sold to a client. So the client's3 -- if the client bought the stock at ten, the market4 maker may have bought stock at ten and he -- you5 know, and then turned around, stock went up to6 eleven.7 And, you know, that's his profit, from ten8 to eleven. Now the customer comes into the9 transaction to buy the stock at eleven, you know,10 and the stock may go up to twelve. That's the11 customer's, you know, profit or the commission12 involved, has nothing to do with the trader.13 Q. I understand that, but what I was saying,14 when you're dealing with a convertible arbitrage15 strategy doesn't a profit always occur when you16 either unwind it or you convert it?17 A. Yes, yeah.18 Q. And doesn't that always happen in the19 customer account if you take it out of inventory and20 put it in the customer's account to give them that21 profit?22 A. That's right.23 Q. Okay. So then whatever profit was there is24 lost to the trader because now you've taken it out25 and given it to the customer?

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1 A. Yeah, but he -- it's -- I'm not sure I2 understand what you're trying to get at.3 Q. Well, he can't make a profit in the market4 making operation until he either unwinds it or he5 converts it; right?6 A. If --7 Q. You're saying that you look back and you8 see that sitting there and you realize I'm going to9 take that out of there and give it to a customer and10 give them that profit.11 A. Uh-huh.12 Q. And you do; right? That's your market13 making or your convertible arbitrage strategy?14 A. For the customer, right.15 Q. Right. But if you take it out of the16 inventory of the market maker, he can't get any17 profit because --18 A. No. He doesn't. His profit was made on19 transactions that had nothing to do with the20 customer, just buying and selling the stock, you21 know.22 Q. All right. I think we've gone over it23 enough. Let me ask you this. When you were doing24 the split strike conversion strategy, you know, in25 the '90s and not buying stock --

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1 A. Uh-huh.2 Q. -- how would you arrive at the prices that3 you would put into the basket?4 A. Based upon, you know, what the stock was5 selling at at that price.6 Q. Would you not look back and figure out what7 the stock was so you would always sell -- sell high8 and buy low?9 A. No. In other words, the -- that was all10 done by a system that we had dynamic systems. We11 had ticker feeds that came into the firm. And the12 split strike, there was a program built that would13 monitor the stocks that were in the basket, you14 know. So that was all done automatically. It15 wasn't that we went back and, you know --16 Q. You didn't do it with hindsight?17 A. No.18 Q. You didn't use yesterday's newspapers?19 A. No.20 Q. All right. If I told you that VWAP for you21 is at 80 percent, you know, profit --22 A. Uh-huh.23 Q. -- what would your comment be on that?24 MS. CHAITMAN: Objection to form.25 THE WITNESS: I'm not sure I understand

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1 what you're asking me.2 Q. Okay. In other words --3 A. VWAP is --4 Q. -- if you're doing VWAP, what's good VWAP,5 a good percentage?6 A. VWAP refers to what was bought and sold.7 It has nothing to do with what a profit is. VWAP is8 measured based upon what -- what actually took place9 on the floor of an exchange if, in fact, you were10 executing the order. It's not -- it would have11 nothing to do with split strike.12 Q. Doesn't it have to do with best price?13 A. It has to do with what you would have been14 -- what you would have been able to execute an order15 at --16 Q. Right.17 A. -- on the floor. In other words, what18 actually took place on the floor.19 Q. And price is part of that analysis?20 A. Yeah, of course.21 Q. Right. And when you were selling in the22 split strike, you said you never did a VWAP23 analysis?24 A. No.25 Q. All right. If you did one, would you be

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1 surprised to know that you always sold -- 80 percent2 of the time you sold high?3 MS. CHAITMAN: You sold what?4 MR. SHEEHAN: High.5 THE WITNESS: First of all, let me explain6 something to you.7 MS. CHAITMAN: Objection to form.8 THE WITNESS: The VWAP, the VWAP is trades9 that took place on the floor of the exchange, has10 nothing to do with what took place over the counter.11 MR. SHEEHAN: Right.12 THE WITNESS: So it wouldn't equate to us13 because VWAP, a VWAP is measured on floor14 executions. Our executions were -- our executions15 if we were executing would have been over the16 counter. It wouldn't matter.17 Q. (By Mr. Sheehan) You mean all the stocks18 that you had in your split strike baskets were19 over-the-counter trades?20 A. Yes.21 Q. The stocks themselves?22 A. Yeah.23 Q. Not the calls and puts?24 A. No. The stocks themselves. We were the25 largest third market maker in the country.

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1 Q. So --2 A. Madoff was known as the largest third3 market dealer in the country. You know, all of our4 transactions that we did with hundreds of our5 brokerage firms --6 Q. Yeah, but --7 A. -- and listed securities was done over the8 counter. They weren't stock exchange. They weren't9 even reported to the stock exchange.10 Q. You never put any of your split strike11 trades to your market making?12 A. No. We didn't do the trades. The clients13 thought we were doing the trades over the counter.14 They never assumed that we were doing them on the15 floor of an exchange because our business was16 over-the-counter dealing.17 Q. So when you traded 200 million shares of18 Microsoft, you did that OTC?19 A. Yes. Well, first of all, Microsoft isn't20 listed on the exchange anyway. Let's say -- let's21 say IBM --22 Q. Right.23 A. -- which is a listed security. We were not24 -- our trades weren't done on the floor of the25 exchange. With Merrill Lynch when Merrill Lynch

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1 bought stock from us, they were buying that -- that2 was an over-the-counter transaction even though it3 was a listed security.4 Q. When you say listed, you're limiting5 activity to --6 A. Listed on the --7 Q. New York Stock Exchange.8 A. It's eligible to list on the -- it's a9 stock that is listed over -- look, today, for10 example, 70 percent of the New York Stock Exchange's11 listed securities are transacted over the counter.12 They're not -- they're transacted through the black13 -- the dark pools. They're transferred -- they're14 executed through dealers like Madoff.15 Only 30 percent of them actually take place16 on the floor. So when you look at a VWAP order,17 that's a VWAP is reflecting to trades that took18 place on the floor of the exchange. They're not19 taking -- they have nothing to do with an20 over-the-counter transaction even though it's a21 listed security.22 Q. Okay. All right.23 A. You know, I want to interject something.24 Q. You go right ahead. I love when witnesses25 volunteer.

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1 A. You asked me about David Kugel and how2 could he have said certain things.3 Q. Right.4 A. I'm not sure -- if you were asking these5 questions of David Kugel right now, he would6 probably be as confused as let's say he would be7 going through exactly what you're doing by saying,8 well, did you -- how did you set this transaction9 up?10 And David Kugel would say to you, well, I11 go back and I look at my transactions of what I did,12 you know, in this particular security, you know,13 four or five days ago because I know that that14 security is in the inventory. All right. So that15 was -- there were bonds bought and stocks bought16 because he bought and sold them. So now -- and he17 may have bought them for his market making account.18 He may have bought it for the firm's19 investment account. And he'd say yeah, that's a20 transaction you should do. All right. That -- he21 gives that information to now the operations22 department, let's say Annette's department. They23 then go and they look through. If you -- if for24 some reason you interpreted what David said is that25 he actually set up the transaction, that he went

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1 back and looked at prices, it was not what you -- he2 wasn't selling, going to use the prices that I3 bought in stock for. He would be looking -- looking4 for the firm's -- now that's in the firm's5 inventory. It's different. There's a market making6 inventory and then there's the firm's inventory.7 Q. I understand, but just to stick with that8 for a minute. All right?9 A. Okay.10 Q. So David executes a split -- not a split11 strike. A convertible arbitrage strategy?12 A. Uh-huh.13 Q. Let's say he even does it on the same day.14 All right. So he's got profit built in risk-free.15 It's two weeks later. That trade actually happened.16 A. Right.17 Q. Right. And when he puts into the -- you18 put into the customer statement is that exact trade,19 but there's no profit because there was no trade?20 MS. CHAITMAN: Objection to form.21 THE WITNESS: I don't know what you mean.22 Q. (By Mr. Sheehan) No. In other words,23 you're taking history, all right, the trade that24 David just did and which he made a profit and now25 you're taking that and putting it into the customer

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1 account --2 A. No. I'm not.3 Q. -- as though there's a real trade when4 there really wasn't a real trade?5 A. I'm not -- I'm not putting it into the6 customer account, you know.7 Q. Well --8 A. Putting it into the customer account from9 the firm's trading account or inventory, not from10 David's account.11 Q. But we were looking this morning at Mr.12 Blecker --13 A. Right.14 Q. -- and there is no fractional share until15 you actually convert, and yet you're showing a16 fractional share six weeks early. How could you do17 that unless you were backdating the trade?18 A. It's -- look, I told you that I'm not sure19 how they -- look, if I am selling stock from the20 firm's -- if I set up a trade for Blecker, all21 right, and the firm came -- and it came out of the22 firm's inventory --23 Q. Right.24 A. -- it has nothing to do with David Kugel25 let's assume, the market maker. It's not in the

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1 firm's inventory. All right. That stock got into2 the inventory from the market making, but now it's3 in the firm's inventory. And the firm -- we decided4 to keep -- I decided to keep that stock in the5 inventory. Now, anything that happens in that stock6 moving up and down is the profit to the firm. It7 has nothing to do with David Kugel. He sold it, his8 position that he sold to the firm.9 Now the firm has that. It's not David's10 any longer. All right. Now, that inventory is in11 the firm's account. Now I'm turning around and12 selling that, you know, at the time that the prices13 that I bought it at to the client. That's an actual14 transaction from -- you know, from the firm's15 inventory to the client's inventory.16 If, in fact, you know, I set it up with the17 -- with the intention of actually converting the18 security, all right, but, you know, I don't know how19 they -- if, in fact, they were going to convert the20 security, I don't know -- and they decide that if21 they actually were going to convert it, the client22 would be entitled to a fractional share.23 They're going to give the fractional share.24 When they actually converted it, they would have25 gotten the equivalent of the fractional share. If

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1 for some reason they never converted it, the2 customer would have gotten the fractional share3 anyhow or the monies for the fractional share.4 That's coming out of the firm's profit and loss.5 It's the firm's responsibility.6 Q. But if it's not converted, there is no7 fractional share; is there?8 A. Yeah, but let's say that the firm sold it9 to the client. All right. As far as the client is10 concerned, he'd be entitled to the fractional share.11 If I decided to swap it and not convert it, all12 right, I'm now buying the customer's position back13 from the customer. And, you know, the fact that the14 customer got the -- the customer is -- you know, is15 getting the profit as if it was actually converted.16 Q. Well, I want to go back to something you17 said earlier. You were saying that say David does18 the trade, the convertible arbitrage.19 A. Uh-huh.20 Q. He then you say sells it to the firm, so21 the firm owns it; is that correct?22 A. That's right.23 Q. What does he sell it for?24 A. What does he --25 Q. Well, it still hasn't been converted or

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1 unwound, so you don't know what the profit is. So2 what are you paying him for that?3 A. I'm trying to explain something to you.4 The firm has positions, you know, in convertible5 securities in the firm's trading account, investment6 account. And then David has his market making7 account.8 Q. Right.9 A. It has nothing to do with the client. He's10 not buying -- it's not his stock that is going to11 the client until this -- until the firm takes the12 stock from David. Then the firm -- it's like two13 separate transactions. It's not -- it's not David.14 David has a market making account and he buys and15 sells in that and he may buy on a Monday and sell it16 out on Tuesday.17 And while it's in his account, the profit18 and loss is David's. All right. If I now am taking19 that stock from David into the firm's account, then20 the profit and loss is mine and it has nothing to do21 with David.22 Q. That's okay, but it's a stock. I'm not23 talking about --24 A. Or convertible bond. It doesn't matter.25 Q. But you don't know what the profit is until

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1 you convert or unwind?2 A. What profit are you talking about?3 Q. The profit on the convertible arbitrage4 strategy.5 A. For the customer?6 Q. Yeah.7 A. It's whatever -- then it's not the firm's8 account. It's the customer's account. Whatever9 we've set it up for the customer, that's his. If we10 converts it, then he's -- the price has already been11 -- the profit has already been determined based upon12 what he bought and sold at. All right.13 If, in fact, I now unwind it for the14 customer, if I swap it out and I take it back, you15 know, from the customer and it goes back into the16 firm's account, then the customer -- you know, then17 it's the firm's position. In other words, you seem18 to -- you seem to not be grasping that the -- the19 fact that, you know, these are separate20 transactions, you know. If, in fact, I -- let's21 assume that I wanted to just short the transaction22 to a customer.23 Q. Right.24 A. All right. And I made a decision that --25 well, let's look at it this way. Let's assume the

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1 customer calls me up and says I want to buy -- I2 want to buy this convertible bond. I want to do an3 arbitrage. Let's say the customer is making a4 decision. He says, you know, you know, I want to --5 I want to, you know, do arbitrage in Bancorp6 convertible bonds.7 You know, I want you to go ahead and buy8 the Bancorp and sell the common stock and do the9 arbitrage. Okay. And I turn around and I say all10 right, you know what? I'll sell you that11 transaction. You know, I'm going to short it to you12 let's assume.13 I'm going to short you the -- I'm going to14 short you -- rather than me go out into the open15 market and buy it, there's nothing to prevent me,16 you know, from selling it to the customer. I'm17 selling the convertible bond and I'm buying the18 stock from the customer. The customer is shorting19 me the stock and I'm buying the bond.20 Q. Right.21 A. Okay. Now, as far as the customer is22 concerned if he gives me instructions to convert it,23 you know, then we would physically have to -- you24 know, we would have to physically convert the stock.25 Now, if, in fact, I'm shorted to him, you know,

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1 obviously, I can't to convert it because I shorted2 the position to him; but if the customer says, well,3 listen, I want to close out the transaction. So I4 said okay, I'll buy you -- I'll unwind this5 transaction for you. I'll buy your convertible bond6 and I'll sell you the stock that you were short.7 And had we converted, I'm giving you a8 fractional share. I would owe you a fractional9 share. So I'm crediting the account with the10 transaction. Now, in that type of transaction the11 transaction never actually took place on a -- you12 know, it took place because as a market maker and13 dealer, I shorted the transaction to the customer.14 As far as the customer is concerned, he15 makes the profit. He's that. If, in fact, I lost16 money, that's his -- that's my problem. He doesn't17 care about it.18 So, you know, every transaction if you call19 up your brokerage firm at Merrill Lynch and you say20 I want to buy IBM, all right, and Merrill Lynch21 turns around and, you know, puts that order and puts22 it on the floor of the -- the floor of the exchange,23 the floor broker goes down into the specialist and24 says to the specialist I want to buy IBM. And IBM25 is trading -- you know, I look in the machine, it's

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1 trading at, you know, 95. And the specialist, he2 doesn't have an inventory or he thinks that stock is3 overpriced at 95. So who shorted to the floor4 broker at Merrill Lynch? Merrill Lynch's floor5 broker reports to you. You just bought IBM and long6 it.7 Q. Right.8 A. Okay. The transaction never took -- never9 took place. It took place because the specialist10 shorted it to you, you know. As far as you're11 concerned, Merrill Lynch treated you as an agency.12 Merrill Lynch charges you a commission. All right.13 And anything that happens that you can sell that14 stock tomorrow or in two days, the specialist,15 that's his problem. He's short the stock to you.16 Q. Yeah. It's his --17 A. No different than like if I --18 Q. Okay.19 A. If you ask the average client that I told20 you yesterday, you know, when you put an order in21 that you buy IBM or Microsoft, that customer I22 guarantee you, you ask him what happens in that23 transaction. He will tell you, well, I bought24 shares in IBM. And IBM, he thinks that IBM got that25 money.

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1 I guarantee you that's -- because I know2 that because there have been surveys taken.3 Customer thinks that when he buys IBM, that IBM, he4 bought the shares from IBM.5 Q. Right.6 A. That's what he thinks.7 Q. I understand.8 A. Okay. He didn't buy it from IBM.9 Q. I know that.10 A. Okay. I know you know it, but I'm telling11 you the -- what I'm trying to tell you, what I think12 you're having a hard time grasping is whether or13 not, look, you think that if, in fact, for some14 reason if I wanted to short all of these15 transactions to these customers --16 Q. Yeah.17 A. -- you would think that these transactions18 never took place. That's not true. They took19 place. Now, we don't short. We'd short some stocks20 to customers clearly, but whether it be convertible21 bonds or arbitrage.22 Q. Right.23 A. Sometimes we short them, which is perfectly24 normal, and sometimes we buy them. The transaction25 as far as the customer is concerned, he has a real

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1 transaction.2 Q. Yep. I understand.3 A. Okay.4 Q. Let's turn to the Madoff exemption.5 A. What?6 Q. The Madoff exemption.7 A. Okay.8 Q. Are you familiar with that term?9 A. Yes.10 Q. What is the Madoff exemption?11 A. The Madoff exemption is that market makers12 are allowed to short stock.13 Q. Can they short stock in market making14 transactions?15 A. Anywhere they want.16 Q. So they can also -- does a market maker17 normally deal with customers?18 A. Sure.19 Q. All right. Aren't they -- they're20 operating then as what, broker-dealer?21 A. Uh-huh.22 Q. You're not a market maker in that capacity?23 A. All market -- the definition of a market24 maker is someone that -- that puts out a two-sided25 quote in a security and publishes his bids and

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1 offers in a vending service. And he's obligated to2 honor his quote. He stands ready to buy or sell.3 MR. SHEEHAN: All right. Okay.4 MR. GOLDMAN: We can take a -- what to5 take a --6 MR. SHEEHAN: We'll do it now; all right?7 Yeah. Only because I may be able to eliminate some8 stuff, which would be a good thing because we've9 covered a lot of territory.10 THE VIDEOGRAPHER: Going off the record.11 The time is 10:58 a.m.12 (A recess was taken.)13 THE VIDEOGRAPHER: Back on the record.14 This begins disc Number 2. The time is 11:14 a.m.15 Q. (By Mr. Sheehan) Mr. Madoff, while we were16 off the record you indicated you wanted to explain17 something to me?18 A. Yeah.19 Q. Go right ahead.20 A. I just want to explain that when we are21 doing a transaction for -- an arbitrage transaction22 for a customer in a convertible and we set the23 transaction up for the customer as if it was going24 to be converted, all right, I'm not sure how they --25 as I say, I don't know how they handled the

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1 fractional shares during certain times periods; but2 they may -- they may determine that the customer is3 going to get that fractional share if, in fact, the4 transaction was converted.5 All right. So they may -- they may credit6 the customer with a fractional share knowing that7 they're going to convert it or that's what the plan8 is to convert. If for some reason at a later date9 they decided not to convert it, they swapped out the10 transaction, the customer really should get the11 fractional share because the fact that we decided to12 not convert it but we decided to unwind the13 transaction or swap the transaction, the customer if14 we didn't credit the customer with the fractional15 share, we'd be disadvantaging the customer. Now, so16 they may determine to do the fractional share before17 the transaction is actually converted because it may18 not be converted, but they would -- they typically19 would do that or they could wait.20 If we wanted to we could theoretically if21 we unwound the transaction and not convert the22 transaction, we wouldn't have to give the customer23 the fractional shares. So but that's the firm's24 decision to make when they do it. I don't know how25 they particularly handle that because that's not my

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1 area, but it doesn't mean any -- the fact that --2 the fact that we credited a customer with a3 fractional share but physically never converted it4 does not -- does not demonstrate anything other than5 the fact that the transaction was not converted. It6 was -- you know, or that it could have been -- it7 could have been converted.8 We could have credited them before the9 conversion actually took place. The firm would have10 gotten -- would have gotten the fractional share11 that would have been covering the course that he did12 it. It doesn't -- you seem to be going down a path13 with this fractional share as if it has some sort of14 significance, but it doesn't.15 Q. Well, just to follow up on that --16 A. Okay.17 Q. -- if the fractional share is credited on18 the day the preferred is purchased --19 A. Correct.20 Q. It was the preferred in the example.21 A. Whatever.22 Q. All right. It's computed on that day;23 correct?24 A. Uh-huh.25 Q. So now it's sold six weeks later; right?

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1 A. (Witness nods head.)2 Q. You're supposed to mark that to market?3 A. What? The fractional share?4 Q. Yeah. Aren't you?5 A. No. It's a cash transaction.6 Q. Okay.7 A. And he doesn't have to. He doesn't have --8 Q. Wait a second. I'm sorry. You're right,9 you're right. But you would mark the short sale to10 market?11 A. The short position is marked to market,12 right.13 Q. Okay. How would you know what the14 fractional share is six weeks later?15 A. The fractional share is determined as if,16 in fact, it was converted. It has nothing to do17 with -- you're not getting -- actually, you're not18 getting actually shares. You determine what -- what19 the fractional share would be entitled to based upon20 what it was -- what it was sold at the date that it21 was sold.22 Q. I guess my question is why would you give23 them a fractional share on the day you buy the24 preferred, right, when you may on one?25 A. You're not getting -- you're not actually

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1 getting shares. You're getting --2 Q. Cash?3 A. You're getting cash for it.4 Q. Right.5 A. Based upon what you would have gotten had6 you converted it.7 Q. I mean, you didn't convert it. Why would8 you give it to them?9 A. Because if, in fact, we had converted it,10 the customer would be entitled to it. So, you know,11 I don't know how to explain it to you.12 Q. Isn't it also possible that you were13 backdating that trade and you knew what the14 fractional share was when you put in the entry for15 the purchase of the convertible arb?16 A. No. It's not -- when you say backdating17 it, they're establishing the price based upon what18 the stock was selling for at the time that they did19 the transaction. You know, if, in fact -- if20 they're giving the fractional share before the stock21 went to conversion, they have to determine what the22 price that -- what the price the customer would be23 entitled to. They're using -- I'm assuming they're24 using it, the price that they set the transaction up25 at.

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1 Q. Can you tell me why you only had paper2 customer statements and electronic access?3 A. When?4 Q. Forever.5 A. What do you mean? Like, well --6 Q. Did your customers ever have electronic7 access to their accounts?8 A. No, no.9 Q. Isn't that because you were backdating?10 A. First of all, you're talking about this11 period, '83. There was no electronic access.12 Q. Well, in 2008 there wasn't either. Doesn't13 mean you weren't backdating in 1984. What I'm14 saying is you used paper statements for a reason;15 didn't you?16 A. What do you mean paper statements?17 Q. Because you could -- you could create fake18 trades over a period of days?19 A. Wait. What? I'm not sure.20 Q. It's not that confusing.21 A. What?22 Q. It's pretty simple. In other words, you23 wouldn't give anybody electronic access because you24 wouldn't control --25 A. You couldn't get electronic access until

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1 certain dates.2 Q. I understand that.3 A. Right.4 Q. But even before that you just continued5 what you had been doing before, that is, those6 trades were trades that had already happened and you7 put them as phony trades into the customer accounts8 days later, right, and then used other people's9 money?10 A. I'm not sure what --11 MR. GOLDMAN: I'm going to object to this.12 Ask him a question, don't make a statement. Ask him13 a question.14 THE WITNESS: Right.15 MR. SHEEHAN: You can object all you want16 and I'm going to ask my question.17 MR. GOLDMAN: Well, you didn't ask a18 question. That was the problem.19 MR. SHEEHAN: No. Peter --20 MR. GOLDMAN: Yeah.21 MR. SHEEHAN: -- try to relax. All right.22 I'm going to ask it the way I want to. The judge23 can rule on what he's saying.24 THE WITNESS: Okay.25 MR. SHEEHAN: All right. I'm asking you a

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1 question.2 THE WITNESS: Uh-huh.3 Q. (By Mr. Sheehan) All right. Isn't it true4 that you backdated these trades?5 MS. CHAITMAN: Objection to form.6 THE WITNESS: Which trades are you7 referring to?8 MR. SHEEHAN: There's no objection to9 form.10 THE WITNESS: Which trades are you11 referring to?12 Q. (By Mr. Sheehan) You backdated trades? In13 1984 you were backdating those trades?14 A. No, no.15 Q. Those convertible arbs never happened?16 A. That's not true.17 Q. All right. And that's why your statements18 show transactions that couldn't have happened until19 six weeks later, you're showing them on the day of20 the trade; isn't that true?21 A. No.22 Q. Do you know that there's hundreds of these?23 This isn't an operational flaw. Do you know that?24 A. I'm not saying it's an operational flaw.25 Q. You're saying you did that as a matter of

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1 course?2 A. What I'm telling you is I'm not familiar3 with what their procedure was with fractional shares4 of how many --5 Q. You ran the company. You didn't know?6 A. I don't know. I'm not part of the7 operations department.8 Q. Didn't you tell us that nobody dealt with9 customers those years except you?10 A. Nobody did what?11 Q. Nobody dealt with the customers except you12 in those years, '80s?13 A. I dealt with the customers when we --14 when -- I spoke to the customers. I didn't15 physically handle the bookkeeping transaction for16 the customers ever.17 Q. You wouldn't look at the customer18 statements?19 A. The customer statements after -- no. I20 mean, I looked at customer statements after they21 were generated.22 Q. But would you talk to the customer about23 them?24 A. I first for the most part never spoke to25 the customers.

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1 Q. Uh-huh.2 A. I mean, very -- you know, customers would3 never call me up and ask me to, you know, discuss4 their statement with them because I -- you know, I5 never looked at their customer statements. The6 statements were generated by the operations7 department. It was not something that I would --8 that I would discuss with the customer, you know,9 nor did I -- nor did I generate anything.10 Q. Right, okay. Let's move on.11 A. Okay.12 Q. Let me show you -- what is it? Four?13 MS. FEIN: Four.14 (Trustee's Exhibit Number 4 was marked for15 identification.)16 Q. (By Mr. Sheehan) Exhibit 4. Before I get17 it wrong, I think it -- how many pages is it? Four?18 MS. FEIN: We'll just do the two, two19 pages.20 MR. SHEEHAN: Okay. All right. Fine.21 But they're front and back.22 MS. FEIN: Yeah. And your copy there, and23 it's the first two. I can take the rest out.24 MR. GOLDMAN: What do you want us to hold?25 MR. SHEEHAN: Just the first two are the

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1 ones we're doing.2 MR. GOLDMAN: Do you want the others back?3 MR. SHEEHAN: No, no. Keep everything.4 You can keep everything. We don't want anything5 back. Before we talk about these, you can look at6 them, Mr. Madoff. I don't mean to interrupt you.7 THE WITNESS: Uh-huh.8 Q. (By Mr. Sheehan) Do you remember you were9 -- you showed us Mr. Blecker's at your deposition --10 I'm sorry. Let me rephrase that. Back on11 December 20th you showed us Mr. Blecker's 200512 statement. Do you remember that?13 A. Uh-huh.14 Q. And on the back of it it had language with15 regards to average pricing. Do you remember that16 testimony?17 A. I'm not sure I understand your question18 again.19 Q. Well, in other words, on the back of Mr.20 Blecker's 9-2005 statement there was language from21 your company that said that you would -- you could22 engage in average pricing with regard to the23 transactions?24 A. On the Blecker statement I never saw the --25 what the language was.

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1 MR. SHEEHAN: Okay. Then let's show it to2 you. What's that? So here we go, Peter. I'm3 sorry.4 MR. GOLDMAN: That's all right.5 MR. SHEEHAN: You've already got those6 two.7 Q. (By Mr. Sheehan) All right. So we've now8 handed you what was marked as Exhibit Number 8 on9 December 20th, 2016. Bless you. And I refer you to10 the second page. And it's the second paragraph and11 I believe it is the second sentence starting with12 the word unless. Do you see that?13 A. What are we looking at? The Blecker14 statement?15 MR. SHEEHAN: Yes.16 MR. GOLDMAN: I think it's mixed up.17 Which one is the Blecker statement?18 MS. CHAITMAN: It doesn't appear to be the19 Blecker statement.20 Q. (By Mr. Sheehan) Okay. If you're21 looking -- you should be looking at this that's got22 a redaction on the front of it.23 A. Okay.24 Q. And it has an exhibit sticker on it. You25 see that --

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1 A. Uh-huh.2 Q. -- over here? Yeah.3 A. Yeah.4 Q. Okay. So if you turn to the second page of5 that, Mr. Madoff --6 A. Uh-huh.7 Q. -- you'll see that this was actually on the8 back of that.9 A. Okay. I got it, yeah.10 Q. Okay. And if you look at that and you go11 to this second paragraph where it starts off12 customer equity transaction --13 A. Correct.14 Q. -- do you see that? Okay. It says on the15 second sentence, and I'll just read it into the16 record, quote, unless stated otherwise on the front17 of this confirmation, comma, the trade price of your18 transaction is an average price and includes a19 commission equivalent of .4 cents per share, period.20 A. Right.21 Q. Do you see that?22 A. Uh-huh.23 Q. Okay. That's what I was referring to.24 A. Oh, okay.25 Q. Do you remember testifying to that back on

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1 December 20th?2 A. Right.3 Q. Okay. So with that background I wanted to4 direct your attention to what has now been marked as5 Exhibit 4, which I believe is right in front of you.6 A. Uh-huh.7 Q. Take a look at those statements and tell me8 if there's any language on those that talks about9 average pricing; all right? Not that one, the two10 in front of you.11 A. Oh, oh.12 Q. Yeah. Just go to the --13 A. Okay. I see it.14 Q. See that?15 A. Uh-huh.16 Q. All right.17 A. There is no average. There's no -- there18 is no language about average price nor is there19 language of what the commission equivalent is20 because that language was changed based upon rules21 that the industry has stated you now had to -- you22 now had to put that language on the confirmation.23 Q. Were you, in fact, doing average pricing in24 -- in front of you is a good one. August 7, '84,25 which is the date on Exhibit 4.

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1 A. I'm assuming that it was an average price.2 Again, it depends upon how many -- how many shares3 we were buying and selling at that -- it could have4 been average price. It could not have been average5 price.6 Q. Did you advise your customers other than --7 yeah. Did you -- I mean, did you advise your8 customers in 1984 that you were using average9 pricing?10 A. If, in fact, we were using an average11 price, no. You know, we wouldn't necessarily12 because it wasn't required to -- they changed the13 language. The SEC changed the language that had to14 be on confirmations regarding, you know, average15 price or commission equivalent and so on. In other16 words, they changed the language that you had to do17 it.18 So there are -- if there was no language19 about average price on there, it wasn't required to20 put on there. The same thing that they changed the21 language about putting whether a commission22 equivalent. They never used to have -- use the term23 commission equivalent for a mark-up.24 They would just -- in other words, they25 allowed you to put language on the -- they told you

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1 to put language on the confirmation that said you2 were not charging a commission or not charging a3 mark-up, which you aren't charging a commission4 equivalent, which was a mark-up.5 Q. Okay.6 A. They just changed the requirements. That's7 why there's no language that -- you know, on the8 earlier transaction. Was no requirement I should9 say.10 MR. SHEEHAN: Okay. Thanks. Are we --11 okay. Whoops. It's knocking over. Got too many12 statements.13 MS. FEIN: Yes.14 MR. GOLDMAN: Too small a desk.15 MR. SHEEHAN: That's for sure.16 (Trustee's Exhibit Number 5 was marked for17 identification.)18 Q. (By Mr. Sheehan) Okay. Now, Ms. Fein is19 now handing you exhibit -- what's been marked20 exhibit -- Trustee's Exhibit 5. Take your time,21 take a look at that.22 A. Uh-huh.23 MS. FEIN: I'm sorry.24 MR. GOLDMAN: That's all right. No one is25 going anywhere.

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1 THE WITNESS: Okay.2 Q. (By Mr. Sheehan) Just starting right on3 the first page of that, see in the upper left-hand4 it says originator number? Do you see that?5 A. Right.6 Q. And it says 0646?7 A. Uh-huh.8 Q. What does that represent, if you know?9 A. That's our clearinghouse number.10 Q. And you previously answered that's the only11 number you've had?12 A. Yes.13 Q. Okay, okay. Just this is more for14 informational purposes. Where is that? It's here15 somewhere. Oh, there it is.16 MS. FEIN: Yes.17 Q. (By Mr. Sheehan) Again, recalling your18 earlier testimony, Mr. Madoff, do you remember at19 one point suggesting that a convertible security20 could be flat?21 A. Could be flat?22 Q. Flat.23 A. No.24 Q. Meaning that -- well --25 A. Oh, trading without interest you're talking

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1 about?2 Q. Thank you.3 A. Right.4 Q. All right. That's what I meant.5 A. Uh-huh.6 Q. Take a look at page -- we are trying to --7 MS. FEIN: It ends in 651. It's the8 second to last page, I think.9 Q. (By Mr. Sheehan) Yeah. It's the second to10 last page. It looks like this right here. Do you11 see that? It's a Trans World Airlines. What does12 that entry mean to you?13 A. Trans World Airlines subordinated14 convertible directions. Is that what you're looking15 at?16 Q. Yes.17 A. What's your question? What does it mean to18 me?19 Q. Yeah. Well, look below that and it says20 interest. Do you see that?21 A. Uh-huh.22 Q. Just an entry. Does this mean that this23 was not a flat trade?24 A. I assuming it's accrued interest. Bonds25 trade, you know, that's -- you know, that's the

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1 interest that the bond had paid and you have to2 credit the customer with that.3 MR. SHEEHAN: Okay. That's all I had.4 THE WITNESS: Uh-huh.5 MR. SHEEHAN: What? What more do you6 want.7 (Discussion off the record.)8 Q. (By Mr. Sheehan) Not going back there.9 I've done enough on fractional shares.10 A. Fractional shares.11 Q. I don't think anybody could handle another12 fractional share.13 A. Right.14 Q. Slowly I turn. Anyhow, all right. We made15 progress on that break, eliminated a lot here. So16 let's turn to a different topic, margin accounts.17 We've been talking about those, but could you tell18 me your understanding of what a margin account19 means?20 A. What is a margin account?21 Q. What is a margin account?22 A. A margin account is if a customer is23 buying -- you know, is borrowing money from the24 brokerage firm to buy stock. So he has a margin25 account, you know. If, in fact, the customer wants

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1 to buy a thousand dollars worth of stock and only2 has $500, he'd borrow the other $500 from the3 brokerage firm.4 Q. Okay.5 A. That's one type of margin. Then there's6 the type of margin if the customer wants to -- wants7 to -- is pledging with the brokerage firm securities8 to cover his -- his short exposure on the stock.9 Q. Are there government regulations with10 regard to margin accounts?11 A. Based upon how much -- how many -- how much12 credit you can give the customer based upon let's13 say 50 percent margin.14 Q. Okay. Does the term regulation T mean15 anything to you?16 A. Regulation T means what -- typically what a17 customer has to pay for the stock within a certain18 amount of days after he buys it.19 Q. Buys it on margin?20 A. Hmm?21 Q. Buys it on margin?22 A. Whether margin or cash, doesn't matter.23 Q. Okay.24 A. When a customer has to pay for the stock25 that he bought, how many days.

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1 Q. The 50 percent margin you talked about a2 moment ago, does that derive from reg T?3 A. Does it what?4 Q. Derive from regulation T?5 A. I'm not sure. You know --6 (Trustee's Exhibit Number 6 was marked for7 identification.)8 Q. (By Mr. Sheehan) Okay. That's fine. I'm9 going to show you a series of customer statements.10 A. Uh-huh.11 Q. We've redacted the name of the individual12 because it's one of the big four.13 A. Uh-huh.14 Q. Doesn't matter who his name is. I just15 want to ask you about the entries on it with regard16 to the margins; okay? And it is marked as17 Exhibit 6. Is that all of the pages?18 MS. FEIN: Uh-huh.19 MR. SHEEHAN: Okay.20 THE WITNESS: Is this for a '9321 transaction?22 MR. SHEEHAN: It's actually an '83.23 THE WITNESS: '83, yeah. I see.24 Q. (By Mr. Sheehan) If you turn the page, the25 copies are better, but these are all in 1983; all

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1 right?2 A. Oh, okay. Uh-huh.3 Q. Pardon?4 A. Yeah.5 Q. And '80 -- it actually ends, I think the6 last one is --7 A. Some are '93, some are '83.8 MR. GOLDMAN: Going to have to get halfway9 before you get to '84.10 THE WITNESS: The top page is '83 and then11 it's '93 and then there's '83.12 Q. (By Mr. Sheehan) I think the '90s are13 where the account gets closed out, but I think this14 is the history of the account from the beginning to15 the end; right?16 A. Uh-huh.17 Q. So take a moment to look and I'm going to18 be asking you principally about the margins here --19 A. Right.20 Q. -- but some other questions as well.21 A. Uh-huh.22 Q. So just to get us grounded, let's look at23 the first page of this exhibit. And just so we all24 know about what that first page is, it is the Bates25 number ends in it's MF 248. And directing your

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1 attention to the August 23 entry, what do you see2 that to be?3 A. A check you mean?4 Q. Yes.5 A. Looks like the customer sent in a check for6 $1,500,000.7 Q. Okay. And then what's the next entry?8 A. The purchase of American Telephone.9 Q. Yes.10 A. Uh-huh.11 Q. Just short of a million five; right?12 A. Right, uh-huh.13 Q. And that's the end position as well?14 A. Right.15 Q. Okay. So then turning to the next month,16 next month is -- we were in August. Now we're in17 September of '83?18 A. Uh-huh.19 MS. CHAITMAN: I just want to say this20 looks like it's 8-31-93. You're saying you're sure21 it's 8-31-83?22 MR. SHEEHAN: Yes. It is.23 MS. FEIN: And you can tell based on the24 statements following it as well, but it's true that25 the first page is less clear.

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1 MS. CHAITMAN: Because the Bates number2 isn't consecutive.3 MS. FEIN: No. They're not. They're not4 kept that way every time, so --5 MR. SHEEHAN: I haven't misrepresented6 anything in a week, so pretty safe that this is '83.7 All right?8 MS. CHAITMAN: Okay. I was just --9 Q. (By Mr. Sheehan) All right. So next page10 is September 30, '83. And we see there what's the11 first entry there on September 29th?12 A. Check for $250,000 debit, needs to be sent13 a check for $250,000.14 Q. Did any other transaction take place that15 month?16 A. Doesn't look like it.17 Q. And did you charge him interest for that?18 A. Seems to be an interest, yeah, $154.19 Q. Okay.20 A. It says margin interest.21 Q. Thank you. Okay. Now, let's go to the22 next one, which is October 31, '83.23 A. Uh-huh.24 Q. And you're charging interest again on the25 250; are you not?

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1 A. Right.2 Q. Okay. Let's go to the -- actually, we can3 skip a page or two. These are all consecutive4 months. We're now in December 30th, '83. Do you5 see that up in the upper left-hand corner, December6 '83?7 MS. FEIN: Bates ending in 301.8 MR. SHEEHAN: Yeah. It's one, two, three,9 four, five. It's the sixth page in.10 THE WITNESS: Okay, right.11 Q. (By Mr. Sheehan) And there's several12 entries there?13 A. Uh-huh.14 Q. Is there another check issued to this15 customer?16 A. Uh-huh.17 Q. How much?18 A. Capital -- it says CW, $250,000.19 Q. Yes.20 A. Right.21 Q. What does CW stand for?22 A. Capital withdrawal.23 Q. Now, with respect to these two borrowings24 against the margin account, has any stock been25 purchased with that money?

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1 A. I don't know. I'll have to look at the2 account. Are there transactions here?3 Q. Yes, because at the very beginning the4 first one we looked at --5 A. Uh-huh.6 Q. -- the customer deposited a million five7 and then you -- and then the next or actually before8 that, I guess that was the payment for it, but9 before that on 8-19 you had purchased looks like 64510 shares of AT&T for an aggregate price of 1,499,840.11 Do you see that on the first page?12 A. Uh-huh, uh-huh.13 Q. All right. And then but then there are two14 borrowings against the margin account aggregating15 $500,000 but no apparent stock being purchased. Do16 you see that?17 A. Okay. So --18 Q. All right. I'm just saying that you agree19 that that's what's there?20 A. Not -- I can't say I agree with it. I'm21 not sure what the question is.22 Q. Well, my question was was any of that23 $500,000 used -- the statement seems to suggest that24 the million five that was deposited was used to25 purchase the stock; correct?

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1 A. Right.2 Q. And, therefore, and then after that3 $500,000 was borrowed but not used to purchase any4 stock. So in effect it was borrowed against the5 existing position?6 A. Okay.7 Q. All right?8 A. Uh-huh.9 Q. That's what it appears?10 A. Okay.11 Q. All right, fine. So we then go through and12 we pick up in January of '84, which we can pass13 over. Then we have February of '84. And you're14 going to see something that you actually referred to15 yesterday?16 MS. FEIN: Yeah, on page eight.17 MR. SHEEHAN: Page eight.18 MS. FEIN: Ending in 461 for the Bates.19 MR. SHEEHAN: It's got a lot of entries.20 THE WITNESS: Page eight. I don't --21 MS. FEIN: 461 and it's February '84.22 THE WITNESS: Okay.23 Q. (By Mr. Sheehan) So do you see all those24 entries there?25 A. Uh-huh.

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1 Q. Do they mean anything to you? What I mean2 by that, what was happening?3 A. This is showing what it was long -- what he4 was long in the account.5 Q. Doesn't this reflect the break-up of AT&T?6 A. I have no idea. I don't -- you know.7 Q. Because originally you had a large8 position, about a million five, in AT&T?9 A. Uh-huh.10 Q. And it appears that now it's been broken up11 into different entities?12 A. Right. This was when they were -- this was13 when they broke up the AT&T into the baby Bells, I'm14 assuming.15 Q. Right.16 A. Right.17 Q. Okay. And then if you carry it over to the18 next page --19 A. Uh-huh.20 Q. All right. Which is the second page of the21 2-29 statement, you see the end positions; all22 right?23 A. Uh-huh.24 Q. Okay. Then go to the March 31st, which is25 the next one.

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1 A. Uh-huh.2 Q. And what you see there is what on 3-13?3 A. Margin interest you're talking about?4 Q. It's actually above that, the IBM5 purchase --6 A. Okay.7 Q. -- or short, actually.8 A. Right.9 Q. No, no. It was a purchase?10 A. No. It's purchase.11 Q. It's purchase.12 A. Uh-huh.13 Q. Yep.14 A. Right.15 Q. And then below that margin interest again16 being charged?17 A. Uh-huh.18 Q. So take a look at the end positions here.19 A. Uh-huh.20 Q. How much is the debit at that point?21 A. You're talking about the 2 million?22 Q. Two million one hundred and ten thousand,23 yeah.24 A. Right, uh-huh.25 Q. Is that the amount that -- is that the

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1 amount owed to you?2 A. Two million one ten?3 Q. Yeah.4 A. That looks like it's the value of the -- of5 the positions that are above it.6 Q. Okay. All right. What does the million7 seventy-one thousand represent?8 A. It must be the value of the short9 positions.10 Q. Okay, okay. Let's look at April 30, '84.11 A. Uh-huh.12 Q. We've got you here charging margin13 interest?14 A. Uh-huh.15 Q. And there's another check issue, is there16 not, for 250?17 A. Uh-huh.18 MR. SHEEHAN: One second, please.19 (Discussion off the record.)20 Q. (By Mr. Sheehan) So let's go down to the21 end positions again --22 A. Uh-huh.23 Q. -- on this one. It's April 30. Let me see24 this. So the long positions are two million one25 ten?

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1 A. Right.2 Q. And when he said the column isn't short its3 difference, isn't the one million three thirty-six4 what is actually owed to you?5 A. No. That would be the value of the short6 positions, mark to market on the short positions.7 Q. Where are you accounting for the margin8 count here?9 A. What do you mean where am I?10 Q. Well, in other words, he's continuing to11 borrow money?12 A. Right.13 Q. Where do you show that on the statement?14 A. You're talking about the margin interest?15 Q. No. I'm talking about the margin, the16 amount he borrowed, the 250, the other 250s, et17 cetera. Where is that on the statement?18 A. It's the statement is being debited.19 Q. That's what I'm saying. Isn't the amount20 he borrowed, the 1,000,000 -- see it here, new21 balance?22 A. Uh-huh.23 Q. Let's go back up. Maybe it's easier this24 way. See the check and then the amount?25 A. For $250,000?

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1 Q. Yeah.2 A. Right.3 Q. See, let's start at the very, very top. It4 says debit; right?5 A. Uh-huh.6 Q. Balance forward, a million seventy-one. He7 borrows another 250, the interest, and that all adds8 up to 1,336,234?9 A. That's his new balance, right.10 Q. Right. And that's the margin count, is it11 not, that he's borrowed?12 A. That's the total debit.13 Q. Yep.14 A. Uh-huh.15 Q. Okay. So let's just keep moving along16 and --17 MR. GOLDMAN: You sort of lost me. Can I18 ask him?19 MR. SHEEHAN: Yeah, sure.20 MR. GOLDMAN: If you look at the opening21 balance on the 4-30 statement, it says opening22 balance of a million seventy-one balance forward.23 MR. SHEEHAN: Right.24 MR. GOLDMAN: Where does that -- is that25 reflected in the 3-31 closing? Oh, I see it. Okay.

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1 Now I see it.2 MR. SHEEHAN: You got it?3 THE WITNESS: Yeah, okay.4 Q. (By Mr. Sheehan) So let's jump forward to5 July 31, 1984. It's Bates number 84. Do you see6 it, Mr. Madoff?7 MS. CHAITMAN: May be that next one.8 Q. (By Mr. Sheehan) 7-31-84. Okay. Again,9 let's start with the debit. And you can see the10 carry forward of the million three twenty-nine?11 A. Uh-huh.12 Q. Which has gone up a little bit because of13 interest. Now there's another borrowing of 250,14 interest charged. Now the total borrowings are one15 million five ninety-eight. Do you see that?16 A. Right. That's his debit balance.17 Q. Now, at this point that borrowing is more18 than 50 percent. Remember you mentioned 50 percent19 earlier?20 A. Uh-huh.21 Q. Now it's more than 50 percent of the value22 of the stock he holds.23 A. Uh-huh.24 Q. What are you supposed to do?25 A. Well, first of all, these accounts are

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1 probably cross -- if these are the big four2 accounts, they were cross-margined, so you'd have to3 look at all of his accounts. Here they'd4 cross-margin accounts, which means he's borrowing --5 you know, you'd have to compile all of his accounts,6 his family accounts, because they -- they're handled7 as a joint account.8 Q. There were a lot of accounts. I didn't9 bring them all here.10 A. Yeah.11 Q. Just for purposes of our discussion, assume12 the cross-margin would be more than 50 percent.13 What should you do at that point?14 MS. CHAITMAN: Objection to form.15 THE WITNESS: I'm confused as to what the16 question is.17 Q. (By Mr. Sheehan) Well, let me put it a18 different way. If the debit balance exceeds19 50 percent, isn't a broker at that point supposed to20 call upon the customer to deposit more cash?21 A. Typically you would call them for22 additional cash, yeah.23 Q. Right, okay.24 A. And, again, it depends upon -- the25 50 percent margin depends upon whether or not he

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1 has -- the account is hedged and he has -- you'd2 have to look at -- you can't just look at one3 account. You have to look at of all the accounts.4 They'd have to look at the type of positions he has5 and whether there were -- there were arbitrage6 positions set up upon it. You can't just look at7 one isolated account.8 Q. Okay. So now let's go to October 31, 1984.9 If we could -- yeah, October.10 MS. CHAITMAN: Okay.11 THE WITNESS: Uh-huh.12 Q. (By Mr. Sheehan) Do you see starting again13 with debit, it's now a million five ninety-eight?14 Customer borrows other 450. There's an interest15 charge of $22,000. The entire debit is now over two16 million dollars. Do you see that?17 A. Uh-huh.18 Q. Which is almost 100 percent of that19 balance?20 A. Uh-huh.21 Q. So your testimony is that you would have to22 look at the cross-margin here?23 A. Yeah. You have to look at, you know -- at24 -- if, for example, if he has -- you know, you can't25 just look at this account. He may be overmargined

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1 in this account, but if he has other securities in2 another account, you know, you'd have to, you know,3 equate that to that as well.4 Q. All right. So let's go to 12-31-84.5 Again, on the debit side what we see is two million6 fifty-nine; right?7 A. Uh-huh.8 Q. Another $750,000 is borrowed, interest is9 charged, and there's now a new balance of two10 million eight twenty-five. Do you see that?11 A. Okay. I'm assuming that you're correct.12 I'm not following it, but go ahead.13 Q. Okay. It's -- well, why don't we get you14 to the right page?15 MS. CHAITMAN: Hold on, hold on.16 THE WITNESS: I'm assuming that the17 statements are correct.18 Q. (By Mr. Sheehan) All right, fine. I'm not19 actually testing that. I just wanted to ask you a20 few questions and, unfortunately, sometimes you have21 to lay a foundation. So here you go.22 A. Okay.23 Q. So if you look at the end positions here,24 now the stock position is two million one ten. And25 you've got a margin that far exceeds that at two

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1 million eight twenty-five. Do you see that?2 A. Uh-huh.3 Q. Are you saying that even with a pre --4 because of cross-margin, you would allow this kind5 of borrowing to take place against two million6 dollars?7 A. I'm assuming -- again, saying this is not8 my area, but I'm assuming that if, in fact, you9 know, that he had enough -- enough equity in the10 account to cover whatever he was borrowing.11 Q. Right.12 A. But you'd have to look at, you know, all of13 the accounts of the family if, in fact -- you know,14 because that's how they were cross-margined. So you15 can't look at one account. You'd have to -- you16 know, so for me to look at this would be meaningless17 to me. You'd have to take a picture of all of -- of18 all the accounts that he had.19 We generally would not -- would not be20 lending the -- buying more securities than the21 customer had enough equity to cover his marginal22 requirements.23 Q. Right.24 A. But he had other accounts that he just had25 -- he could have had just long positions in there

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1 that, you know, there were no borrowing against, but2 that's the purpose of a cross-margin agreement.3 Q. Right. Let's go to 13185, which I think is4 the next page if you would. See it up in the5 left-hand corner? I think it's 13185.6 MS. CHAITMAN: It's the next page, yes.7 THE WITNESS: Okay.8 Q. (By Mr. Sheehan) See the balance carried9 forward of two million eight twenty-five is a debit?10 A. Right.11 Q. Again, a January margin interest payment --12 charge?13 A. Uh-huh.14 Q. But the new balance is two three15 forty-nine?16 A. Uh-huh.17 Q. Could you look down the statement --18 A. Uh-huh.19 Q. -- and can you see what transpired this20 month that caused a reduction in the debit?21 A. Right.22 Q. What is it?23 A. You're talking about what the market value24 of the positions he has, the two million one ten?25 Q. Yes.

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1 A. Okay.2 Q. So how does the debit go from two eight two3 five to two three four nine; right?4 A. Which was that went down because of the --5 well, first of all, there was a short. There was a6 sale and then there was also margin interest. I'm7 assuming the -- I'm assuming the debits and credits8 were correct because that's generated by the9 computer, so --10 Q. But the end position seems to be the same,11 two million one ten?12 A. Yes.13 Q. Yet there's been a reduction?14 A. There's been a market value of those listed15 positions.16 Q. Right. But how did we go down to two three17 four nine? Do you see an entry that would explain18 that?19 A. That's the value of the short position.20 Q. Okay. Well, I think we've salvaged as to21 debit. Let me take you up to the top here. Do you22 see where -- we had debit. Now look at credit. Do23 you see that?24 A. The what?25 Q. There's a credit there of $500,000. Do you

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1 see it?2 A. Yes. That means that --3 Q. Does that represent payment by the4 customer?5 A. Yes. It means caption addition. It means6 a check --7 Q. That would reduce the --8 A. A check must have come in, right.9 MR. SHEEHAN: All right. Thanks.10 MR. GOLDMAN: That was an easy one.11 MR. SHEEHAN: Yeah. Let's see. I got it.12 MR. GOLDMAN: Wait a minute. I have a13 question for you, though.14 MR. SHEEHAN: Yeah, sure.15 MR. GOLDMAN: The document starts off up16 where it says redacted --17 MR. SHEEHAN: Right.18 MR. GOLDMAN: -- and it says right next to19 it, it might new be an internal control from the20 Trustee, but it says 9525.21 MS. FEIN: Which page are you on?22 MR. SHEEHAN: The Social Security number,23 we always redact part of that.24 MR. GOLDMAN: The 9525?25 MR. SHEEHAN: Yeah. I'm pretty sure

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1 that's what that is.2 MR. GOLDMAN: But if you go ahead a couple3 of pages, it changes.4 MR. SHEEHAN: Oh, yeah?5 MR. GOLDMAN: Go to --6 MR. SHEEHAN: Maybe I'm wrong then. I7 don't really know, but --8 MR. GOLDMAN: Go to December and it9 becomes 5965.10 MR. SHEEHAN: Yeah. I see that. Yeah. I11 see that.12 MR. GOLDMAN: Yeah.13 MR. SHEEHAN: Okay.14 MR. GOLDMAN: But is the account number15 the number at the very top?16 MR. SHEEHAN: Yes. The account number17 never changes.18 MR. GOLDMAN: Yeah. Well, that was the19 inconsistency I saw, so I didn't know why.20 MR. SHEEHAN: Okay. Well, that's worth21 noting and we'll certainly look into it, but these22 are all from the same account.23 MR. GOLDMAN: Okay.24 MR. SHEEHAN: So --25 THE WITNESS: Cold again.

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1 MR. GOLDMAN: Are you cold?2 MR. SHEEHAN: No, no. I want to ask him a3 couple of questions.4 MS. FEIN: Yeah, okay.5 Q. (By Mr. Sheehan) Now, Mr. Madoff, in 19846 did you file focus reports?7 A. We always filed focus reports, yes.8 Q. Okay. And I believe your testimony was,9 and correct me if I'm wrong, prior to 1992 your10 focus reports were always accurate?11 A. No.12 Q. No. So correct me. What was -- what was13 not accurate prior to 1992?14 A. The -- when the --15 Q. Let me restate the question. I may have16 gone too fast.17 A. Yeah.18 Q. Okay. And we can look it up, but I'm19 pretty sure your testimony was that prior to 199220 all of your focus reports were accurate. Is that21 true?22 A. Okay.23 Q. Is that true?24 A. No.25 Q. And what about your focus reports prior to

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1 1992 would not have been true?2 A. The customer debit -- the customer debit3 balances and credit balances.4 Q. I'm sorry. Why was that?5 A. Because we weren't reflecting the -- the6 customer margin accounts.7 Q. Okay. Why weren't you reflecting the8 customer margin accounts?9 A. Because we weren't. It wasn't correct. I10 said the fraud started -- when I refer to the fraud11 starting in '92 --12 Q. Right.13 A. -- I was referring to the -- to the split14 strike conversion trades.15 Q. Right.16 A. Uh-huh.17 Q. Okay. But why were you not accurately18 reporting the margin account activity prior to 1992?19 A. Because I wasn't.20 Q. Was there a reason why you didn't do it?21 A. We didn't want to show the -- the debit22 balances. Well, first of all, I'm not 100 percent23 sure because you were allowed to net the -- the24 debit and credit balances from all of the customer25 accounts. Depends upon what the short position is,

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1 so I can't really answer you that, that question.2 Q. Okay. Well, let's take a look at the focus3 report; okay?4 A. Uh-huh.5 Q. I think we have them from the year '84?6 '84.7 MS. FEIN: It will be seven?8 MR. SHEEHAN: Seven.9 (Trustee's Exhibit Number 7 was marked for10 identification.)11 MR. SHEEHAN: You marked that up for me.12 Yeah. I guess I should. All right. Thank you.13 MS. FEIN: Always.14 MR. SHEEHAN: Yes.15 Q. (By Mr. Sheehan) All right. You've been16 handed Exhibit 7?17 MS. FEIN: Uh-huh.18 Q. (By Mr. Sheehan) Exhibit 7, which is the19 focus reports which we compiled that are the four20 quarterly reports for 1984.21 A. Uh-huh.22 Q. And I believe the one at the beginning, I23 think they're in reverse order, this is the one at24 the beginning. The dates on it if you look at it25 says for the period beginning 10-1-84 to 12-31-84.

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1 Do you see that? So just sticking with that first2 quarterly report, if you would, turn to -- see, take3 a look at the page 2 of 29. It's actually -- just4 turn the page.5 A. Right.6 Q. Down at the very bottom it says number7 four, receivables from customers?8 A. Uh-huh.9 Q. What is your understanding of what that10 would be?11 A. It would be what the customers owe us.12 Q. Okay. And then underneath it says13 securities accounts, one, cash and fully secured14 accounts. Do you see that?15 A. Uh-huh.16 Q. What do you understand that to be?17 A. What it says.18 Q. Okay. And do you see what the entry is for19 that?20 A. Uh-huh.21 Q. Zero?22 A. Uh-huh.23 Q. Is that correct?24 A. I don't know. I mean, again, I'd have to25 see. I'd have to see what the total debits and

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1 credits were of all the customer accounts and how2 they were netted out.3 Q. So it's your understanding it's a4 compilation of all of the margin accounts that you5 had?6 A. Right, based upon what the net and short7 positions were of the customer.8 Q. Okay. So it could all net out to zero?9 A. That I can't tell you because that's not10 something that I --11 Q. All right, all right. Let's go to page12 ten. All right. And it's page 10 of 29 and it's13 three up from the bottom. It's number five. Do you14 see that?15 A. Uh-huh.16 Q. It says margin interest. Are you there17 with me?18 A. Right.19 Q. And what is the entry for that?20 A. Zero.21 Q. That's not true; is it?22 A. Oh, I -- wait a minute. Which item are you23 talking about?24 Q. Talking under revenue, it says number five,25 margin interest, and the entry is zero?

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1 A. Right. That's what I just said, right.2 Q. And we just looked at one account where the3 margin interest was substantial?4 A. Uh-huh.5 Q. So that entry is incorrect; right?6 A. Again, I don't know how they calculate7 that. It's not something that I did.8 Q. All right. If we go through all of these,9 I represent to you that they all are zero --10 A. Right.11 Q. -- for both of those entries that we just12 reviewed.13 A. Uh-huh.14 Q. Okay. And is your answer is you just don't15 know why it's zero?16 A. I don't fill out this report, so I don't17 know.18 Q. Do you ever remember instructing people to19 not enter the margin interest?20 A. That's -- no. I don't remember that.21 Q. Did they ever actually pay you the margin22 interest?23 A. If the money came out of the account, they24 must have.25 Q. So what do you mean by that? Maybe I'm not

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1 understanding you.2 A. I mean, if the margin interest came out of3 the account, you know, it would have been deducted4 from the monies they sent in.5 So, I mean, if there are entries in the6 account, you know, margin interest and there were7 checks coming into the account, obviously, it would8 have been -- it would have reduced, you know, would9 have reduced the balance in their account. If10 somebody sent me in $500,000 and we charged them11 interest of $100,000 --12 Q. Got it.13 A. -- their balance would have gone down by14 100 -- you know, by the $100,000.15 Q. So who would have filled out this report,16 the focus report, that is?17 A. During what year? Is this in the '80s?18 Q. Yeah.19 A. It would have been filled out by Sylvia20 Hendel --21 Q. Okay.22 A. -- or Irwin Lipkin. Either one of them.23 Q. All right. Give me a moment. If we go24 back to Exhibit 6 --25 MS. FEIN: Okay.

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1 (Discussion off the record.)2 MR. SHEEHAN: You're going to have to give3 me '84.4 MS. FEIN: Okay.5 MR. SHEEHAN: Okay.6 MS. CHAITMAN: You're looking at 12-31-84?7 MR. SHEEHAN: Yeah.8 MS. CHAITMAN: From Exhibit 6?9 MR. SHEEHAN: Yeah.10 Q. (By Mr. Sheehan) So looking back at11 Exhibit 6, looking at December 31st, 1984 --12 MS. CHAITMAN: I'm just getting that.13 MR. SHEEHAN: Okay, sure. Maybe you can14 help Mr. Madoff.15 MS. CHAITMAN: I am.16 THE WITNESS: Uh-huh, okay.17 Q. (By Mr. Sheehan) So the ending balance of18 that end of year was two million eighty twenty-five.19 Do you see that?20 A. Right, uh-huh.21 Q. And there does not appear to be any22 payments made that year in the 12 months preceding23 it?24 A. Right.25 Q. So wouldn't there have been interest at the

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1 end of '84 that should have been reported for this2 account?3 A. You'd have -- you'd have to look at all of4 the accounts. You know, they're netted, so I5 can't -- you don't treat just one account. You'd6 have to look at the other accounts. He may have had7 an offsetting balance in those other accounts and8 they're netted.9 (Discussion off the record.)10 MR. SHEEHAN: Okay. That's fine. Hang on11 one second. Just hang onto it.12 MS. FEIN: Uh-huh.13 Q. (By Mr. Sheehan) New topic. Maurice14 Cohn --15 A. Uh-huh.16 Q. -- who is he or who was he?17 A. He was a friend of mine, also owned Cohmad18 Securities.19 Q. Were you 50/50 owners of Cohmad Securities?20 A. No. We had, I think, 24 percent of Cohmad.21 My brother had -- I had 15, my brother had nine,22 something of that sort.23 Q. All right. And what was Cohmad Securities?24 A. It was another broker-dealer.25 Q. And where did it -- where was it located?

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1 A. They were located in my office.2 Q. Okay.3 A. We sublet them space.4 Q. Was it a separate independent brokerage?5 A. Yes, uh-huh.6 Q. Okay.7 A. Through Bear Stearns.8 Q. Okay. Did Mr. Maurice Cohn have an account9 at PLMIS?10 A. Yes.11 Q. What was the nature of that account?12 A. He had a split strike, you know, account13 and I'm not sure he had a convertible account as14 well. I don't think so. I'm not sure.15 MR. SHEEHAN: Okay. All right. Why don't16 we mark this?17 MS. FEIN: Okay.18 MR. SHEEHAN: And let's do these first;19 all right?20 MS. FEIN: Uh-huh.21 MR. SHEEHAN: Okay.22 MR. GOLDMAN: Is this 7 or is this 8?23 MS. FEIN: This is Trustee's 8.24 MS. CHAITMAN: Thank you.25 MR. SHEEHAN: Yeah. Mine is.

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1 MS. FEIN: It's in there.2 MR. SHEEHAN: It's in there. It's 13A,3 can't miss it. All right. Have to swing this down.4 Sorry about that.5 (Discussion off the record and Trustee's6 Exhibit Number 8 was marked for identification.)7 Q. (By Mr. Sheehan) Mr. Madoff, I've shown8 you what has been now marked as Exhibit 8. It's a9 series of notes that it actually came out of a10 folder and the folder was called MC disbursements.11 A. Uh-huh.12 Q. If you look at the first page, they13 actually made a photocopy of the folder where it14 says that on it and it's IM 001, MC disbursements.15 Do you see that?16 A. Uh-huh.17 Q. And the pages that follow were in that18 folder; okay?19 A. Right.20 Q. So take a -- take a look through it because21 I'm going to ask you about each of these pages.22 A. Uh-huh, okay.23 Q. Okay. Let's go to the first page. And as24 always, I'm going to read it into the record as best25 I can. Bernie said no --

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1 MR. GOLDMAN: Forms.2 MR. SHEEHAN: What?3 MS. CHAITMAN: Forms.4 Q. (By Mr. Sheehan) Forms. Hey, good.5 Bernie said no forms for a new account or a trade6 authorization or tax ID are needed for this account.7 A. Uh-huh.8 Q. Do you recognize that handwriting?9 A. No.10 Q. Do you remember telling anyone that with11 regard to Mr. Cohn's accounts?12 A. If it says Bernie said, I must have said13 something.14 Q. Okay. Let's go to the next page. It's a15 form. Do you recognize the form?16 A. This one?17 Q. Yeah.18 A. No, but I'm assuming that --19 MS. CHAITMAN: Don't assume, Bernie. If20 you know, you should say.21 THE WITNESS: No.22 MR. SHEEHAN: If you don't know, don't23 know.24 THE WITNESS: I don't.25 Q. (By Mr. Sheehan) It's entitled, it

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1 purports to be a document entitled name slash ADDR2 file maintenance. Does ADDR mean anything to you?3 A. ADDR?4 Q. Yeah.5 A. I don't know.6 Q. Okay. So you go through this and it speaks7 for itself, but it indicates that there's this MC8 disbursements?9 A. Uh-huh.10 Q. That gives an account number of 1MOO130.11 Do you see that up top?12 A. Uh-huh.13 Q. All right. And it says at the bottom,14 again, the handwriting, I'd ask you to -- it's no15 account papers or margin as per BLM.16 A. Uh-huh.17 Q. Do you see that down at the bottom?18 A. Right.19 Q. Do you recognize that handwriting?20 A. No.21 Q. Okay. Let's go to the next entry here.22 And this purports to be it looks like note paper23 from Cohmad Securities and it has underneath that24 Maurice J. Cohn?25 A. Uh-huh.

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1 Q. Do you recognize that handwriting?2 A. No.3 Q. Now, it seems to be -- do you see the word4 Sonny --5 A. Uh-huh.6 Q. -- down there?7 A. Uh-huh.8 Q. Does that --9 A. Sonny Cohn.10 Q. Was that Maurice's nickname?11 A. Yes.12 Q. Okay. So, again, it speaks for itself, but13 it reads Jodi, dash, revised, underlined twice,14 please issue a check payable to Maurice Cohn in the15 amount of $872,730, not $889,000, debit MC16 disbursements and gives the account number. And17 then it's got what looks to be initials to the left.18 Do you see those to the left of Sonny?19 A. Yeah.20 Q. Do you recognize those?21 A. Is that an initial or is it a number? It22 says what looks like --23 Q. Are we looking at the same one?24 MS. FEIN: It's this one.25 THE WITNESS: Oh, this?

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1 Q. (By Mr. Sheehan) Yeah. Where it says2 Sonny, it looks like a J. Could that be Jodi3 Crupi's initial?4 A. I have no idea.5 Q. No idea. And then it says you have my6 deposit check?7 A. Uh-huh.8 Q. What, if anything, does this mean to you?9 A. I'm not familiar with it, with any of this.10 Q. All right. When there were deposits and11 withdrawals out of Sonny Cohn's account, would you12 be involved?13 A. No. I mean, this looks like somebody said14 disbursements. It looks to me like it's just a15 bookkeeping procedure that they have for monies in16 the account.17 Q. Let's go to the next page.18 MR. GOLDMAN: I said unless they want to19 be on the transcript, they should tone it down.20 Q. (By Mr. Sheehan) So the next page, which21 is actually for Bates stamp purposes, it's AMF 105.22 Again, it appears to be -- you know, it purports to23 be a note pad from Cohmad Securities, Maurice Cohn,24 dated 6-30-98. And again, it speaks for itself, but25 I'll read it. Dear Jodi, dash -- Jodi, by the way,

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1 is spelled J-o-d-i -- please issue a check in the2 amount of $500,000 payable to Maurice J. Cohn. As3 discussed, debit MC disbursements. Also, please4 deposit this check at Chase Bank. A deposit slip is5 enclosed. Thanks, Sonny. Do you recognize this to6 be Mr. Cohn's handwriting?7 A. Which page are you on now?8 Q. It's dated out in the corner 6-30-98.9 A. Okay. What was your question?10 Q. I said do you recognize this to be Sonny11 Cohn's handwriting?12 A. You know, not really, but I'm assuming it's13 on Cohmad Securities' note pad. So Maurice Cohn,14 looks like his personal pad.15 Q. It says copy to BLM. That's your initials;16 right?17 A. Okay, yeah.18 Q. All right. Do you ever recall -- do you19 recall ever seeing these kind of notes coming to20 you?21 A. I assume so.22 Q. And then it says this should be done on or23 about July 2?24 A. Yeah.25 Q. Does July 2 have any significance to you?

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1 A. No.2 Q. Okay. Let's go to the next page.3 Actually, let me look at these. Maybe we're just4 repeating ourselves. Okay. The next two are5 similar notes. I'm going to pass over those for the6 record. They're AMF 106 and AMF 107. I can ask7 about them later, but for our purposes they're the8 same. Then we get to the last page of this exhibit.9 Let me just ask you a question about that.10 And it's again a note purports to be from11 Maurice Cohn dated 1-9-96. It says Dear Jodi, as12 discussed, deposit my check before January 16 so I13 can share my winnings with Uncle Sam. Thanks,14 Sonny. And then below that it says please mail the15 deposit slip receipt to me and gives his name and16 address. Do you see that?17 A. Uh-huh.18 Q. Do you recall discussing with -- well, let19 me rephrase this. Do you have any understanding why20 he referred to the deposit as winnings?21 A. It says winnings with Uncle Sam.22 Q. Yeah. Share my winnings. Why would he23 call winnings --24 A. Looks like he's referring to Uncle Sam,25 what his profits were with the government, with

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1 Uncle Sam, the taxes on it.2 MR. SHEEHAN: Okay. Let's get out the3 statements. This is eight?4 MS. FEIN: It's nine.5 (Trustee's Exhibit Number 9 was marked for6 identification.)7 Q. (By Mr. Sheehan) Nine. Let's take a break8 after this; okay? All right. Take a break after we9 go through this one.10 A. Okay.11 Q. Or you need one now? It doesn't matter.12 A. No. I'm fine.13 Q. You're okay? All right. Oh, it's in my14 book; right?15 MS. FEIN: Yes. This is another16 compilation of statements. Because some of them are17 harder to read, so we pulled several months. So18 they're all for the same account, but the time19 period varies.20 Q. (By Mr. Sheehan) Yeah. The first page is21 very blurry, but I think they gets succeedingly22 better as we go through them, but this is what the23 documents purport to be are account statements for24 MC Disbursements, care of Maurice Cohn and it gives25 his address as 121 Wall Street. I'm not going to

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1 date on the first one. As a matter of fact, I'm2 thinking we should just skip it. It's here for3 record purposes. What it shows is three checks. Do4 you see that?5 A. Uh-huh.6 Q. The first page? I'll ask you about this.7 And each of them says after the check, it says CW8 under all three. What is that?9 A. Capital withdrawal.10 Q. And can you make out the total?11 A. $55,000.12 Q. Yes, okay.13 A. Uh-huh.14 Q. All right. Now, there's no other entry on15 here. No stock?16 A. Uh-huh.17 Q. No transactions?18 A. Right.19 Q. Just cash out?20 A. Right.21 Q. What do you understand this transaction to22 be?23 A. It looks like just like a bookkeeping24 account. It doesn't look like it's a transaction25 account.

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1 Q. Okay.2 A. Because I don't see any transactions on3 here.4 Q. Were you paying Sonny Cohn for any5 services --6 A. Yes.7 Q. -- he was providing?8 A. Uh-huh.9 Q. What were those services?10 A. He was -- well, Cohmad Securities was11 executing our business on the floor, what's called12 dot business because they had dot machines through13 Bear Stearns, which we were not a member of the14 exchange, you know, so we didn't have those15 machines.16 So they executed business for us, you know,17 for my market makers from the dot business. Plus,18 Sonny Cohn also brought business into the firm as19 well and he also performed other services for the20 firm.21 Q. Just for the record, what's a dot business?22 A. Dot business is brokerage business that23 when we put an order on the floor of the exchange,24 it goes down to the specialist post on the exchange.25 Q. Okay. Just staying with the first page,

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1 Mr. Madoff --2 A. Uh-huh.3 Q. -- could this be a payment to Mr. Cohn for4 those services?5 A. It could be.6 Q. All right. Would it be your practice to7 use a customer account to make payments like that?8 A. I'm not sure.9 Q. Well, in other words, rather than write him10 a -- you know, just a check or something else, you11 used a customer account and put the money through12 the customer account?13 MS. CHAITMAN: I'm objecting to form.14 THE WITNESS: No.15 MS. CHAITMAN: I don't see any evidence16 that this is a customer account.17 THE WITNESS: Yeah. This looks like a18 journal, a type of journal account.19 Q. (By Mr. Sheehan) Well, I think the number20 at the top, 1-01329-30, is a customer account21 number.22 A. It's just referring -- yeah, but that's23 referring to his -- his customer account number; but24 if there's no transactions on there, this looks like25 a journal account.

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1 Q. What's a journal account?2 A. When -- you know, when money is flowing3 through the account, either we're receiving in4 checks or sending out checks. It says MC5 Disbursements, so that means that we're paying him6 money.7 Q. Right.8 A. They're just using -- those books are like9 a bookkeeping account. If there's no transactions10 on it, it's not really an account where we're buying11 and selling securities for them.12 Q. So if you're just disbursing money to them,13 why would you use a customer account for that?14 MS. CHAITMAN: Objection to form.15 THE WITNESS: I have no idea.16 MR. SHEEHAN: Okay.17 THE WITNESS: I mean, that's not something18 that I'm familiar with.19 Q. (By Mr. Sheehan) Okay. Because it does20 say -- you see on this, it also says or when I asked21 you, look down -- actually, we can stick with the22 first page. It's so blurry, but we can read it.23 See where it says on the left-hand side under the24 name and address?25 A. Uh-huh.

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1 Q. You see the words long and short?2 A. Right.3 Q. Don't those always appear on a customer4 statement?5 A. Yeah. Well, they're using a format of the6 customer account it looks like, but it's not --7 Q. Right.8 A. But there's no transactions on there, so --9 Q. All right. So let's -- let's go in four10 pages to April 30, 1989. And what it's showing is11 the balance forward showing it as a debit of12 $734,000. Do you see that?13 A. Yes.14 Q. And the initial, then there's three checks?15 A. Uh-huh.16 Q. Which brings the total up to $892,000?17 A. Right.18 Q. What was the purpose of keeping this debit19 balance running?20 A. Obviously, it looks like from the checks21 that were issued to him.22 Q. Right. Again, there's no transactions23 here; are there?24 A. No.25 Q. Now, we go to the next page if you would,

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1 which is 6-30-89. The balance is then brought up to2 $900,000, two more checks and it's now a million3 225. Do you see that?4 A. Uh-huh.5 Q. And, again, no transactions; right?6 A. Right.7 Q. So we're not going to keep doing this. All8 right. Let's go to the one -- next one is 4-30-95,9 the one that looks like this, Mr. Madoff.10 A. Uh-huh.11 MS. FEIN: I have it over here.12 Q. (By Mr. Sheehan) All right. So this shows13 that the new balance as of April 30, '95 is six14 million -- or 16 million. I'm sorry. $16,754,000.15 Do you see that?16 A. Yeah.17 Q. What was -- what were you paying Mr. Cohn18 $16 million for?19 A. $16 million for?20 Q. Yeah. It says your cash adds up to new21 balance of $16,754,393. There's not a single22 transaction and the only thing is checks going out23 to him totaling that amount of money. So what were24 you giving him $16 million for?25 A. Well, first of all, Maurice Cohn was

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1 getting a -- a payment for the accounts that he2 refers -- like all his salesmen, Cohmad was3 referring clients to us that we were doing -- when4 was this? In '95 that we were doing, you know,5 arbitrage transactions. They were referring clients6 to us and he was getting a fee, a percentage.7 I don't remember exactly what the fee was,8 whether it was, you know, two percent or whatever it9 is of all of their customer, you know, balances in10 their account. So I don't know. Sixteen million11 seems like a large amount, but I don't know; but12 that could have been, you know, based upon all of --13 you know, all of their customers for -- he had a14 whole bunch of salesmen at Cohmad.15 Q. I'm not so sure I understood that, so let16 me ask you a question.17 A. In other words, Cohmad referred clients to18 us and they got a -- he got a fee based upon the19 balances just like the woman by the name of Sonya20 Cohn. He had salesmen that got -- that referred21 hedge fund business to us and so on and he got a22 percentage, a referral fee for that.23 Q. Based on the balance?24 A. The amount of monies that the clients had25 sent in in their accounts to manage.

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1 Q. If the --2 A. It was a referral fee.3 Q. I understand.4 A. Uh-huh.5 Q. If the clients took the money out, would6 the amount that you paid him go down?7 A. Would have been -- would have been debited,8 yeah. Would have been deducted.9 MR. SHEEHAN: Okay. Take a break here.10 THE VIDEOGRAPHER: Going off the record.11 The time is 12:33 p.m.12 (A recess was taken.)13 THE VIDEOGRAPHER: Back on the record.14 This begins disc number three. The time is15 12:50 p.m.16 Q. (By Mr. Sheehan) Mr. Madoff, do you17 remember earlier today I was asking you about what I18 characterized as a 302 statement? Do you remember19 that?20 A. Yes.21 Q. Okay. These are statements that are22 prepared by the FBI following the interview such as23 the one they had with you?24 A. Uh-huh.25 Q. I'm stating that not for the truth of it

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1 but just for context.2 MR. GOLDMAN: I don't think it's the 302;3 was it?4 MR. SHEEHAN: They call it 302s.5 MR. GOLDMAN: It was a 201.6 MR. SHEEHAN: No. It's a 302. If7 anything today that I'm pretty sure of.8 MR. GOLDMAN: Okay.9 MR. SHEEHAN: I'm not arguing with you,10 Peter.11 Q. (By Mr. Sheehan) So it's December 16th,12 19 -- 2008?13 A. Uh-huh.14 Q. It's several days after the arrest, and15 you're telling them as I understood what you said16 earlier how the fraud came about; is that correct?17 A. Correct.18 Q. Right. Do you remember telling them that19 it started in the 1960s?20 A. No.21 Q. Do you know that the 302 statement says22 that not only once but three different times that23 you said it started early?24 MS. CHAITMAN: Do you have the 30225 statement?

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1 MR. SHEEHAN: I can't get it.2 THE WITNESS: I never would have said3 that.4 MR. SHEEHAN: I'm in the process of trying5 -- let me explain this for the record. I'm sorry,6 Mr. Madoff. I'll give you a chance. That is, that7 we went down to look at it, Helen, and they let us8 review it and then I asked for a copy and they9 refused. What we've done is we've prepared what's10 called a Touhy letter to request it and they have11 that under consideration. The U.S. Attorney moves12 at its own speed, so I don't have it.13 I am attempting to get it. In the14 meantime you can do what I did and that is ask to15 see it, and they will accommodate you and let you16 read it; but, unfortunately, they will not give us a17 copy as yet. I don't see any reason why they18 wouldn't because the case is essentially over from a19 criminal perspective.20 And 302s are, you know, given out as Brady21 statements and everything else, so but I don't have22 it here and I apologize for that, but I wish I did.23 THE WITNESS: Let me clear something up.24 During the proffer agreement, the proffer meeting,25 they asked me to explain the history of the firm;

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1 okay?2 MR. SHEEHAN: Right.3 THE WITNESS: And at that point I said we4 started in 1960. That was the only reference that5 was ever made to 1960 was that their firm started in6 1960, and that's when I started doing business. And7 then I gave a history of the firm from 1960. And,8 you know, I said I started, you know, with -- I sold9 new issues to clients. And the new issue market10 collapsed and didn't work out.11 That's when I got into the fact that I had12 to borrow $30,000 to make my customers whole, but13 there was never any discussion of fraud starting in14 1960 because it didn't. So I never would have made15 that statement. The only referral to 1960 was when16 the firm started.17 Q. (By Mr. Sheehan) So when the FBI wrote18 down that you told them the fraud started in the19 '60s, they were wrong?20 A. I said the firm started in the '60s, not21 the fraud started in the '60s.22 Q. Well, the FBI wrote down that the fraud23 started --24 A. Well, I can't help what they wrote down,25 but --

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1 Q. Well, they wrote down that you had borrowed2 the $30,000 because your business had failed.3 A. No. I didn't say the business had failed.4 What I said to them was, and I remember this very5 clearly because this was in the book and I told6 Diana Henriques, what happened was the firm started7 in 1960. Sometime in 1962, I believe it was, I -- I8 sold two new issues to a handful of customers. They9 were actually -- most of them were my relatives.10 And that was then the new issue -- with11 the Cuban Missile Crisis happened in '62, the new12 issue market collapsed. Remember, the tape ran13 until like 9:00 o'clock at night, you know, at that14 time, the ticker tape. The new issue market15 collapsed and the underwriters, the two underwriters16 of the new issues that were supposedly in there17 making a mark and supporting the issue, you know,18 walked away.19 So there was no liquidity in those stocks,20 so the stocks -- these stocks came out at $2 a21 share. They went down to one bid, two offer. That22 was the quote. So the customers theoretically lost,23 you know, 50 percent of their money. Then there was24 -- the total investment that they had made was25 $30,000. I felt, you know, guilty because of the

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1 fact that, you know, they bought the stock because I2 told them to buy the stock. It was the first time I3 ever did retail business with these clients.4 The capital of the firm -- so I had to5 come up with $30,000. I didn't have to. I chose to6 give the customers -- buy the customers back their7 stock at the offering price, $2 a share, which is8 what it was initially sold to them at. That market9 was one-two, which is a very wide spread; but that's10 the way those stocks traded, you know, during that11 period of time.12 So because I decided I wanted to take the13 customers out, buy their stock back at $2 a share,14 it cost me $30,000. And that would have used up all15 the capital of the firm, so I borrowed $30,000 from16 my father-in-law to pay them back. That was the17 whole issue with that.18 That's when I said to you that when the19 SEC came in to do an examination at a much later20 date and they saw that I did that, that was when21 they said to me -- as a matter of fact, the22 examiners said Bernie, you know, you didn't have to23 buy this stock back from the customers.24 You never guaranteed them anything. And I25 said I know. I told them exactly what I just said

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1 now and I felt guilty about it. And, you know, I2 made a decision to do that. They said, well, you3 know, if you're going to keep on doing this, you're4 going to run out of money. You know, they sort of5 like made a joke out of the whole thing, but there6 was never -- that was the whole episode with the --7 with the $30.8 And then Diana Henriques in her -- when9 she wrote the book, which I was really annoyed at10 her about and I spoke to her about that, she said,11 well, I really mischaracterized it. You know, they12 said that -- what did she say? That I did things13 that I really didn't have to do or something of14 that, which was true. I didn't have to do that, you15 know. She thought it was like foolish of me to do16 that.17 Q. You started the retail business, again, in18 the '60s; didn't you?19 A. No. I mean, you know, after that issue20 with the new issue business, I basically started21 just doing arbitrage transactions. I had a couple22 of -- a couple of customers that -- one was the name23 of Steinberg. They were relatives of my -- clients24 of my father-in-law.25 Q. Didn't you lose the money again?

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1 A. No.2 Q. Didn't you then start the Ponzi scheme in3 the '60s?4 A. No.5 Q. Do you recall telling the FBI that it began6 -- it really started in earnest in the '70s?7 A. No.8 Q. And that it grew much larger in the '80s?9 A. No.10 Q. So all those things they wrote down were11 wrong?12 A. I certainly never said that.13 Q. So they're lying?14 A. I won't say they're lying. Maybe they15 misunderstood me. I don't know.16 Q. They wrote it down, declarative statements,17 started in the '60s, '70s and '80s.18 A. No.19 Q. So they made that up?20 A. I'm not saying they made it up. I don't21 know what they -- how they interpreted. You know, I22 --23 Q. What's to interpret? You either started24 the fraud or you didn't.25 A. I didn't. So I don't know why they would

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1 say it. I may have been referring to what -- what2 business I did, you know. They asked me when did I3 start the arbitrage business and, you know, I told4 them, you know, what I started doing, when I started5 doing the market making business and so on.6 Q. Mr. Madoff, December 16th you're talking to7 the FBI and the U.S. Attorney?8 A. Uh-huh.9 Q. You told us earlier you were telling the10 truth?11 A. Right.12 Q. Now is the time to tell us the truth.13 Again, the fraud started in the '60s and '70s just14 like you told the FBI?15 A. I never told the FBI that.16 Q. So they're lying?17 A. Characterize it any way you want. I'm just18 saying --19 Q. Well --20 A. -- I never said that to them.21 Q. -- let me ask you something else. You lied22 to Denny Chin; didn't you?23 A. To Denny Chin, no.24 Q. Yeah, the judge. When you allocuted, you25 lied?

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1 A. Hmm?2 Q. You lied to Judge Chin during your3 allocution?4 A. No, no.5 Q. You told him nothing happened after 1992.6 That's a lie?7 A. I didn't tell him nothing happened after8 '92.9 Q. You said the fraud started at your10 allocution, you said it started --11 A. At '92.12 Q. Ms. Chaitman quotes it all the time. You13 said it started in 1992?14 A. Correct.15 Q. You've testified here that it started16 earlier than that with backdated trading and other17 activities for the big four?18 A. I said the Ponzi scheme, that's when it19 started, in 1992. I never -- didn't say that there20 were backdating of trades prior to that. I said21 that.22 Q. Didn't you want to give Judge Chin the23 impression that you were clean as a whistle up until24 1992?25 A. No.

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1 Q. So you're swearing here today you never2 lied to Judge Chin?3 A. No.4 Q. All right. Want to think about that?5 A. Yeah. I'm telling you that.6 Q. All right.7 A. I'm telling you that they asked me when the8 Ponzi scheme started, you know, and I said the Ponzi9 scheme started in 1992.10 Q. But --11 A. The backdating of trades never came up with12 Denny Chin.13 Q. Mr. Madoff, for the last 16 years of your14 professional life by your own admission you lied for15 a living; isn't that true?16 A. For the last 16 years, yeah.17 Q. Yeah. You lied for a living?18 A. Yeah.19 Q. Right. But now we're supposed to believe20 that you're telling us the truth?21 A. You're asking me now, I have nothing to22 lose now.23 Q. Aren't you trying to rehabilitate yourself?24 A. No.25 Q. You're trying to make everybody think that

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1 you were a good guy until '92 until the big four put2 the screws to you?3 A. That's correct.4 Q. Yeah. But that wasn't true; was it?5 A. No. It was true.6 Q. You were phony in the '80s?7 A. No. It's not true.8 Q. So David Kugel, Annette Bongiorno, the FBI,9 everybody is lying except you?10 A. You make your own decision. I'm telling11 you --12 Q. I have.13 A. All right. So what can I tell you?14 Q. All right.15 A. We have a right to disagree.16 Q. So someone who lies for a living for17 16 years wants us to believe what he's saying, but18 other people whose freedom was at risk just like19 yours told the truth?20 MS. CHAITMAN: Objection to form.21 THE WITNESS: I can't respond to that.22 MR. SHEEHAN: All right. I'm done.23 MS. CHAITMAN: Mr. Madoff --24 MR. GOLDMAN: You were lying to us. You25 said an hour.

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1 FURTHER EXAMINATION2 BY MS. CHAITMAN:3 Q. The U.S. Attorney accepted your plea that4 the fraud began in 1992; is that right?5 A. As far as I know.6 Q. And can you tell us the circumstances of7 the U.S. Attorney stating in your presence that he8 had no evidence that the fraud began before 1992?9 A. My attorneys came in to me and told me that10 when they were trying to determine my forfeiture11 over what the forfeiture settlement should be, how12 much money they should leave my wife, my baby,13 because it really involved my wife, they originally14 came in and said they were going to -- they were,15 you know, going to leaving her with $100,000 or16 something of that sort.17 And I said no. I said that's -- if you're18 going to leave her $100,000, I'm going to go to19 trial. You know, I'm not going to accept that. So20 they then came back. Ike Sorkin came back and Peter21 Chavkin into the room and said to me that now the22 U.S. Attorney, you know, in New York interceded and23 said that they have -- they have no evidence that24 the fraud started prior to what I said in 1992, so25 they were going to settle on $2,500,000. That was

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1 what the U.S. Attorney said.2 Q. And the $2,500,000 represented what?3 A. Represented my homes that were bought in4 1980, 1983, and it was part of the assets of the5 hundred million dollars worth of assets that Ruth6 volunteered to turn over to the -- to the U.S.7 Attorney.8 Q. Okay. So just to be clear, am I correct in9 saying that Ruth offered to turn over $100 million10 in assets?11 A. Right.12 Q. But she wanted to keep two-and-a-half13 million?14 A. Well, she didn't pick the Number15 2-and-a-half million dollars. She just said that,16 you know, she wanted enough money to live on. And,17 you know, and they asked me -- you know, they came18 to tell me what was I willing to accept? And I said19 I was certainly not willing to accept $100,000 of20 $100 million of assets.21 And they went back and forth and then they22 came back in and said the U.S. Attorney said he has23 no evidence that the fraud started earlier than what24 I had said. So, therefore, he is -- they leave the25 two-and-a-half million dollars.

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1 Q. Okay. And, in fact, you're aware that2 Frank DiPascali pled after he was indicted, he pled3 to --4 A. Right. From what I read, you know, in the5 -- in the newspapers and what I was told was that he6 -- he stated in front of the judge that the fraud7 started in '92.8 Q. Okay.9 A. It started in the '90s, he said. And then10 at a later date I guess as part of his plea11 agreement he said, well, it may have started in the12 late '80s, he wasn't sure, '92, you know, but that13 was --14 Q. But he testified that it was with a split15 strike?16 A. Yes.17 Q. Okay. Now, do you think that you -- do you18 have any reason to believe that your prison sentence19 would have been longer if you had told the U.S.20 Attorney that you started the fraud earlier than21 1992?22 A. What is the question?23 Q. Do you have any reason to believe that your24 criminal sentence would have been longer if you had25 told the judge, Judge Chin, in your plea that the

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1 fraud began earlier than 1992?2 A. No.3 Q. You understand, don't you, that SIPC saves4 money by saying the fraud began in 1960? Do you5 understand that?6 A. No. I'm not really --7 Q. Well, do you understand that SIPC is8 required to insure customer accounts up to $500,0009 per account?10 A. Yeah, uh-huh.11 Q. And do you understand that in this case Mr.12 Picard was successful in persuading the courts that13 the customers should not be credited with any14 appreciation because he claimed that from the 1960s15 on you never purchased any securities?16 A. Right.17 Q. So SIPC has saved well over $1 billion by18 virtue of the allegation that the fraud began in19 1960.20 A. Okay.21 Q. Did you save any money by virtue of --22 A. No.23 Q. -- claiming that the fraud began in 1992?24 A. No.25 Q. Now, Mr. Sheehan made the point that in the

Page 371



1 1980s you refused to give your customers electronic2 access because you were not doing the trades3 reflected on the convertible arbitrage customer4 statements. Was electronic access available at all5 in the industry in the 1980s?6 A. No.7 Q. If electronic assess had been available in8 the 1980s, would it have been available to allow9 customers to access the over-the-counter market?10 A. No.11 Q. In fact, to this day is there to your12 knowledge any electronic access via retail customer13 to the over-the-counter market?14 A. First of all, let me explain to you what15 electronic access is. Electronic access has nothing16 to do with the market. Electronic access allows a17 customer to get his confirmations and his statements18 electronically through DTC. DTC put in a system19 called the DTC ID system, which was basically20 designed for institutions.21 ID stands for institutional, you know,22 something or other system. So rather than have the23 customer get confirmations, you know, by sending out24 a statement or a confirmation, you know, like we25 would do, the customer could electronically get the

Page 372



1 information directly from DTC. The only ones that2 really did that were the smaller hedge funds who3 really didn't have operations departments and so on.4 In order for them to save money, they allowed their5 customers to get electronic access.6 Quite frankly, you know, most firms would7 not give anybody electronic access because you were8 subjecting your computer systems to people to get in9 there, you know, through fraud, like maybe cyber10 things like people are having problems today with11 their banking and so on. So, quite frankly, I would12 never allow electronic access into my system because13 our system has, you know, a huge amount of14 proprietary information available.15 And, quite frankly, even within DTC the16 industry, you know, had problems with it because the17 DTC, the same reason that an accounting firm that18 wants to see what the firm has in their DTC19 inventory, DTC would not give it to that. They have20 to give it to a regulator, but they don't have to21 give it to an accounting firm and they don't give it22 to an accounting firm.23 Q. Now, in the 1980s what was the volume of24 convertible bond trading that you did through Bear25 Stearns?

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1 A. I couldn't tell you, but it was2 substantial. We did convertible -- we were one of3 the largest market makers in convertible securities4 in the country. So we were doing -- and, you know,5 and again, convertible securities is not only6 convertible bonds. You know, it's convertible7 preferreds, units, warrants, rights. There's -- you8 know, and we participated in all of -- all of that.9 And as a matter of fact, we ran an ad in10 the Wall Street Journal in 19 -- I guess it was11 around '83 or '84, whatever the break-up was that we12 made markets in all the telephone issues. And we13 were one of the largest market makers doing the14 arbitrage in the convertible securities.15 Q. Now, Mr. Sheehan was questioning you --16 excuse me -- about Mr. Blecker's statements where it17 appeared that fractional shares were credited to his18 account before you actually purchased the19 securities?20 A. Uh-huh.21 Q. Now, first I want to clarify something.22 Mr. Sheehan was asking you using David Kugel as an23 example whether David Kugel was deprived of24 compensation on a convertible arbitrage transaction25 that he might have done because you then took those

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1 securities and sold them to your investment advisory2 customers.3 Am I correct in saying that they were4 completely separate transactions? In other words,5 David Kugel was a trader. He would do a transaction6 and he would generate potentially a profit or a7 loss?8 A. Correct.9 Q. But he would acquire securities; is that10 right?11 A. Uh-huh.12 Q. And then they became firm securities?13 A. It depends. Sometimes they did. Well,14 they were always firm securities because, you know,15 they were firm securities while he was -- you know,16 while he was a market maker also; but they may have17 been in the market making, his market making account18 as opposed to the firm's investment account or19 trading inventory account.20 Q. And then would you then turn around and21 take some of those securities and sell them to the22 investment advisory customers after David Kugel had23 completed his transaction?24 A. That's correct.25 Q. So you're selling those securities or

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1 fractions of those securities to the investment2 advisory customers. Was it a completely separate3 transaction from anything David Kugel could have4 done beforehand?5 A. That's correct.6 Q. Okay. Now, can you explain why a7 fractional share -- and, of course, we don't have --8 if you could look at this first, this document? No.9 This is not it. Hold on. I just want to find10 the -- this is not -- hold on one second. I'm11 showing you Exhibit 1, Trustee's Exhibit 1. If12 you'd look on the second page of that?13 A. Oh, before -- I want to -- I want to14 address this FBI issue again.15 Q. Go ahead. You can.16 A. And I stated this before today. During the17 proffer agreement when I was discussing how we did18 our business and I was talking to you about what I19 -- how I did customer business, they asked me did20 you ever short stock to a customer? You know, and I21 said, of course, I shorted stock to a customer at22 times, you know. I said that was what market makers23 did. You know, they short stock to the customer.24 And they said you mean you sold stock to a25 customer that you didn't own? And I said -- and I

Page 376



1 looked at, you know, the SEC who was sitting there2 and everyone in the room and I said wait a minute.3 I said are you asking me -- you know, you're acting4 as if there's something wrong with me shorting stock5 to a customer, selling stock to -- and now, of6 course, the FBI has no clue with what the markets7 work, you know.8 So they made a big issue of you sold stock9 to a customer that you didn't own. And as a matter10 of fact, I turned to the SE -- two people from the11 SEC there and I said listen, guys, help me out here.12 I said for some reason you're acting surprised that13 a market maker sold stock short, you know. And we14 went through that whole routine. Now, whether for15 some reason the SEC determined that by me selling16 stock to a customer that I didn't own, that that was17 a fraud.18 Q. You mean the SEC or the FBI?19 A. The FBI. But no one answered anything. I20 said -- everyone like was -- the SEC was very21 embarrassed because they were sitting there. They22 never opened up their mouth during this whole23 proffer agreement. And then I -- you know, I24 conceded and started saying yes, market makers can25 sell stock short to a customer and so on. So if the

Page 377



1 FBI who was not professional sitting in a room and2 listening to this going back and forth because the3 U.S. Attorney was the one -- Marc Litt was the one4 that was saying you mean you sold stock to a5 customer that you didn't own as if like this was6 something wrong.7 And I started to get annoyed at him8 because they said -- you know, it was almost like9 what is this? Like a joke? You all of a sudden10 this is -- you have professionals in here, the SEC,11 and you're acting -- you're acting as if there's12 something wrong with that? I said that's what13 market makers do.14 Now, if the FBI interpreted that as being15 a fraud because that's what the SEC -- that's what16 the U.S. Attorney was sort of like insinuating. If17 that's how they -- why they started writing this18 down, I don't know, but clearly I never, you know,19 made that statement.20 Q. Okay. Turning to the third page of21 Trustee's Exhibit 1 --22 A. And don't they record this conversation23 there? Isn't that -- they don't record that?24 MR. GOLDMAN: They take notes. Hopefully,25 they take notes.

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1 Q. (By Ms. Chaitman) Turning to page three of2 Trustee's Exhibit 1 --3 A. And by the way, Picard was at that meeting,4 wasn't he, at the proffer agreement?5 MR. SHEEHAN: No. He was not.6 THE WITNESS: I'm pretty sure he was. No?7 MR. SHEEHAN: Well, you would be wrong8 about that, too, Bernie.9 THE WITNESS: Oh, okay. Somebody was10 there from the Trustee.11 MR. SHEEHAN: George Stamboulidis.12 THE WITNESS: Oh, okay.13 Q. (By Ms. Chaitman) Again, my third try at14 this.15 A. Yes, right.16 Q. Mr. Sheehan made a great deal about the17 fact that on September 30th, 1986 on Mr. Blecker's18 statement you reflected a journal entry of $55.1319 for TRW, Inc. fractional shares. Do you see that?20 A. Yes.21 Q. Okay. And then Mr. Sheehan pointed out is22 that it wasn't until the November 30th, '8623 statement that you show a long position in TRW24 shares, and it says received. Is it possible that25 the fractional shares were actually acquired on

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1 September 30th but not received until November 7th?2 That would be a month and seven days.3 A. The -- again, I don't know how they handled4 the fractional shares. The receive and deliver that5 appears on a statement is -- is an entry that is6 either -- that's the position is closed out. In7 other words, it means that either the conversion was8 completed and when it got entered into the customer9 account.10 The actual conversion might have been11 completed, you know, a month after we did the12 transaction; but, you know, it actually got13 journaled into the customer account at a later date14 when it gets moved into from the operations side,15 you know. For example, if we -- if we sent it to a16 bank to be converted, all right, they may -- they17 may -- the conversion may have come through a month18 after they put it into conversion.19 They may have not sent it to us, you know,20 until two weeks after that. That's a matter of, you21 know, of the processing. So how the journal, you22 know, gets or if, in fact, my office put through the23 distribution of the fractional share into the24 customer's account when the transaction was set up25 because they did that because they know that that's

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1 what they're going to get on the date rather than2 later on. I don't know what the process is, but it3 doesn't mean anything.4 MS. CHAITMAN: Okay. I have no other5 questions.6 MR. SHEEHAN: Just one or two more.7 FURTHER EXAMINATION8 BY MR. SHEEHAN:9 Q. Ms. Chaitman just now asked you about the10 U.S. Attorney, and the U.S. Attorney at your plea11 said that the fraud started from 1992 forward. Do12 you remember that question?13 A. She asked me what?14 Q. That the U.S. Attorney and you were on the15 same page that the fraud started in '92 and went16 forward. Do you remember that?17 A. I just --18 Q. Well, the record speaks for itself. Do you19 have any recollection of it?20 A. The only thing I recollect was that Ike21 Sorkin and Peter Chavkin came in. This was when I22 was in the jail in New York and said to me that --23 they said that the U.S. Attorney said that he had no24 evidence that the fraud started before I claimed25 whatever the date was, and that's why he decided to

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1 make the settlement of two-and-a-half million2 dollars. That's my recollection.3 Q. Just to complete the record then, this is4 your allocution that was actually marked as D5 Exhibit two at your deposition on December 20, '16.6 A. Uh-huh.7 Q. And on page 31 it reads, this is the Court8 speaking, does the government believe Mr. Madoff's9 admission to cover the elements of the crime of each10 count? Mr. Litt, who I think you previously11 identified as the prosecutor, answered yes, your12 Honor.13 The government does not entirely agree with14 all of the Defendant's description of his conduct.15 However, the government does believe that his16 allocution does cover each of the elements of the17 charged defenses. The Court: Would you summarize18 what the government's evidence would be if the19 Defendant were to go to trial?20 Mr. Litt: Yes. If this case proceeded to21 trial the government would have proven through22 testimony and evidence beyond a reasonable doubt all23 the facts set forth in the criminal information. In24 the summary the government would have proven, colon,25 the Defendant operated a massive Ponzi scheme

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1 through his company, Bernard L. Madoff Investment2 Securities, beginning at least as early as the3 1980s. Over the decades working from his New York4 City office Madoff solicited and caused others to5 solicit prospective clients to open accounts with6 his companies.7 His clients included individuals,8 charitable organizations, trusts, pension funds and9 hedge funds, among others, and those clients were10 also his victims. Let me stop reading there. I11 think it speaks for itself.12 A. Well, he's saying in the 1980s; right?13 Q. Yes.14 A. Not saying 1962.15 Q. He said at least the 1980s, so --16 A. Okay. Well, that's the 1980s. Now, you17 know --18 MR. GOLDMAN: Bernie, there's no question.19 MR. SHEEHAN: No question.20 THE WITNESS: Okay.21 FURTHER EXAMINATION22 BY MS. CHAITMAN:23 Q. But Mr. Madoff, didn't the fraud, in fact,24 start in the 1980s?25 A. No.

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1 MS. CHAITMAN: Okay. I have no further2 questions.3 MR. SHEEHAN: I'm done.4 MS. CHAITMAN: We're done.5 MR. GOLDMAN: Okay. I've only got about6 two hours worth, so --7 MR. SHEEHAN: That's one thing I know is8 not true. A lot of things I don't know is true.9 That I know is not true.10 THE VIDEOGRAPHER: This concludes the11 deposition. Going off the record at 1:24 p.m.12 (Reading and signing of the deposition by13 the witness was waived and the deposition was14 concluded at 1:24 p.m.)1516 * * * * *171819202122232425

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1 C E R T I F I C A T E2 NORTH CAROLINA:3 GUILFORD COUNTY:4 I hereby certify that the foregoing5 deposition was reported, as stated in the caption,6 and the questions and answers thereto were reduced7 to the written page under my direction; that the8 foregoing pages 211 through 384 represent a true and9 correct transcript of the evidence given. I further10 certify that I am not in any way financially11 interested in the result of said case.12 I have no written contract to provide13 reporting services with any party to the case, any14 counsel in the case, or any reporter or reporting15 agency from whom a referral might have been made to16 cover this deposition. I will charge my usual and17 customary rates to all parties in the case.18 This, the 10th day of May, 2017.1920

<%Signature%>21

K. Denise Neal, RPR22 Registered Professional Reporter

Notary Public No. 200517500101232425

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1,000,000 320:201,336,234 321:81,499,840 315:101,500,000 312:61-01329-30 351:201-9-96 347:1110 335:1210-1-84 333:25100 218:22 324:18

332:22 337:14369:9,20

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10022 212:610111-0100

212:15105 345:2110573 212:22106 347:6107 347:610:00 220:11,12

238:1410:11 261:810:25 261:1210:58 290:1110th 385:18

11:14 290:1412 212:21 338:2212-31-84 325:4

333:25 338:6121 348:2512:33 356:1112:50 356:1512th 225:1613185 327:3,513a 341:214 224:7,11 233:314.18 226:2015 339:211501 224:20,24154 313:1816 347:12 354:14

354:18,19,24366:13,16 367:17382:5

16,754,000 354:1416,754,393 354:2116th 248:6,10

357:11 364:617 254:2017th 259:22 267:219 357:12 374:101960 359:4,5,6,7

359:14,15 360:7371:4,19

1960s 357:19371:14

1962 360:7 383:141980 369:41980s 372:1,5,8

373:23 383:3,12383:15,16,24

1983 235:16243:23 244:20310:25 369:4

1984 213:23295:13 297:13

304:8 322:5 324:8331:5 333:20338:11

1986 229:4 233:18379:17

1989 353:101992 331:9,13,19

332:1,18 365:5,13365:19,24 366:9368:4,8,24 370:21371:1,23 381:11

1:24 384:11,141moo130 343:10

2

2 213:18 230:5234:25 235:4290:14 318:21334:3 346:23,25360:20 361:7,13369:15

2,500,000 368:25369:2

2-29 317:2120 249:3 382:5200 276:172005 300:11200517500101

385:222008 248:6,10

295:12 357:12201 357:52016 224:11 301:92017 211:22 215:4

385:1820th 221:19

224:11 300:11301:9 303:1

211 385:8212 212:16216 213:9

22,000 324:15220 236:9,12225 354:323 312:1230 213:17234 213:1824 339:20248 311:2525 253:525,000 253:14250 313:25 319:16

320:16 321:7322:13

250,000 313:12,13314:18 320:25

250s 320:16261 213:1927 236:13,1727509 215:7277 227:24 228:2277,309.75 231:1727th 211:21 215:429 334:3 335:12299 213:2029th 313:112:30 238:15

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3 213:19 261:10,153-13 318:23-31 321:2530 235:16 246:18

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4 213:20 299:14,16302:19 303:5,25

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5 213:21 305:16,205-25-84 263:650 309:13 310:1

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55,000 349:1155.13 379:18589-4621 212:165965 330:9

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6 213:22 310:6,17337:24 338:8,11

6-03 224:236-11 263:46-12 225:14

226:126-14 235:20 236:46-15 247:4,8,9,186-25 226:126-30 224:20 242:3

246:21,236-30-83 246:166-30-86 224:126-30-89 354:16-30-98 345:24

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7

7 213:23 303:24333:9,16,18340:22

7-29-83 241:227-31-84 322:870 277:1070s 255:14 363:6

363:17 364:13734,000 353:1275 211:20 215:6750,000 325:87th 380:1

8

8 214:3 301:8340:22,23 341:6,8

8-19 315:98-31-83 312:218-31-93 312:208-7-84 213:208-8 245:7,8,9

247:1980 273:21 275:1

311:580s 251:22,24

255:14,15 257:15298:12 337:17363:8,17 367:6370:12

83 242:9,24 243:5243:13,17 244:10295:11 310:22,23311:7,10,11312:17 313:6,10313:22 314:4,6374:11

84 244:10 303:24311:9 316:12,13316:21 319:10322:5 333:5,6338:3 339:1374:11

86 230:21 379:2287 252:15

872,730 344:15889,000 344:15892,000 353:168th 243:18 244:22

244:24 246:19

9

9 214:4 348:59-2005 300:209-30-86 234:10900,000 354:2908 212:790s 257:15 260:24

272:25 311:12370:9

914 212:2392 251:23 332:11

365:8,11 367:1370:7,12 381:15

93 310:20 311:7,11935-6857 212:2395 287:1,3 354:13

355:49525 329:20,249:00 360:139:11 211:22 215:5

a

a.m. 211:22 215:5261:8,12 290:11290:14

ability 256:6able 222:12

239:14 240:11242:20 265:3266:9 274:14290:7

accept 368:19369:18,19

accepted 368:3access 295:2,7,11

295:23,25 372:2,4

[302 - access] Page 2



372:9,12,15,15,16373:5,7,12

accommodate358:15

account 214:4230:24 233:14246:20 266:7268:20 270:12271:19,20 278:17278:19 280:1,6,8,9280:10 281:11283:5,6,7,14,17,19284:8,8,16 286:9308:18,20,21,22308:25 311:13,14314:24 315:2,14317:4 323:7 324:1324:3,7,25 325:1,2326:10,15 330:14330:16,22 332:18336:2,23 337:3,6,7337:9 339:2,5340:8,11,12,13342:5,6 343:10,15344:16 345:11,16348:18,23 349:24349:25 351:7,11351:12,16,18,20351:23,25 352:1,3352:9,10,13 353:6355:10 371:9374:18 375:17,18375:19 380:9,13380:24

accountant 245:21accounting 320:7

373:17,21,22accounts 259:6

295:7 296:7308:16 309:10322:25 323:2,3,4,5

323:6,8 324:3326:13,18,24332:6,8,25 334:13334:14 335:1,4339:4,6,7 342:11355:1,25 371:8383:5

accrued 307:24accurate 331:10

331:13,20accurately 332:17acquire 375:9acquired 379:25acting 377:3,12

378:11,11activities 365:17activity 277:5

332:18actual 232:17

257:4 281:13380:10

ad 374:9addition 329:5additional 323:22addr 343:1,2,3address 347:16

348:25 352:24376:14

adds 321:7 354:20adhere 216:21admission 366:14

382:9advise 304:6,7advisories 254:21advisory 252:10

267:15 375:1,22376:2

afein 212:17afternoon 238:15

265:23

agency 287:11385:15

aggregate 315:10aggregating

315:14ago 267:25 268:13

278:13 310:2agree 216:11

315:18,20 382:13agreement 327:2

358:24 370:11376:17 377:23379:4

ahead 246:11277:24 285:7290:19 325:12330:2 376:15

airlines 307:11,13akers 249:14allegation 371:18allocuted 364:24allocution 365:3

365:10 382:4,16allow 238:24

326:4 372:8373:12

allowed 289:12304:25 332:23373:4

allows 372:16alpern 235:17

244:21 246:17amanda 212:12

215:24american 312:8amf 345:21 347:6

347:6amount 231:17

236:17 254:7309:18 318:25319:1 320:16,19

320:24 344:15346:2 354:23355:11,24 356:6373:13

analysis 222:22274:19,23

andrew 252:14annette 229:7

243:6,10,20 244:3258:3 259:7 260:2264:18 266:16367:8

annette's 229:5252:11 259:25264:2 278:22

annoyed 362:9378:7

answer 227:18333:1 336:14

answered 259:5260:5 306:10377:19 382:11

answers 385:6anticipated 226:5anticipating 238:1anybody 295:23

308:11 373:7anymore 271:1anyway 276:20apartment 248:16

248:19 249:4,7apologize 230:12

234:19 247:4,7358:22

apparent 315:15appear 232:18

301:18 338:21353:3

appearances212:1 213:1

[access - appearances] Page 3



appeared 233:7374:17

appears 225:18269:8 316:9317:10 345:22380:5

applicant 211:6215:10

apply 222:21appreciation

371:14approval 223:25approximately

222:15 255:14april 211:21 215:4

319:10,23 353:10354:13

arb 294:15arbitrage 217:6

223:4 237:1239:25 240:15254:18 257:7271:14 272:13279:11 282:18284:3 285:3,5,9288:21 290:21324:5 355:5362:21 364:3372:3 374:14,24

arbs 297:15area 229:9 251:6

292:1 326:8arguing 357:9argument's

218:23arrest 248:2

357:14arrive 273:2arthur 224:12asked 244:2 248:1

250:21 278:1

352:20 358:8,25364:2 366:7369:17 376:19381:9,13

asking 219:5265:1,2 274:1278:4 296:25311:18 356:17366:21 374:22377:3

aspects 256:22assess 372:7assets 369:4,5,10

369:20assigned 251:24assistance 252:9assistant 255:21

256:2,25 259:19assisted 256:17,18

256:19assisting 256:6assume 226:25,25

241:13 270:8,8280:25 284:21,25285:12 323:11342:19 346:21

assumed 276:14assuming 231:21

242:8,24 263:12294:23 304:1307:24 317:14325:11,16 326:7,8328:7,7 342:18346:12

at&t 315:10 317:5317:8,13

attempting 358:13attendance 255:24attention 224:19

235:14,19 240:19303:4 312:1

attorney 248:14358:11 364:7368:3,7,22 369:1,7369:22 370:20378:3,16 381:10381:10,14,23

attorney's 248:1248:23

attorneys 215:15368:9

august 243:17,18244:20,22,24303:24 312:1,16

authorization342:6

automatically273:14

available 221:5238:24 264:25372:4,7,8 373:14

avenue 212:5average 221:21

222:2,7 223:17239:7,18 287:19300:15,22 302:18303:9,17,18,23304:1,4,4,8,10,14304:19

aware 237:19238:5 250:4,6,8370:1

b

baby 317:13368:12

back 217:2 239:1242:9 243:13244:7,14 246:16246:17 250:24,25253:7 254:15261:11 263:1264:12 268:3

272:7 273:6,15278:11 279:1282:12,16 284:14284:15 290:13299:21 300:2,5,10300:14,19 302:8302:25 308:8320:23 337:24338:10 356:13361:6,13,16,23368:20,20 369:21369:22 378:2

backdated 297:4297:12 365:16

backdating 280:17294:13,16 295:9295:13 297:13365:20 366:11

background254:24 303:3

baker 212:13215:22,24

bakerlaw.com212:17

balance 320:21321:6,9,21,22,22322:16 323:18324:19 325:9327:8,14 337:9,13338:17 339:7353:11,19 354:1354:13,21 355:23

balances 332:3,3332:22,24 355:9355:19

bancorp 235:20236:12 245:14266:22,24 285:5,8

bank 233:1 246:3346:4 380:16

[appeared - bank] Page 4



banking 373:11bankruptcy 211:1

215:13based 253:9 266:9

269:24 273:4274:8 284:11293:19 294:5,17303:20 309:11,12312:23 335:6355:12,18,23

basically 221:22222:9 223:3243:21 250:1253:25 255:10256:3 258:6259:20 260:1,15362:20 372:19

basket 273:3,13baskets 258:1

275:18bates 311:24 313:1

314:7 316:18322:5 345:21

bear 270:10 340:7350:13 373:24

began 250:2 363:5368:4,8 371:1,4,18371:23

beginning 227:23311:14 315:3333:22,24,25383:2

begins 290:14356:14

behalf 211:17212:2,10,19215:19,20

believe 221:18243:4 301:11303:5 331:8333:22 360:7

366:19 367:17370:18,23 382:8382:15

bells 317:13bernard 211:8,12

211:16 213:8215:2,11,21 216:1383:1

bernie 341:25342:5,12,19361:22 379:8383:18

best 257:12 274:12341:24

better 217:9310:25 348:22

beyond 258:11382:22

bid 360:21bids 289:25big 259:13 310:12

323:1 365:17367:1 377:8

billion 371:17bit 217:3 322:12black 277:12blecker 217:2

224:13 280:12,20300:24 301:13,17301:19

blecker's 230:23300:9,11,20374:16 379:17

bless 301:9blm 343:15 346:15blotters 267:4blurry 348:21

352:22bond 219:13,14,20

219:21,23,24220:10 221:15

226:4 231:11236:6 237:6,6238:14 246:7266:18 267:20,23270:9 283:24285:2,17,19 286:5308:1 373:24

bonds 218:22219:25 220:4237:8 242:1246:13 263:15264:16 265:3,11265:13,14,20,22265:25 266:24,25278:15 285:6288:21 307:24374:6

bongiorno 243:10243:20 258:3367:8

bonjourno 259:7bonventry 243:14

244:16book 348:14 360:5

362:9bookkeeper

243:21,23 258:8259:1 260:1

bookkeepers259:15

bookkeeping258:16 298:15345:15 349:23352:9

books 352:8borrow 309:2

320:11 359:12borrowed 316:3,4

320:16,20 321:11325:8 360:1361:15

borrowing 308:23322:13,17 323:4326:5,10 327:1

borrowings314:23 315:14322:14

borrows 321:7324:14

bottom 227:2228:1,4 240:19334:6 335:13343:13,17

bought 218:22219:1 221:6 226:4237:5 238:14,20242:12 253:25263:15,15 264:16264:24 269:7271:3,4 274:6277:1 278:15,15278:16,17,18279:3 281:13284:12 287:5,23288:4 309:25361:1 369:3

brady 358:20break 218:21,22

261:4 308:15317:5 348:7,8356:9 374:11

breaking 257:4bring 323:9brings 353:16broke 317:13broken 317:10broker 222:1,4

223:19 240:13254:5 286:23287:4,5 289:20323:19 339:24

[banking - broker] Page 5



brokerage 276:5286:19 308:24309:3,7 340:4350:22

brokers 222:3240:9,13

brook 212:22brother 253:1

339:21,21brought 350:18

354:1build 224:1 257:25built 223:2,7,8

273:12 279:14bunch 249:3

355:14bus 260:23business 217:14

233:16 244:6251:1 253:17256:23 276:15350:11,12,16,17350:18,21,22,22355:21 359:6360:2,3 361:3362:17,20 364:2,3364:5 376:18,19

butner 211:21215:5,7

buy 219:11,13,15219:18,19,20,23220:23,24 221:24237:1,6,9,14 238:8239:14 240:7,10240:11,12 265:20265:22 266:5,10266:24 270:20,22271:9 273:8283:15 285:1,2,7285:15 286:4,5,20286:24 287:21

288:8,24 290:2293:23 308:24309:1 361:2,6,13361:23

buying 218:20219:12,13 220:10240:8 245:17268:15 272:20,25277:1 282:12283:10 285:17,19304:3 308:23326:20 352:10

buys 283:14 288:3309:18,19,21

c

c 385:1,1calculate 336:6calculated 253:6calendar 262:23call 249:2 250:9

251:3,4,14 256:11264:18 286:18299:3 323:20,21347:23 357:4

called 222:25224:3 249:21251:7,10 264:19341:10 350:11358:10 372:19

calls 275:23 285:1capable 256:10capacity 289:22capital 254:7

314:18,22 349:9361:4,15

caption 215:9329:5 385:5

card 262:21cards 213:19

261:18 262:9

care 266:8 286:17348:24

carolina 211:21215:7 385:2

carried 242:11327:8

carry 317:17322:10

case 215:9,12358:18 371:11382:20 385:11,13385:14,17

cash 217:11 293:5294:2,3 309:22323:20,22 334:13349:19 354:20

cashier 243:25260:21

caused 327:20383:4

cents 267:18,21,21267:22,22 302:19

certain 216:12278:2 291:1 296:1309:17

certainly 260:16262:13 330:21363:12 369:19

certify 385:4,10cetera 248:15

251:25 254:25320:17

chaitman 212:3,4213:10 215:18,18218:12 219:7221:3,10 222:16224:8 229:18234:10,13,15,20234:23 237:13,16247:2,8,25 250:20261:6,25 262:2

263:16,19 273:24275:3,7 279:20297:5 301:18312:19 313:1,8322:7 323:14324:10 325:15327:6 338:6,8,12338:15 340:24342:3,19 351:13351:15 352:14357:24 365:12367:20,23 368:2379:1,13 381:4,9383:22 384:1,4

chaitmanllp.com212:8

chance 217:4230:17 358:6

change 227:24228:18

changed 231:23255:1,9 303:20304:12,13,16,20305:6

changes 330:3,17characterize

364:17characterized

356:18charge 270:23

313:17 324:15327:12 385:16

charged 318:16322:14 325:9337:10 382:17

charges 287:12charging 267:12

305:2,2,3 313:24319:12

charitable 383:8

[brokerage - charitable] Page 6



chase 346:4chavkin 368:21

381:21check 312:3,5

313:12,13 314:14319:15 320:24329:6,8 344:14345:6 346:1,4347:12 349:7351:10

checkbook 259:22checks 259:22,23

337:7 349:3 352:4352:4 353:14,20354:2,22

chin 364:22,23365:2,22 366:2,12370:25

choice 219:12,17chose 361:5circled 262:23circumstances

368:6city 383:4claimed 371:14

381:24claiming 371:23clarify 217:5

244:1 374:21clarity 251:2clean 365:23clear 312:25

358:23 369:8clearinghouse

306:9clearly 219:8

220:5 288:20360:5 378:18

clerk 243:24255:10,18,21256:3

client 219:11223:20 237:19238:4 244:5,6246:3,7 252:13253:24 266:4,6,8266:18 267:8271:2,3 281:13,21282:9,9 283:9,11287:19

client's 271:2281:15

clients 240:3 257:4257:5 259:13,23269:6 270:20276:12 355:3,5,17355:24 356:5359:9 361:3362:23 383:5,7,9

close 232:23 242:7246:9 286:3

closed 270:7311:13 380:6

closing 218:1321:25

clue 377:6clvs 213:3cohmad 339:17,19

339:20,23 343:23345:23 346:13350:10 355:2,14355:17

cohn 339:14 340:8343:24 344:9,14345:23 346:2,13347:11 348:24350:4,18 351:3354:17,25 355:20

cohn's 342:11345:11 346:6,11

cold 230:3 330:25331:1

collapsed 221:14359:10 360:12,15

colon 382:24column 227:23

231:17 320:2combination

258:25come 223:15 227:1

253:8 256:24258:10 329:8361:5 380:17

comes 222:11238:3 269:4 271:8

coming 282:4337:7 346:19

comma 302:17commencing

211:22comment 219:2

273:23commission

267:14 270:24271:11 287:12302:19 303:19304:15,21,23305:2,3

common 222:13225:17 231:6236:13 237:7241:7,25 246:7256:20 270:9285:8

commonly 225:24companies 383:6company 219:18

298:5 300:21383:1

compensate 269:1compensated

253:3,21,23,24269:3

compensation267:11 269:4374:24

competing 222:6compilation 335:4

348:16compile 323:5compiled 261:2

333:19complete 261:22

382:3completed 375:23

380:8,11completely 375:4

376:2compliance

252:25,25computed 292:22computer 328:9

373:8conceded 377:24concerned 282:10

285:22 286:14287:11 288:25

concluded 384:14concludes 384:10conduct 382:14conference 249:1confirmation

302:17 303:22305:1 372:24

confirmations304:14 372:17,23

confused 278:6323:15

confusing 248:22295:20

consecutive 235:5313:2 314:3

consideration358:11

[chase - consideration] Page 7



considered 237:18260:21 267:14

consistent 236:25consists 230:13contact 266:16contents 213:7context 216:24

248:4 357:1continued 214:1

296:4continuing 320:10contract 385:12control 295:24

329:19controlling 223:19conversation

378:22conversion 232:12

257:10,18 259:8270:4 272:24292:9 294:21332:14 380:7,10380:17,18

convert 233:12246:10,13 266:2271:16 280:15281:19,21 282:11284:1 285:22,24286:1 291:7,8,9,12291:21 294:7

converted 217:20227:1,15,16232:14 233:24245:22,23 247:13247:15 270:2281:24 282:1,6,15282:25 286:7290:24 291:4,17291:18 292:3,5,7293:16 294:6,9380:16

convertible 217:5217:17 218:7219:12,14,20,21220:4,10,14,23222:13 225:6,6,21227:16 231:5232:10 236:6,24236:25 237:2,7,25238:9 239:24240:15 241:5242:1 245:19254:18 257:6264:21 265:2,11265:13,14,16,18266:18 267:20,23270:9 271:14272:13 279:11282:18 283:4,24284:3 285:2,6,17286:5 288:20290:22 294:15297:15 306:19307:14 340:13372:3 373:24374:2,3,5,6,6,14374:24

convertibles 219:3219:9 239:21259:21

converting 217:23218:5 281:17

converts 272:5284:10

copies 213:19261:18 310:25

copy 299:22346:15 358:8,17

corner 314:5327:5 346:8

corporation 211:5215:10

correct 238:8239:18 242:5243:19 252:5,12253:11 282:21292:19,23 302:13315:25 325:11,17328:8 331:9,12332:9 334:23357:16,17 365:14367:3 369:8 375:3375:8,24 376:5385:9

correctional211:20 215:6

cost 361:14counsel 212:1

213:1 215:8385:14

count 320:8321:10 382:10

counter 275:10,16275:19 276:8,13276:16 277:2,11277:20 372:9,13

country 275:25276:3 374:4

county 385:3couple 227:22

235:5 259:18261:21 268:1330:2 331:3362:21,22

coupon 219:24course 221:12

222:5 268:12274:20 292:11298:1 376:7,21377:6

court 211:1215:13 382:7,17

courts 371:12cover 309:8

326:10,21 382:9382:16 385:16

covered 290:9covering 292:11create 295:17credit 226:19

233:13 291:5,14308:2 309:12328:22,25 332:3332:24

credited 246:20292:2,8,17 371:13374:17

crediting 286:9credits 328:7

335:1crime 382:9criminal 358:19

370:24 382:23crisis 360:11criticism 239:16cross 323:1,2,4,12

324:22 326:4,14327:2

crupi 259:18,19crupi's 345:3cuban 360:11current 228:5customary 385:17customer 213:17

213:18,20,21,22218:2 235:5,16242:14 246:2254:2 257:13258:20 266:14,20267:13 268:4,20268:22,25 269:8269:10,15,16,23269:24 270:23

[considered - customer] Page 8



271:8,19,25 272:9272:14,20 279:18279:25 280:6,8282:2,13,14,14284:5,9,14,15,16284:22 285:1,3,16285:18,18,21286:2,13,14287:21 288:3,25290:22,23 291:2,6291:10,13,14,15291:22 292:2294:10,22 295:2296:7 298:17,19298:20,22 299:5,8302:12 308:2,22308:25 309:6,12309:17,24 310:9312:5 314:15315:6 323:20324:14 326:21329:4 332:2,2,6,8332:24 335:1,7351:7,11,12,16,20351:23 352:13353:3,6 355:9371:8 372:3,12,17372:23,25 376:19376:20,21,23,25377:5,9,16,25378:5 380:8,13

customer's 270:6271:11,20 282:12284:8 380:24

customers 211:17212:2 215:8,19218:11,23 222:24239:13 259:3,11269:5 288:15,20289:17 295:6298:9,11,13,14,16

298:25 299:2304:6,8 334:7,11355:13 359:12360:8,22 361:6,6361:13,23 362:22371:13 372:1,9373:5 375:2,22376:2

cw 314:18,21349:7

cyber 373:9

d

d 225:6 346:1382:4

dan 243:14 244:15dark 277:13dash 344:13

345:25date 215:4 233:19

242:25 244:21263:3 291:8293:20 303:25349:1 361:20370:10 380:13381:1,25

dated 345:24346:8 347:11

dates 252:24 296:1333:24

david 212:11215:22 252:6254:11 262:2,13263:16,19 264:1,2264:19 265:15266:16 278:1,5,10278:24 279:10,24280:24 281:7282:17 283:6,12283:13,14,19,21367:8 374:22,23375:5,22 376:3

david's 280:10281:9 283:18

davis 212:3 215:18day 211:21 220:24

220:24 221:2,7,7222:5,8 236:14238:10 240:8250:22 260:16,23279:13 292:18,22293:23 297:19372:11 385:18

days 225:18 226:6226:7 240:7248:10 278:13287:14 295:18296:8 309:18,25357:14 380:2

deal 289:17379:16

dealer 218:3232:25 246:4,12276:3 286:13289:20 339:24

dealers 254:1,5277:14

dealing 253:23271:14 276:16

dealt 254:4 298:8298:11,13

dear 345:25347:11

debit 227:23231:16 313:12318:20 321:4,12322:9,16 323:18324:13,15 325:5327:9,20 328:2,21328:22 332:2,2,21332:24 344:15346:3 353:11,18

debited 320:18356:7

debits 328:7334:25

debtor 211:13decades 383:3december 221:19

224:11 248:6,10300:11 301:9303:1 314:4,5330:8 338:11357:11 364:6382:5

decide 221:23281:20

decided 281:3,4282:11 291:9,11291:12 361:12381:25

decision 220:3,16284:24 285:4291:24 362:2367:10

declarative 363:16deducted 337:3

356:8deducting 253:9deem 243:22defendant 211:9

215:12 382:19,25defendant's

382:14defenses 382:17define 218:18definition 289:23deliver 244:8

245:4,15 380:4delivered 245:19

247:19delivery 232:11

[customer - delivery] Page 9



demonstrate292:4

denise 211:18385:21

denny 364:22,23366:12

department227:20 229:1,5243:13 251:9252:12 259:15,25264:2 270:11278:22,22 298:7299:7

departments373:3

depending 220:19239:9 256:5 271:1

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277:3,4,6,9,11,21328:14

listen 266:17286:3 377:11

listening 378:2litt 249:1 378:3

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267:13 322:12live 369:16living 366:15,17

367:16llc 211:8 215:11

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location 248:17london 249:10long 218:1 224:20

228:8 231:5236:22 241:2,5242:1 246:7 265:3265:25 270:17

287:5 317:3,4319:24 326:25353:1 379:23

longer 234:17281:10 370:19,24

look 224:15225:16 230:12,17230:19 232:7,7235:10 241:8,14244:22 246:12262:10,23 263:14264:19,22,24265:8 270:7,9272:7 273:6 277:9277:16 278:11,23280:18,19 284:25286:25 288:13298:17 300:5302:10 303:7305:21 307:6,19311:17,22 313:16315:1 318:18319:10 321:20323:3 324:2,2,3,4324:6,22,23,25325:23 326:12,15326:16 327:17328:22 330:21331:18 333:2,24334:3 339:3,6341:12,20 347:3349:24 352:21358:7 376:8,12

looked 233:3266:19 279:1298:20 299:5315:4 336:2 377:1

looking 230:16235:10 247:2,6250:16 264:8,14268:3 270:19

[know - looking] Page 17



279:3,3 280:11301:13,21,21307:14 338:6,10338:11 344:23

looks 224:23226:19 236:5,12241:2 245:1,15307:10 312:5,20315:9 319:4343:22 344:17,22345:2,13,14346:14 347:24349:23 351:17,24353:6,20 354:9

lose 268:8 362:25366:22

loses 268:7,8loss 266:9 269:17

270:13 282:4283:18,20 375:7

lost 271:24 286:15321:17 360:22

lot 219:6 221:22248:25 253:1259:1,2 290:9308:15 316:19323:8 384:8

love 277:24low 273:8lying 363:13,14

364:16 367:9,24lynch 270:10

276:25,25 286:19286:20 287:4,11287:12

lynch's 287:4

m

machine 286:25machines 350:12

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madoff 211:8,12211:17 213:8215:2,11,21 216:1216:6 224:9252:14 261:13276:2 277:14289:4,6,10,11290:15 300:6302:5 306:18322:6 331:5338:14 341:7351:1 354:9356:16 358:6364:6 366:13367:23 383:1,4,23

madoff's 382:8mail 347:14maintenance

343:2major 257:19

259:9maker 252:22

256:8,12 265:10267:8,11,16270:25 271:4272:16 275:25280:25 286:12289:16,22,24375:16 377:13

maker's 269:5makers 223:16

253:24 254:2,4256:4 266:5270:12,17 289:11350:17 374:3,13376:22 377:24378:13

making 220:16251:8,15,17 252:4252:18,23 253:3253:18,22 255:25

256:14,22 258:18264:15,22 265:11265:17,25 267:16269:10 270:11,13272:4,13 276:11278:17 279:5281:2 283:6,14285:3 289:13360:17 364:5375:17,17

manage 355:25manually 243:9marc 249:1 378:3march 317:24margin 308:16,18

308:20,21,22,24309:5,6,10,13,19309:21,22 310:1313:20 314:24315:14 318:3,15319:12 320:7,14320:15 321:10323:4,12,25324:22 325:25326:4 327:2,11328:6 332:6,8,18335:4,16,25 336:3336:19,21 337:2,6343:15

marginal 326:21margined 323:2

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304:23 305:3,4320:6 340:16360:17

marked 224:6,11229:11 230:9234:25 261:10293:11 299:14301:8 303:4305:16,19 310:6310:16 333:9,11341:6,8 348:5382:4

market 218:2220:17,19,20221:14,16 223:16228:3,5,6,9,14,17231:19,21,23232:24 237:4238:23 240:10241:11,13 242:7,8242:11,15,22,22243:1 244:9 251:8251:14,17 252:4252:18,22,23253:2,3,18,22,24254:2,4 256:4,8,11256:14,22 257:24258:16,18 264:15264:22 265:10,17265:25 266:5267:8,11,16,20,23269:5,10,17270:11,11,17,25271:3 272:3,12,16275:25 276:3,11278:17 279:5280:25 281:2283:6,14 285:15286:12 289:11,13289:16,22,23,23293:2,10,11 320:6

[looking - market] Page 18



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marketplace246:11

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marking 235:4marty 252:2

254:15 265:15massive 382:25matter 265:12

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maurice 339:13340:8 343:24344:14 345:23346:2,13 347:11348:24 354:25

maurice's 344:10maximum 267:23mc 214:3,4 341:10

341:14 343:7344:15 346:3348:24 352:4

mean 218:9,14220:3,25 222:23228:18 231:7,8232:18 237:14245:22 249:14251:17 258:13263:10 270:3275:17 279:21

292:1 294:7 295:5295:13,16 298:20299:2 300:6 304:7307:12,17,22309:14 312:3317:1,1 320:9334:24 336:25337:2,5 343:2345:8,13 352:17362:19 376:24377:18 378:4381:3

meaning 306:24meaningless

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meant 237:14307:4

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member 350:13mention 216:12mentioned 322:18merrill 270:10

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mf 235:6 311:25microsoft 276:18

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minute 223:12279:8 329:12335:22 377:2

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morrison 213:3215:3

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n

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newspapers273:18 370:5

nickname 344:10night 360:13nine 322:10 325:6

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ninety 322:15324:13

nods 293:1normal 220:23

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215:7 385:2notary 211:19

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noticed 238:25noting 330:21november 379:22

380:1number 215:14

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obligated 242:18242:19 290:1

obviously 226:4242:20 262:21286:1 337:7353:20

occur 225:25226:24 271:15

october 313:22324:8,9

offer 360:21offered 369:9offering 361:7offers 290:1office 244:7,14

248:1,23 253:7260:23 340:1380:22 383:4

offsetting 339:7oh 225:5 232:2

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okay 216:19 218:6218:16 221:18222:10 224:15,17224:17,18,19,25225:9,18 226:8,11227:12 229:7,10229:16 230:11,16230:19 232:1,6,12234:5,8,13,20,23234:24 235:3,12235:13 236:5,10237:12,16 238:21240:17 241:14242:2,6 243:2,10246:16,21 247:5,8247:8,22 248:3,4248:20 249:17250:11,20,24251:7,11,14,20252:4,6,9,14 253:2253:10 254:6,23255:16,18 257:6,9257:16 258:3259:18,24 260:2,4261:1,4,5 262:14262:20 266:22271:23 274:2277:22 279:9283:22 285:9,21286:4 287:8,18

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288:8,10 289:3,7290:3 292:16293:6,13 296:24299:10,11,20301:1,20,23 302:4302:9,10,14,23,24303:3,13 305:5,10305:11,18 306:1306:13,13 308:3309:4,14,23 310:8310:16,19 311:2312:7,15 313:8,19313:21 314:2,10315:17 316:6,10316:22 317:17,24318:6 319:6,10,10321:15,25 322:3,8323:23 324:8,10325:11,13,22327:7 328:1,20330:13,20,23331:4,8,18,22332:7,17 333:2,3334:12,18 335:8336:14 337:21,25338:4,5,13,16339:10 340:2,6,8340:15,17,21341:18,22,23342:14 343:6,21344:12 346:9,17347:2,4 348:2,8,10348:13 349:12350:1,25 352:16352:19 356:9,21357:8 359:1 369:8370:1,8,17 371:20376:6 378:20379:9,12,21 381:4383:16,20 384:1,5

old 211:20 215:6once 268:15

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ones 300:1 373:1open 218:2 226:7

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opened 377:22opening 255:25

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opposed 228:20375:18

order 216:11,22221:23 222:1223:6,8,14,15,19223:20,20 239:9239:10,12,22240:2,5 274:10,14277:16 286:21287:20 333:23350:23 373:4

orders 222:9,20240:2

organizations383:8

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originator 306:4otc 276:18outcome 264:13outperformed

223:24outside 257:2overmargined

324:25overpriced 287:3owe 286:8 334:11owed 319:1 320:4owned 339:17owners 339:19owns 231:10

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pagoldman 212:24paid 268:10 308:1

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[okay - path] Page 21



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phony 296:7 367:6photocopy 341:13physically 217:23

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pointed 379:21ponzi 363:2

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pools 277:13popular 223:22position 218:1,4

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positions 227:4228:3,4 231:1232:11,23 240:22241:1,9,24 242:17245:4 269:11283:4 317:21318:18 319:5,9,21319:24 320:6,6324:4,6 325:23326:25 327:24328:15 335:7

possible 231:25294:12 379:24

post 251:23350:24

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preferreds 374:7premium 219:10premiums 220:5,6prepared 356:22

358:9presence 368:7present 263:4,8pretty 216:13

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[pay - pretty] Page 22



prevent 285:15previously 216:2

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price 221:21 222:3222:7 227:24228:5,10,19231:24 233:23234:3 236:16239:15 240:11241:8 242:6,7,12242:21,23 249:16265:4 273:5274:12,19 284:10294:17,22,22,24302:17,18 303:18304:1,4,5,11,15,19315:10 361:7

prices 222:12232:17 239:4240:9,12 242:9262:22 264:10273:2 279:1,2281:12

pricing 239:18300:15,22 303:9303:23 304:9

primarily 259:21principally 311:18prior 331:9,13,19

331:25 332:18365:20 368:24

prison 370:18probably 229:4

255:15 257:14278:6 323:1

problem 255:23286:16 287:15296:18

problems 373:10373:16

procedure 227:19227:20 298:3345:15

proceeded 382:20process 258:17

358:4 381:2processing 259:17

380:21professional

211:18 366:14378:1 385:22

professionals378:10

proffer 249:21,23249:24 358:24,24376:17 377:23379:4

profit 253:5,8,14253:25 265:7266:9 267:16268:4,10,14,22,24269:13,17,23,24270:4,13 271:7,11271:15,21,23272:3,10,17,18273:21 274:7279:14,19,24281:6 282:4,15283:1,17,20,25284:2,3,11 286:15375:6

profits 347:25program 223:14

273:12progress 308:15proprietary 251:8

251:18 252:17373:14

prosecutor 249:2382:11

prospective 383:5protection 211:5

215:10 219:24proven 382:21,24provide 252:9

385:12providing 238:19

350:7public 211:19

385:22publishes 289:25pulled 348:17purchase 224:23

225:21 236:5,20236:23 245:1294:15 312:8315:25 316:3318:5,9,10,11

purchased 228:21292:18 314:25315:9,15 371:15374:18

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purpose 249:17327:2 353:18

purposes 306:14323:11 345:21347:7 349:3

put 216:9,22,24223:20 230:2235:2 238:7242:21 248:4256:17 264:6271:20 273:3276:10 279:18287:20 294:14

296:7 303:22304:20,25 305:1323:17 350:23351:11 367:1372:18 380:18,22

puts 221:22275:23 279:17286:21,21 289:24

putting 217:10279:25 280:5,8304:21

q

quarterly 333:20334:2

question 227:22233:22 244:12254:16 262:10293:22 296:12,13296:16,18 297:1300:17 307:17315:21,22 323:16329:13 331:15333:1 346:9 347:9355:16 370:22381:12 383:18,19

questioning374:15

questions 224:16227:23 259:5278:5 311:20325:20 331:3381:5 384:2 385:6

quite 250:19255:12,21 373:6373:11,15

quote 289:25290:2 302:16360:22

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[prevent - quotes] Page 23



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reading 232:18383:10 384:12

reads 344:13382:7

ready 235:12290:2

real 280:3,4288:25

realize 270:3272:8

really 217:12243:21 249:19256:9 258:16280:4 291:10330:7 333:1346:12 352:10362:9,11,13 363:6368:13 371:6373:2,3

reason 237:21243:4 255:24261:19 267:10278:24 282:1288:14 291:8295:14 332:20358:17 370:18,23373:17 377:12,15

reasonable 382:22

recall 248:13249:20 257:12346:18,19 347:18363:5

recalling 306:17receipt 347:15receivables 334:7receive 217:10

232:11 244:8245:4,15 380:4

received 379:24380:1

receiving 245:2,18352:3

receptionist 258:7258:8,11,23

recess 261:9290:12 356:12

recognize 262:12342:8,15 343:19344:1,20 346:5,10

recollect 381:20recollection

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[quoting - representatives] Page 24



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358:8reviewed 260:19

336:12revised 344:13right 216:22 217:8

219:22 221:18222:11,21 224:14224:25 225:7,13225:23 226:10,11226:16,21 227:10

230:11,22,23231:3,16,18 233:6234:14 235:13236:21 238:10,11238:21,25 240:14240:24 241:4,21243:16 244:19245:16,21 246:22246:25 247:22248:12 249:17,24250:4,13 251:3,19252:1 253:14,18254:20,22 255:2256:1 258:14260:17 261:5,23262:2,8 266:11267:7 268:21,23269:1,12,20270:11,14,21271:22 272:5,12272:14,15,22273:20 274:16,21274:25 275:11276:22 277:22,24278:3,5,14,20279:8,14,16,17,23280:13,21,23281:1,10,18 282:9282:12,22 283:8283:18 284:12,23284:24 285:10,20286:20 287:7,12288:5,22 289:19290:3,6,19,24291:5 292:22,25293:8,9,12,24294:4 296:3,8,14296:21,25 297:3297:17 299:10,20301:4,7 302:20303:2,5,9,16

305:24 306:2,5307:3,4,10 308:13308:14 311:1,15311:19 312:11,12312:14 313:7,9314:1,10,20315:13,18 316:1,7316:11 317:12,15317:16,20,22318:8,14,24 319:6320:1,12 321:2,4,9321:10,23 322:16323:23 325:4,6,14325:18 326:11,23327:3,10,21 328:3328:16 329:8,9,17329:18 332:12,15333:12,15 334:5335:6,11,11,12,18336:1,1,5,8,10337:23 338:20,24339:23 340:15,19341:3,19 343:13343:18 345:10346:16,18 348:8348:13,14 349:14349:18,20 351:6352:7 353:2,7,9,17353:22 354:5,6,8354:12 357:18359:2 364:11366:4,6,19 367:13367:14,15,22368:4 369:11370:4 371:16375:10 379:15380:16 383:12

rights 374:7risk 221:9,11

226:6 237:10238:12,19 256:11

256:11 279:14367:18

riskless 237:18rockefeller 212:14role 257:16,19

258:23 259:10,14roles 255:9rolodex 213:19

261:18,22,25264:3

rolodexes 263:21room 368:21

377:2 378:1routine 377:14rpr 385:21rule 222:19 223:23

296:23rules 303:20run 362:4running 353:19ruth 369:5,9rye 212:22

s

safe 313:6sake 218:23sala 259:24,25sale 225:22 236:12

293:9 328:6sales 222:13

225:16 239:1salesman 270:19salesmen 355:2,14

355:20salvaged 328:20sam 347:13,21,24

348:1save 371:21 373:4saved 371:17saves 371:3saw 300:24 330:19

361:20

[represented - saw] Page 25



saying 271:13272:7 278:7282:17 295:14296:23 297:24,25312:20 315:18320:19 326:3,7363:20 364:18367:17 369:9371:4 375:3377:24 378:4383:12,14

says 224:25 225:5226:15 236:1262:20,22,23263:1 285:1,4286:2,24 302:14306:4,6 307:19313:20 314:18321:4,21 329:16329:18,20 333:25334:6,12,17335:16,24 341:14342:12 343:13344:22 345:1,5346:15,22 347:11347:14,21 349:7,7352:4,20,23354:20 357:21379:24

scalable 218:9,10218:18

scale 218:13scaling 218:19,24scheme 363:2

365:18 366:8,9382:25

school 258:15screws 367:2se 377:10search 264:7

267:3

sec 224:1 248:15260:13 304:13361:19 377:1,11377:15,18,20378:10,15

second 232:1262:3 293:8301:10,10,11302:4,11,15 307:8307:9 317:20319:18 339:11376:10,12

secretary 258:25secured 334:13securities 211:4,8

215:9,11 220:14222:15 232:9245:20 258:1267:5 276:7277:11 283:5309:7 325:1326:20 334:13339:18,19,23343:23 345:23346:13 350:10352:11 371:15374:3,5,14,19375:1,9,12,14,15375:21,25 376:1383:2

security 217:18220:23 222:8225:22 227:17237:2,25 238:9245:7 264:21265:18 276:23277:3,21 278:12278:14 281:18,20289:25 306:19329:22

see 216:23 224:20225:1 226:12,17226:22 227:2,23227:24 230:13,21231:16 232:15235:20 239:2,4240:22 241:18,22243:18 245:6,12246:20 247:9,12247:24 262:24263:14 272:8301:12,25 302:7302:14,21 303:13303:14 306:3,4307:11,20 310:23312:1 313:10314:5 315:11,16316:14,23 317:21318:2 319:23320:20,24 321:3321:25 322:1,5,9322:15 324:12,16325:5,10 326:1327:4,8,19 328:17328:22,23 329:1329:11 330:10,11334:1,2,14,18,25334:25 335:14338:19 341:15343:11,17 344:3344:18 347:16349:4 350:2351:15 352:20,23353:1,12 354:3,15358:15,17 373:18379:19

seeing 346:19seen 217:1sell 217:17 219:6

219:16 220:25221:1,1,24 222:4

223:6,10 226:6237:1,5,9,15 238:8238:10 245:17265:22,23 266:6,8273:7,7 282:23283:15 285:8,10286:6 287:13290:2 375:21377:25

selling 220:11245:12 254:3268:15 272:20273:5 274:21279:2 280:19281:12 285:16,17294:18 304:3352:11 375:25377:5,15

sells 282:20283:15

sending 352:4372:23

senior 243:22sense 238:6sent 312:5 313:12

337:4,10 355:25380:15,19

sentence 301:11302:15 370:18,24

separate 270:2283:13 284:19340:4 375:4 376:2

september 312:17313:10,11 379:17380:1

series 225:6 310:9341:9

service 290:1services 350:5,9

350:19 351:4385:13

[saying - services] Page 26



set 261:18,22265:3,21 266:15266:17,23 278:8278:25 280:20281:16 284:9290:22 294:24324:6 380:24382:23

setting 263:13settle 368:25settlement 368:11

382:1seven 333:7,8

380:2seventy 319:7

321:6,22share 217:17,24

218:5 227:17233:13,14,23234:2 267:18280:14,16 281:22281:23,25 282:2,3282:7,10 286:8,9291:3,6,11,15,16292:3,10,13,17293:3,14,15,19,23294:14,20 302:19308:12 347:13,22360:21 361:7,13376:7 380:23

shares 217:11221:24,25 223:6,9223:11 224:24226:15,24 227:13227:21 233:4,10234:1 236:12,17240:10 246:19247:10,16,18253:13,16 270:18276:17 287:24288:4 291:1,23

293:18 294:1298:3 304:2 308:9308:10 315:10374:17 379:19,24379:25 380:4

sheehan 212:11213:9,11 215:22215:22 216:5218:16 221:6,13222:18 224:4,9229:10,15,21230:4,7,11 232:5,6234:8,12,14,18,22234:24 235:2,7237:12,15 238:7247:1,4,6,9,22,25248:20 249:5261:4,13 262:1,3263:18,21 264:11275:4,11,17279:22 290:3,6,15296:15,19,21,25297:3,8,12 299:16299:20,25 300:3,8301:1,5,7,15,20305:10,15,18306:2,17 307:9308:3,5,8 310:8,19310:22,24 311:12312:22 313:5,9314:8,11 316:17316:19,23 319:18319:20 321:19,23322:2,4,8 323:17324:12 325:18327:8 329:9,11,14329:17,22,25330:4,6,10,13,16330:20,24 331:2,5333:8,11,14,15,18338:2,5,7,9,10,13

338:17 339:10,13340:15,18,21,25341:2,7 342:2,4,22342:25 345:1,20348:2,7,20 351:19352:16,19 354:12356:9,16 357:4,6,9357:11 358:1,4359:2,17 367:22371:25 374:15,22379:5,7,11,16,21381:6,8 383:19384:3,7

sheets 264:23shirt 230:2short 218:1 220:24

220:25 221:1,1,7221:16 225:22228:9 231:6,11236:9,15 237:1,9237:15 238:10241:6,25 246:7265:3,20,25266:25 284:21285:11,13,14286:6 287:15288:14,19,19,23289:12,13 293:9293:11 309:8312:11 318:7319:8 320:2,5,6328:5,19 332:25335:6 353:1376:20,23 377:13377:25

shorted 285:25286:1,13 287:3,10376:21

shorting 285:18377:4

shortly 248:2shorts 239:1show 216:16,25

297:18 299:12301:1 310:9320:13 332:21379:23

showed 233:4300:9,11

showing 228:2,8231:1,4,5 241:6246:19 247:18280:15 297:19317:3 353:10,11376:11

shown 233:5 341:7shows 232:9

240:22 270:17349:3 354:12

side 217:13 221:16233:15 246:6252:10 257:13258:18,20 262:5,8267:16 325:5352:23 380:14

sided 232:2 262:4289:24

signature 385:20signed 260:18significance

292:14 346:25signing 249:20

384:12similar 347:5simple 295:22simultaneous

220:13 237:24simultaneously

238:16,17single 354:21

[set - single] Page 27



sipc 371:3,7,17sir 225:4sitting 272:8 377:1

377:21 378:1six 233:7,23 235:5

235:8 280:16292:25 293:14297:19 320:3354:13

sixteen 355:10sixth 314:9size 240:1,1,2skill 238:3skip 234:8 314:3

349:2skipping 234:10slash 343:1slicing 223:1 224:3slightly 251:13slip 346:4 347:15slowly 308:14small 305:14smaller 373:2smb 211:7 215:14social 329:22sold 221:7 222:8

227:13,14 231:11238:15 254:1264:24 269:7271:2 274:6 275:1275:2,3 278:16281:7,8 282:8284:12 292:25293:20,21 359:8360:8 361:8 375:1376:24 377:8,13378:4

solicit 383:5solicited 383:4solutions 215:3

somebody 265:7337:10 345:13379:9

sonny 344:4,9,18345:2,11 346:5,10347:14 350:4,18

sons 223:7sonya 355:19sophisticated

238:4sorkin 368:20

381:21sorry 227:16

234:24 247:1293:8 300:10301:3 305:23332:4 341:4354:14 358:5

sort 254:23 258:4258:25 292:13321:17 339:22362:4 368:16378:16

sounds 251:5,19southern 211:1

215:13space 340:3speak 241:16speaking 382:8speaks 262:22

343:6 344:12345:24 381:18383:11

specialist 286:23286:24 287:1,9,14350:24

speed 241:19358:12

spelled 346:1split 239:20,24

257:9,17 259:7,17

259:20 267:20272:24 273:12274:11,22 275:18276:10 279:10,10332:13 340:12370:14

spoke 250:21259:4 298:14,24362:10

spread 240:6361:9

stage 242:11257:20 266:12

stamboulidis379:11

stamp 345:21stand 221:20

239:11 314:21standing 250:14stands 290:2

372:21start 220:21 251:2

255:8 258:4 263:4263:6 321:3 322:9363:2 364:3383:24

started 250:3252:15 255:8,10255:12,18,20,20258:6 332:10357:19,23 359:4,5359:6,8,16,18,20359:21,23 360:6362:17,20 363:6363:17,23 364:4,4364:13 365:9,10365:13,15,19366:8,9 368:24369:23 370:7,9,11370:20 377:24378:7,17 381:11

381:15,24starting 258:24

301:11 306:2324:12 332:11359:13

starts 262:20302:11 329:15

stated 302:16303:21 370:6376:16 385:5

statement 213:20213:21 224:12232:8 233:2235:16 241:22243:16 244:21246:17,21,23249:21,25 250:9279:18 296:12299:4 300:12,20300:24 301:14,17301:19 315:23317:21 320:13,17320:18 321:21327:17 353:4356:18 357:21,25359:15 372:24378:19 379:18,23380:5

statements 213:17213:18,22 214:5216:25 235:5295:2,14,16297:17 298:18,19298:20 299:5,6303:7 305:12310:9 312:24325:17 348:3,16348:23 356:21358:21 363:16372:4,17 374:16

[sipc - statements] Page 28



states 211:1215:13

stating 356:25368:7

staying 350:25stearns 270:10

340:7 350:13373:25

steinberg 362:23step 267:1stick 279:7 352:21sticker 301:24sticking 334:1stock 219:13,16,19

219:22 220:12223:6 225:17226:5,6 228:18,19231:6,11 236:16236:17 237:5238:10,15 241:7241:25 246:7,14254:1 258:16263:15 265:4,12265:20,22 266:1266:10,10,25270:10,12,18,20270:24 271:2,3,4,5271:9,10 272:20272:25 273:4,7276:8,9 277:1,7,9277:10 279:3280:19 281:1,4,5283:10,12,19,22285:8,18,19,24286:6 287:2,14,15289:12,13 294:18294:20 308:24309:1,8,17,24314:24 315:15,25316:4 322:22325:24 349:15

361:1,2,7,13,23376:20,21,23,24377:4,5,8,13,16,25378:4

stocks 256:7264:10,25 273:13275:17,21,24278:15 288:19360:19,20,20361:10

stop 383:10strategies 217:22

257:5strategy 217:6,25

218:6 223:4,17237:1,20 238:2,5,6240:15 257:7,10257:18 259:8264:25 271:15272:13,24 279:11284:4

street 348:25374:10

strict 216:10strictly 216:21strike 239:20,24

257:10,17 259:8259:17,20 267:21272:24 273:12274:11,22 275:18276:10 279:11332:14 340:12370:15

stuff 290:8subjecting 373:8sublet 340:3subordinated

307:13substantial 336:3

374:2

succeedingly348:21

successful 371:12successfully

237:22sudden 378:9suggest 315:23suggesting 306:19summarize 382:17summary 382:24supervised 257:22supporting 360:17supposed 216:12

231:19 242:14293:2 322:24323:19 366:19

supposedly 360:16sure 218:14 233:9

242:9 243:5248:17 251:13252:23,24 260:5261:6 272:1273:25 278:4280:18 289:18290:24 295:19296:10 300:17305:15 310:5312:20 315:21321:19 329:14,25331:19 332:23338:13 340:13,14351:8 355:15357:7 370:12379:6

surprised 275:1377:12

surveys 288:2swap 218:2,3,3

232:24,25 245:25246:1 282:11284:14 291:13

swapped 217:22232:15,22 245:24291:9

swearing 366:1swing 341:3sworn 216:2sylvia 244:17

260:22 337:19system 222:25

223:2,7,8,13,14,16223:25 224:1243:1,9 257:25273:10 372:18,19372:22 373:12,13

systems 233:21242:23 243:24253:1 273:10373:8

t

t 309:14,16 310:2310:4 385:1,1

take 218:10224:15 230:12232:6,7,12 235:10239:23 253:16261:4 262:7,9,9270:16 271:19272:9,15 277:15284:14 290:4,5299:23 303:7305:20,21 307:6311:17 313:14318:18 326:5,17328:21 333:2334:2 341:20,20348:7,8 356:9361:12 375:21378:24,25

taken 211:17215:8 261:9269:18 270:24

[states - taken] Page 29



271:24 288:2290:12 356:12

takes 283:11talented 255:23

257:25talk 298:22 300:5talked 251:23

310:1talking 218:15

228:19,22 235:25236:3 239:19,20241:2 248:7,8254:13 255:7259:11 260:11283:23 284:2295:10 306:25308:17 318:3,21320:14,15 327:23335:23,24 364:6376:18

talks 303:8tape 360:12,14tax 342:6taxes 348:1technology 223:9telephone 259:4

312:8 374:12tell 217:12 225:14

232:8 239:10240:25 242:14,19242:19 243:5244:22 250:22251:18,21 255:3287:23 288:11295:1 298:8 303:7308:17 312:23335:9 364:12365:7 367:13368:6 369:18374:1

telling 264:7288:10 298:2342:10 357:15,18363:5 364:9 366:5366:7,20 367:10

ten 218:10 270:18270:20,23 271:3,4271:7 318:22319:2,25 325:24327:24 328:11335:12

term 221:19,20251:11 289:8304:22 309:14

territory 290:9testified 216:3

264:11 365:15370:14

testifying 302:25testimony 241:11

265:6 300:16306:18 324:21331:8,19 382:22

testing 325:19thank 218:6 224:2

224:8 307:2313:21 333:12340:24

thanks 305:10329:9 346:5347:13

theoretically219:21 238:4291:20 360:22

theory 219:10thereto 385:6thing 227:6 232:19

236:16 238:25240:16,17 258:4290:8 304:20354:22 362:5

381:20 384:7things 216:24

217:5,8 241:20253:1 258:12260:14 278:2362:12 363:10373:10 384:8

think 220:9,19237:4,13 246:18249:10,16 250:14250:20 252:6,15260:4 272:22288:11,13,17299:17 301:16307:8 308:11311:5,12,13 327:3327:5 328:20333:5,23 339:20340:14 348:21351:19 357:2366:4,25 370:17382:10 383:11

thinking 349:2thinks 256:6 287:2

287:24 288:3,6third 275:25 276:2

378:20 379:13thirty 320:3thought 268:13

276:13 362:15thousand 218:11

223:11 240:10270:18 309:1318:22 319:7

three 223:12,14228:22 243:17263:3 267:21,22314:8 320:3322:10 327:14328:3,16 335:13349:3,8 353:14

356:14 357:22379:1

ticker 273:11360:14

time 215:4,15220:17 222:25224:3,15 228:5,6228:23 232:18234:3 235:10238:13 239:23244:10,11,13252:18 254:13255:1,7,9,25256:24 258:10261:8,12 262:9275:2 281:12288:12 290:11,14294:18 305:20313:4 348:18356:11,14 360:14361:2,11 364:12365:12

times 217:24219:25 257:8291:1 357:22376:22

today 215:4 216:7216:14 229:25277:9 356:17357:7 366:1373:10 376:16

told 233:9 244:2273:20 280:18287:19 304:25359:18 360:5361:2,25 364:3,9364:14,15 365:5367:19 368:9370:5,19,25

tomorrow 287:14

[taken - tomorrow] Page 30



tone 345:19top 232:7 311:10

321:3 328:21330:15 343:11351:20

topic 308:16339:13

total 321:12322:14 334:25349:10 353:16360:24

totaling 354:23totally 242:21touhy 358:10tracked 258:1trade 218:25

220:1,4,5,6,8228:12,25 252:13253:12 265:22266:15,20,24267:8 268:2,3,12268:14,24 270:6,9279:15,18,19,23280:3,4,17,20282:18 294:13297:20 302:17307:23,25 342:5

traded 276:17361:10

trader 246:8 252:3253:12 254:9255:21,23 256:6256:11,13,25265:14 268:7269:2,16 271:12271:24 375:5

trader's 268:16,17269:18,21

traders 253:3254:6 256:18,20256:21 265:17

268:2trades 228:7

237:18,21 259:17264:6,12,15 265:9265:11,12 266:19266:22 269:5270:2 275:8,19276:11,12,13,24277:17 295:18296:6,6,7 297:4,6297:10,12,13332:14 365:20366:11 372:2

trading 219:10220:13 222:22237:8,19 238:3252:17 253:5,9257:1 263:14264:7,17,23265:12,17 266:11269:4 270:12,14280:9 283:5286:25 287:1306:25 365:16373:24 375:19

trans 307:11,13transacted 277:11

277:12transaction

220:13 226:3237:25 238:12239:8,13 240:4245:2 246:6,9254:3 263:13266:4 269:8 270:1271:9 277:2,20278:8,20,25281:14 284:21285:11 286:3,5,10286:10,11,13,18287:8,23 288:24

289:1 290:21,21290:23 291:4,10291:13,13,17,21291:22 292:5293:5 294:19,24298:15 302:12,18305:8 310:21313:14 349:21,24354:22 374:24375:5,23 376:3380:12,24

transactions 242:4264:21 272:19276:4 278:11283:13 284:20288:15,17 289:14297:18 300:23315:2 349:17350:2 351:24352:9 353:8,22354:5 355:5362:21 375:4

transcript 217:4345:19 385:9

transferred277:13

transpired 327:19treat 339:5treated 287:11trial 368:19

382:19,21tried 265:8true 288:18 297:3

297:16,20 312:24331:21,23 332:1335:21 362:14366:15 367:4,5,7384:8,8,9 385:8

trustee 212:10213:16 214:2215:23,25 229:13

229:16,16 230:5,5230:6,8,9,12234:25 249:9,10249:16 329:20379:10

trustee's 261:9,14299:14 305:16,20310:6 333:9340:23 341:5348:5 376:11378:21 379:2

trustees 215:8trusts 383:8truth 250:22

356:25 364:10,12366:20 367:19

trw 234:6 379:19379:23

try 218:16 234:9241:19,19 296:21379:13

trying 272:2 283:3288:11 307:6358:4 366:23,25368:10

tuesday 262:24265:23 283:16

turn 244:19 258:3265:21 266:3267:1 285:9 289:4302:4 308:14,16310:24 334:2,4369:6,9 375:20

turned 271:5377:10

turning 248:11257:17 262:3281:11 312:15378:20 379:1

turns 223:18286:21

[tone - turns] Page 31



twelve 271:10twenty 322:10

325:10 326:1327:9 338:18

twice 269:13344:13

two 225:11,15226:6,7 229:20230:13 234:16239:2,4 240:25246:17 262:9263:1,1 264:12267:22 270:2279:15 283:12287:14 289:24299:18,18,23,25301:6 303:9 314:3314:8,23 315:13318:22 319:2,24324:15 325:5,9,24325:25 326:5327:9,14,24 328:2328:2,3,11,16338:18 347:4354:2 355:8 360:8360:15,21 361:9369:12,25 377:10380:20 381:6382:1,5 384:6

type 244:7 286:10309:5,6 324:4351:18

types 232:9 237:18typically 222:4

229:4 242:23243:3 253:4 254:4266:6,15 267:25268:1 291:18309:16 323:21

u

u.s. 248:14,22358:11 364:7368:3,7,22 369:1,6369:22 370:19378:3,16 381:10381:10,14,23

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uncle 347:13,21,24348:1

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224:25 230:3334:12 343:23

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217:25 232:15,16232:21 270:1283:1 291:21

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273:18 279:2304:22 351:7352:13

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value 234:2242:15 319:4,8320:5 322:21327:23 328:14,19

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vending 290:1verbal 237:8veritext 215:3versus 215:11

220:21victims 383:10videographer

213:2 215:1 261:7261:11 290:10,13356:10,13 384:10

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witnesses 277:24woman 355:19word 301:12 344:3words 217:22

219:17 220:9228:7 231:13239:11,12 246:5256:17 273:9274:2,17 279:22284:17 295:22300:19 304:16,24320:10 351:9353:1 355:17375:4 380:7

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year 333:5 337:17338:18,22

years 267:25298:9,12 366:13366:16 367:17

yep 244:25 257:8289:2 318:13321:13

yesterday 216:10216:13,21 217:3219:3,9 220:14229:25 230:1,3247:25 265:9287:20 316:15

yesterday's 217:4273:18

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[works - zero] Page 34




Rule 30






















Exhibit C

08-01789-smb Doc 18151-3 Filed 11/01/18 Entered 11/01/18 18:04:08 Exhibit C Pg 1 of 132


23

In re: )4 )



)7 vs. ) 08-01789 (SMB)



Defendant. )10 )

)11 In re: )


)13 Debtor. )

)1415 CONFIDENTIAL16 Videotaped Deposition of BERNARD L.17 MADOFF, VOLUME III, taken on behalf of the18 Customers, before K. Denise Neal, Registered19 Professional Reporter and Notary Public, at the20 Federal Correctional Institution, 3000 Old Highway21 75, Butner, North Carolina, on the 8th day of22 November, 2017, commencing at 9:00 a.m.232425 * * * * *

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1 APPEARANCES OF COUNSEL:23 On Behalf of the Customers:4 HELEN DAVIS CHAITMAN, Esq.5 Chaitman, LLP6 465 Park Avenue7 New York, New York 100228 (908) 303-45689 [email protected] On Behalf of Sage Associates, Sage Realty,12 Malcolm Sage, Martin Sage and Ann Passer Sage13 ANDREW B. KRATENSTEIN, Esq.14 McDermott Will & Emery, LLP15 340 Madison Avenue16 New York, New York 10173-192217 (212) 547-569518 [email protected]

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1 APPEARANCES OF COUNSEL:23 On Behalf of the Trustee:4 AMANDA E. FEIN, Esq.5 STACY DASARO, Esq.6 Baker Hostetler7 45 Rockefeller Plaza8 New York, New York 10111-01009 (212) 589-462110 [email protected] On Behalf of the Deponent:13 PETER A. GOLDMAN, Esq.14 12 Fairlawn Parkway15 Rye Brook, New York 1057316 (914) 935-685717 [email protected] Videographer:20 Bob Collier, CLVS2122 * * * * *232425

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1 CONTENTS2 THE WITNESS: BERNARD L. MADOFF EXAMINATION3 BY MR. KRATENSTEIN 39545 * * * * *67 INDEX OF EXHIBITS8 FOR THE CUSTOMERS: PAGE9 Exhibit Number 32, Client activity 40310 document11 Exhibit Number 33, House 17 cash and 40512 securities for settlement - 12-13-7913 Exhibit Number 34, Maurice Sage Trust 41214 account statement - 3-31-8015 Exhibit Number 35, House 5 cash and 40816 securities for settlement - 5-16-9617 Exhibit Number 36, Maurice Sage Trust 41418 account statement - 6-30-8119 Exhibit Number 37, Maurice Sage Trust 41620 account statement - 12-31-8121 Exhibit Number 38, Month-end statement 41722 - 1-31-8323 Exhibit Number 39, Ledger - 1-31-83 41924 Exhibit Number 40, Maurice Sage Trust 42025 statement - 6-30-86

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1 INDEX OF EXHIBITS (Continued)2 FOR THE CUSTOMERS: PAGE3 Exhibit Number 41, Sage Realty statement 4224 - 5-31-945 Exhibit Number 42, Sage Realty statement 4236 - 12-31-967 Exhibit Number 43, Sage Realty statement 4248 - 1-31-979 Exhibit Number 44, Sage Realty statement 42810 - 7-31-9411 Exhibit Number 45, House 17 stock 42912 record summary13 Exhibit Number 46, National Westminster 43314 Bank activity report - 5-31-8515 Exhibit Number 47, Letter from Maurice 43616 Sage17 Exhibit Number 48, Sage Associates 44018 statement - 11-30-0119 Exhibit Number 49, Sage Associates 44120 statement - 11-30-0121 Exhibit Number 50, Sage Associates 44222 statement23 Exhibit Number 51, Confirmation of 44224 transaction25

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1 INDEX OF EXHIBITS (Continued)2 FOR THE CUSTOMERS: PAGE3 Exhibit Number 52, Confirmation of 4424 transaction5 Exhibit Number 53, Memorandum of 4426 transaction and confirmation7 Exhibit Number 53A, Credit memorandum 4878 Exhibit Number 54, Memorandum of 4449 transaction and confirmation10 Exhibit Number 55, Memorandum of 44711 transaction and confirmation12 Exhibit Number 56, Memorandum of 44813 transaction and confirmation14 Exhibit Number 57, Sage Associates II 44915 statement16 Exhibit Number 58, Sage Associates II 45017 statement18 Exhibit Number 59, Sage Associates II 45119 memorandum of transaction and confirms20 Exhibit Number 60, Sage Associates II 45121 memorandum of transaction and confirms22 Exhibit Number 61, Letter 45223 Exhibit Number 62, Sage Associates 45624 statement25

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1 INDEX OF EXHIBITS (Continued)2 FOR THE CUSTOMERS: PAGE3 Exhibit Number 63, Sage Associates 4584 statement5 Exhibit Number 64, Exhibit inadvertently ---6 skipped7 Exhibit Number 65, Maurice S. Sage 4588 Foundation statement9 Exhibit Number 66, Memorandum of 45910 transaction and confirmation11 Exhibit Number 67, Memorandum of 45912 transaction and confirmation13 Exhibit Number 68, Memorandum of 45914 transaction and confirmation15 Exhibit Number 69, Letter from Malcolm 45916 Sage17 Exhibit Number 70, Sage Associates 46218 statement - 1-31-0319 Exhibit Number 71, Confirmations 46320 Exhibit Number 72, Confirmations 46321 Exhibit Number 73, Letter from Malcolm 46422 Sage23 Exhibit Number 74, Sage Associates 46724 statement - 12-31-0325

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1 INDEX OF EXHIBITS (Continued)2 FOR THE CUSTOMERS: PAGE3 Exhibit Number 75, Sage Associates 4684 statement - 12-31-035 Exhibit Number 76, Confirmations 4696 Exhibit Number 77, Confirmations 4697 Exhibit Number 78, Confirmations 4698 Exhibit Number 79, Confirmations 4699 Exhibit Number 80, Sage Associates II 46910 Statement - 12-31-0311 Exhibit Number 81, Sage Associates II 46912 Statement - 12-31-0313 Exhibit Number 82, Confirmation 47014 Exhibit Number 83, Memorandum of check 47115 Exhibit Number 84, Handwritten note 47116 Exhibit Number 85, Letter from Malcolm 47417 Sage18 Exhibit Number 86, Sage Associates 47519 Statement - 4-30-0620 Exhibit Number 87, Confirmations 47521 Exhibit Number 88, Letter from Malcolm 47622 Sage232425

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1 THE VIDEOGRAPHER: We are now on the2 record. Please note that the microphones are3 sensitive and may pick up whispering and private4 conversations. Please turn off all cell phones or5 place them away from the microphones as they can6 interfere with the deposition audio. Recording will7 continue until all parties agree to go off the8 record. My name is Bob Collier representing9 Veritext Legal Solutions.10 Today's date is November 8th, 2017 and the11 time is approximately 9:00 a.m. This video12 deposition is being held at Butner Federal13 Correction Facility located at 3000 Old 75 Highway,14 Butner, North Carolina and is being taken by counsel15 for the Plaintiff-Applicant. The caption of this16 case is Securities Investor Protection Corporation,17 Plaintiff-Applicant v. Bernard L. Madoff Investment18 Securities, LLC, Defendant.19 This case is being held in the United20 States Bankruptcy Court, Southern District of New21 York, Case Number 08-01789 (SMB). The name of the22 witness is Bernard L. Madoff. At this time the23 attorneys present in the room and everyone attending24 remotely will identify themselves and the parties25 they represent. Our court reporter is Denise Neal

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1 representing Veritext Legal Solutions.2 MR. KRATENSTEIN: Good morning. Andrew3 Kratenstein from McDermott Will & Emery, LLP4 representing Malcolm Sage individually as well as5 the representative of his mother Lillian's estate,6 Martin Sage, Ann Passer Sage, Sage Associates and7 Sage Realty.8 MS. CHAITMAN: Helen Davis Chaitman on9 behalf of a number of different Defendants.10 MR. GOLDMAN: Peter Goldman on behalf of11 Bernard L. Madoff.12 MS. DASARO: Stacy Dasaro on behalf of the13 Trustee.14 MS. FEIN: Amanda Fein, Baker Hostetler,15 on behalf of the Trustee.16 THE VIDEOGRAPHER: Will the court17 reporter, Denise Neal, please swear in the witness18 and we can proceed.19 BERNARD L. MADOFF,20 having been first duly sworn, was examined and21 testified as follows:22 EXAMINATION23 BY MR. KRATENSTEIN:24 Q. Good morning, Mr. Madoff.25 A. Morning.

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1 Q. Are you on any medication or is there any2 other reason that you cannot give truthful testimony3 today?4 A. I'm on medication, but it won't interfere5 with my testimony.6 Q. You believe you can give full and complete7 truthful testimony?8 A. I do.9 Q. Thank you. As I mentioned at the outset, I10 represent the Sages, Martin Sage, Malcolm Sage, Ann11 Passer Sage, as well as two entities with which12 they're affiliated, Sage Associates and Sage Realty.13 Do you recall the Sage family?14 A. Yes.15 Q. The Sage family were customers of yours?16 A. Yes.17 Q. How did they come to be your customers?18 A. You know, through my father-in-law.19 Q. Do you recall somebody named Maurice Sage?20 A. Excuse me?21 Q. Maurice Sage, do you remember him?22 A. Yes, uh-huh.23 Q. Who was he?24 A. He was the father of the three children.25 Q. Martin, Malcolm and Ann?

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1 A. Right.2 Q. And was Mr. Maurice Sage a customer of3 yours?4 A. Yes.5 Q. How did he come to be your customer?6 A. The same way, through my father-in-law.7 Q. Could you describe how that happened?8 A. I had a lot of my father-in-law's clients.9 He was their accountant.10 Q. And just for the record, your11 father-in-law's name was?12 A. Paul Alpern.13 Q. When did as best you can recall Maurice14 Sage become a customer of yours?15 A. Probably in the '60s.16 Q. And do you recall Maurice Sage passing17 away?18 A. Yes.19 Q. What do you recall of that?20 A. I think he had a heart attack while giving21 a speech at a charitable dinner.22 Q. Do you recall when that was approximately?23 A. No.24 Q. And would 1976 sound about right?25 A. Yes.

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CONFIDENTIAL

1 Q. And is it correct that after he died his2 wife, Lillian, and his children, Malcolm, Martin and3 Ann, were customers of yours through various4 accounts that they held with your firm?5 A. Yes.6 Q. Do you recall that one of those accounts7 was called Sage Associates?8 A. Correct.9 Q. Another account was called Sage Realty?10 A. Correct.11 Q. Do you recall that they had various other12 accounts such as Maurice Sage Trust, Sage Associates13 II, MMRN and the Maurice Sage Foundation?14 A. Yes.15 Q. You've previously testified that your fraud16 started in 1992; correct?17 A. Correct.18 Q. The Sages became your customers well before19 your fraud started; correct?20 A. Correct.21 Q. Any trading you would have done in their22 accounts before at least 1992 would have been real23 trades that were actually executed?24 A. Correct.25 MS. FEIN: Objection to form.

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1 Q. (By Mr. Kratenstein) You've also testified2 previously that all of your convertible bond3 arbitrage trading was real; is that correct?4 A. Correct.5 Q. So any convertible bond arbitrage trading6 you did in any of the Sages' accounts at any time7 including the Sage Realty account would have been8 real trades that were actually executed by your9 firm?10 A. Correct.11 MS. FEIN: Objection to form.12 Q. (By Mr. Kratenstein) Is it correct that13 your fraud was limited to what is known as the split14 strike trading?15 A. Correct.16 Q. Do you recall having meetings with the17 Sages at your offices?18 A. Yes.19 Q. What do you recall of your meetings with20 the Sages?21 A. I don't recall the dates, but it was in the22 latter years, probably in 2000, something like that.23 Q. Was this when you were in the Lipstick24 Building?25 A. Yes.

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CONFIDENTIAL

1 Q. Do you recall any of the substance of those2 meetings?3 A. They wanted to change their style of4 trading where they were going to direct the trades.5 Q. What do you mean by direct the trades?6 A. In other words, they would give7 instructions to me what they wanted to buy and what8 they wanted -- and when they wanted to sell it and9 so on.10 Q. Was that atypical?11 A. Yes.12 Q. How so?13 A. That was the general rule was we handled14 all of the decision making for the clients, limited,15 limited decision making. Basically, there's a16 definition of discretionary accounts in the17 securities industry where discretion is limited --18 discretion is limited to time and price of a19 security.20 That's not considered discretion. It's21 only when you give them -- when you make the22 decision to what security to buy and sell that it23 becomes a full discretionary account. That's an SEC24 regulation.25 Q. And so could you just expand on that and

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CONFIDENTIAL

1 explain how the Sages were different than your2 discretionary customers?3 A. Well, they basically didn't have a4 particular strategy that was one of our specialties,5 which would have been convertible securities trading6 or split strike conversion, which happened in the7 later years.8 Q. And so they directed you on to whether to9 buy or sell specific securities?10 A. Yes.11 Q. That was unusual?12 A. Yes.13 Q. Most of your customers were by that time in14 split strike?15 A. Yes.16 Q. Did the -- do you recall anything else of17 your meetings with them?18 A. What was the question?19 Q. Do you recall anything else of your20 meetings with the Sages?21 A. Not particularly, no.22 Q. Would you meet with all three Sages, in23 other words, Malcolm, Martin and Ann?24 A. Yes.25 Q. And would one of them do talking more than

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CONFIDENTIAL

1 the other two?2 A. Basically, Malcolm Sage.3 Q. Okay. Did the Sages deal with anybody else4 at your firm such as Annette Bongiorno?5 A. Probably, yes.6 Q. Why do you say probably yes?7 A. Because she was on a different floor, so8 I'm not aware of when the conversation took place;9 but she was the head bookkeeper, so normally she10 would follow the instructions of what the client11 gave her on certain -- in certain instances.12 Q. Would you recognize Ms. Bongiorno's13 handwriting?14 A. Not really.15 Q. Well, we may see it later and we'll see if16 you can recognize her handwriting. I take it you'd17 have occasion to see her handwriting at work18 sometimes; is that correct?19 A. Yes.20 Q. What was Ms. Bongiorno's exact role with21 respect to the Sage accounts?22 A. She primarily handled all of the retail23 clients' accounts.24 Q. And that would include the Sages?25 A. Yes.

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CONFIDENTIAL

1 Q. And how do you define the retail clients?2 A. Not an institution.3 Q. Not an institution?4 A. Right.5 Q. Okay. To your knowledge did she maintain a6 file for each customer's account?7 A. Yes.8 Q. To your knowledge would she maintain client9 correspondence in those files?10 A. Yes.11 (Exhibit Number 32 was marked for12 identification.)13 Q. (By Mr. Kratenstein) We talked about one14 of the accounts earlier, one that's called the15 Maurice Sage Trust. I'm going to show you a16 document that we've marked as Exhibit 32. Put that17 in front of you. Mr. Madoff, do you recognize this18 document?19 A. Yes.20 Q. What is it?21 A. It's clients account document listing the22 activity in the account.23 Q. Do you see at the top it's dated24 December 31, 1979?25 A. Uh-huh, yes.

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1 Q. You see it's for the Maurice Sage Trust2 account?3 A. Yes.4 Q. Were documents like these be generated on5 or around the date indicated in the top left corner?6 A. Yes.7 Q. And was it ordinary practice of your8 business to generate accounts like -- I'm sorry --9 statements like this?10 A. Correct.11 Q. Do you know where statements like this12 would be stored after they were generated?13 A. Usually, you know, in the bookkeeping14 department.15 Q. And so documents of this type would be16 maintained under your firm's custody and control?17 A. Yes.18 Q. Looking now at the specific activity in the19 account, do you see in the middle of the page that20 there are several securities that are marked as21 having been received, Dr. Pepper, Asarco, Alcan,22 American Telephone & Telegraph, Skyline, Kaiser?23 A. Yes.24 Q. RCA, Central Penn, Reynolds and more25 Skyline? Do you see that?

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CONFIDENTIAL

1 A. Uh-huh.2 Q. So when it says RECD, what does that mean?3 A. Means the security was received into the4 account.5 Q. Does that mean that the client would have6 physically delivered a security to you?7 A. Usually, unless it was received from a bank8 or another brokerage firm.9 Q. And then do you see above those entries10 there are various credits also for those various11 securities?12 A. Those are sales transactions.13 Q. And then the proceeds of the sales are14 shown on the account?15 A. Correct.16 Q. Would these have been real receipts of the17 securities, receipts of real securities?18 A. Yes.19 Q. Would the sales have been real sales of20 those securities?21 A. Yes.22 MS. FEIN: Objection.23 (Exhibit Number 33 was marked for24 identification.)25 Q. (By Mr. Kratenstein) Let's go to -- you

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1 can put that document aside. I'm going to show you2 another document which we've marked as Exhibit3 Number 33.4 MS. FEIN: Thanks. We can take just one.5 Q. (By Mr. Kratenstein) Okay. Mr. Madoff, do6 you recognize what we've marked as Exhibit 33?7 A. Yes.8 Q. What is it?9 A. It shows movement of monies into an10 account.11 Q. You see on the top it's called house number12 17 cash and securities for settlement?13 A. Uh-huh.14 Q. Dated December 13th, 1979?15 A. Yes.16 Q. Do you see that?17 A. Uh-huh.18 Q. What is a cash and securities for19 settlement statement?20 A. It just shows the movement of securities.21 Q. From where to where?22 A. From other brokerage firms, from the client23 themself, come from a number of sources.24 Q. And would reports like this have been25 generated in the ordinary course of your firm's

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CONFIDENTIAL

1 business?2 A. Correct.3 Q. And would a report like this have been4 printed out on or around the date indicated at the5 top, in this case, December 13th, 1979?6 A. Correct.7 Q. And was it a regular part of your firm's8 business to keep and maintain records of this type?9 A. Yes.10 Q. Do you know where records like this would11 have been maintained?12 A. Where they would have been?13 Q. Yeah, yes.14 A. The same place. They were on the firm's15 premises.16 Q. Thank you. Do you know how often reports17 such as this, these cash and securities for18 settlement reports, would be run by your firm?19 A. Probably either the end of the week, the20 end of the month or end of the quarter. I'm not21 sure.22 Q. Okay. This one is a house 17 cash and23 securities for settlement report. Do you see that?24 A. Yes.25 Q. Were similar reports run for house five, in

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1 other words, are there house five cash and2 securities for settlement reports?3 A. That would represent typically market4 making or proprietary trading, not for clients,5 which are the firm's principal account.6 Q. So is the answer to my question yes, that7 there would be cash and securities for settlement8 statements for house five?9 A. Yes.10 Q. I'm going to mark --11 A. I'm assuming.12 Q. Well, I'll show you one. Here's Exhibit --13 that's 33. Wait a minute. 34. You know what?14 This will be 35. I'm going to come back to 34.15 MS. FEIN: Okay.16 MR. KRATENSTEIN: Sorry.17 (Exhibit Number 35 was marked for18 identification.)19 MS. FEIN: Thank you.20 MS. CHAITMAN: Thank you.21 Q. (By Mr. Kratenstein) Do you see that what22 we've marked as Exhibit 35 is a house five cash and23 securities for settlement statement dated in this24 case May 16th, 1996? Do you see that?25 A. Yes.

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1 Q. And so is this the equivalent, I appreciate2 it's for a different date, but it's the equivalent3 of the type of report we see in Exhibit 33 for house4 17, cash and securities for settlement?5 A. I'm assuming so.6 Q. Okay. And do you know how often these7 house five cash and securities for settlement8 statements would be run?9 A. No. I'm not.10 Q. They would be run periodically, though?11 A. Yes.12 Q. This is a house five statement. So would13 the transactions on the house five statement be real14 transactions?15 A. Yes.16 Q. And for house 17 at a time like Exhibit 33,17 which is December 13th, 1979, would those all be18 real transactions?19 MS. FEIN: Objection to form.20 THE WITNESS: Yes.21 Q. (By Mr. Kratenstein) Sorry. Your answer22 was?23 A. Yes.24 Q. Thank you. To your knowledge did your firm25 ever stop running cash and securities for settlement

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CONFIDENTIAL

1 reports for either house 5 or house 17 during the2 course of your business?3 A. I assume not.4 Q. Turning back to Exhibit Number 33, if you5 turn -- there are Bates numbers in that corner. If6 you turn to the one that ends in 9381, look at that7 corner. Would you like me to do it for you? Here,8 turn it for you.9 MS. CHAITMAN: What page was that?10 MR. KRATENSTEIN: 9381.11 MS. CHAITMAN: Okay.12 Q. (By Mr. Kratenstein) If you look at the13 bottom of page 9381, do you see the transactions14 that we saw in Exhibit Number -- in the prior15 exhibit, Exhibit Number 32 and 33, which were the16 delivery of the various securities into the Maurice17 Sage Trust account and then the sales of those18 securities?19 A. Yes.20 Q. And those were at the bottom of the page21 there?22 A. Uh-huh.23 Q. Sorry. That's a yes?24 A. Yes.25 Q. And they show up on the cash and securities

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1 for settlement statements dated December 13th, 1979;2 correct?3 A. Yes.4 Q. And these are all real positions?5 A. Yes.6 Q. And the sales were real?7 A. Yes.8 Q. If you turn in a few more pages and I'll9 just take it and turn to the page, to page 00709388,10 looking at that page, Mr. Madoff, do you see there's11 an entry there for National Bank of America, 16012 Broadway at the bottom of the page?13 MS. FEIN: Objection to form.14 Q. (By Mr. Kratenstein) Under National Bank15 of America?16 A. Yes.17 Q. And do you see under National Bank of18 America it indicates sales of the securities we were19 just talking about starting with Asarco? Do you see20 that?21 A. Yes.22 MS. FEIN: Objection to form.23 Q. (By Mr. Kratenstein) Do you understand24 what these entries mean?25 A. It means these are just sale transactions.

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1 Whose account is this for? Oh, this is a cash to2 securities account. It would be transactions that3 were made through National Bank of North America.4 Q. Does that mean that these securities were5 sold to National Bank of North America?6 A. Probably correct, either sold through them7 as an agent for other brokerage. I'm not sure.8 Q. Okay. Would these have been real sales?9 A. Yes.10 MS. FEIN: Objection to form.11 MR. KRATENSTEIN: I'm going to take these12 documents and put them aside.13 MS. FEIN: Andrew, just the name here, I14 think you were using National Bank of America.15 THE WITNESS: It's National Bank of North16 America.17 MR. KRATENSTEIN: I thought I said18 National Bank of North America, but if I didn't, I19 stand corrected. Thank you.20 (Exhibit Number 34 was marked for21 identification.)22 MS. CHAITMAN: Is this 34?23 MR. KRATENSTEIN: Yeah. This is 34. I24 apologize. We're going out of order. This is25 Exhibit Number 34.

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1 Q. (By Mr. Kratenstein) Mr. Madoff, do you2 recognize this document?3 A. Yes.4 Q. What is it?5 A. It's the Maurice Sage Trust account.6 Q. And this is dated March 31, 1980; correct?7 A. Uh-huh.8 Q. Sorry. That's a yes?9 A. Yes.10 Q. And, again, like the other Maurice Sage11 Trust document that we saw, account document, this12 would have been generated in the ordinary course of13 your firm's business?14 A. Correct.15 Q. And do you see that it shows in the middle16 of the page the receipt of an RCA Corp convertible17 bond and then two American Telephone & Telegraph?18 A. Right.19 Q. Two American Telephone & Telegraph20 securities?21 A. Correct.22 Q. And would those have been receipts -- is23 that what received means, received the securities?24 A. Right, yes.25 Q. Would these have been real transactions?

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1 A. Yes.2 MR. KRATENSTEIN: You can put that3 document aside.4 (Exhibit Number 36 was marked for5 identification.)6 Q. (By Mr. Kratenstein) I'm showing you7 what's been marked as Exhibit Number 36. Let me see8 this for a second. That's the first page. Just a9 second. Do you have two pages?10 MS. FEIN: We have one.11 MR. KRATENSTEIN: There's the next one.12 MS. FEIN: Thank you.13 Q. (By Mr. Kratenstein) I'm showing you14 what's been marked as Exhibit Number 36.15 MS. CHAITMAN: Thank you.16 Q. (By Mr. Kratenstein) And do you see that,17 Mr. Madoff, this is another Maurice Sage Trust18 statement, this one from June 30th, 1981?19 A. Correct.20 Q. And like the other Maurice Sage Trust21 account documents, this would have been generated in22 the ordinary course of your firm's business?23 A. Yes.24 Q. You see it shows the sale of in the middle25 of the page American Telephone & Telegraph?

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1 A. Yes.2 Q. Would that have been a real transaction?3 A. Yes.4 MS. FEIN: Objection to form.5 Q. (By Mr. Kratenstein) Sorry. I'll ask it6 again. Would that have been a real transaction?7 MS. FEIN: Objection to form.8 THE WITNESS: Yes.9 MS. FEIN: I'm just objecting to your use10 of the term real.11 MR. KRATENSTEIN: Real.12 MS. FEIN: We didn't define real, but13 you've been using it frequently.14 Q. (By Mr. Kratenstein) When I say -- when I15 say a real transaction, what do you understand me to16 be meaning?17 A. Let's assume a legitimate transaction where18 we actually buy or sell the securities.19 MR. GOLDMAN: That actually took place?20 THE WITNESS: Hmm?21 MR. GOLDMAN: That actually took place?22 THE WITNESS: Yes.23 Q. (By Mr. Kratenstein) So when we say real,24 and you understand for all the prior questions I25 asked you about real transactions --

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1 A. Correct.2 Q. -- we were talking about an actual purchase3 or sale of a security or delivery of a security that4 actually took place?5 A. Can't you just make the assumption if I6 state that all the transactions prior to 1992 were7 real transactions or are we going to go through this8 whole charade of back and forth?9 (Exhibit Number 37 was marked for10 identification.)11 Q. (By Mr. Kratenstein) Well, I do want to12 get into -- and I don't mean to go through a13 charade. I just want to get through the documents14 quickly, which I will quickly. I'm almost done with15 these --16 A. Okay.17 Q. -- and then we'll be done. There are just18 some specific ones I need to make sure of. I'm19 marking Exhibit 37. Actually, there's a two-page20 document. This is part of this exhibit. Didn't get21 stapled for some reason. Here's this one. Just a22 couple more of these and then we'll be done. You23 see this is a December 31, 1981 Maurice Sage Trust24 statement?25 A. Yes.

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1 Q. And this would have been generated in the2 ordinary course of your firm's business?3 A. Yes.4 Q. And do you see that in the middle of the5 page there's another sale of an American Telephone &6 Telegraph security?7 A. Yes.8 Q. And that would have been a real transaction9 that actually occurred?10 A. Yes.11 (Exhibit Number 38 was marked for12 identification.)13 MR. KRATENSTEIN: Thank you. You can put14 that document aside. There's Exhibit 38.15 MS. FEIN: Thanks.16 Q. (By Mr. Kratenstein) Mr. Madoff, this17 document is a little bit different than the ones I18 was just showing you. Do you see at the top it's19 dated January 31, 1983, National Bank of North20 America?21 A. Correct.22 Q. What is this document, if you know?23 A. It's a month-end statement for activity24 that happened during the month and at the end of the25 month shows what the account was, long or short.

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1 Q. Would these -- it says at the top National2 Bank of North America. Does that mean that these3 were securities held at the National Bank of North4 America by your firm?5 A. Probably, yes. Could have been held in a6 depository.7 Q. Why does it say National Bank of North8 America?9 A. That's who had the -- that's whose account10 it was.11 Q. And you would hold securities at National12 Bank of North America; is that correct?13 A. Sometimes, yes.14 Q. I'm going to turn you to a specific page,15 0964437. Do you see towards the bottom of that page16 -- 964437 everybody. Tell me when you're there.17 MS. DASARO: Got it. Thank you.18 Q. (By Mr. Kratenstein) If you look at the19 bottom of the page four entries up there's that RCA20 convertible bond we talked about earlier. Do you21 see that?22 A. Yes.23 Q. And it's listed as being at the National24 Bank of North America. Do you see that?25 A. Yes.

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1 Q. So does that mean that that bond was held2 at the National Bank of North America?3 MS. FEIN: Objection to form.4 THE WITNESS: It depends upon -- yes, but5 depending upon what role they were acting as. They6 could have -- they could have cleared their7 transactions through somewhere else, through another8 depository. I have no way of knowing that.9 Q. (By Mr. Kratenstein) Okay. But you are I10 take it based on your prior testimony confident that11 this is a real bond that was held somewhere?12 A. Correct.13 MR. KRATENSTEIN: Thank you. You can put14 that document aside.15 (Exhibit Number 39 was marked for16 identification.)17 Q. (By Mr. Kratenstein) This is Exhibit 39.18 You see, Mr. Madoff, this is another National Bank19 of North America ledger?20 A. Correct.21 Q. This one dated January 31, 1983?22 A. Correct.23 Q. Okay. And this one shows -- this is a24 document that also would have been generated in the25 ordinary course of your firm's business?

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1 A. Correct.2 Q. It shows various instruments on this3 document. Do you see that?4 A. Yes.5 Q. Including various bonds, et cetera. Do you6 see that?7 A. Correct.8 Q. And would these have all, again, been9 actual real positions?10 A. Correct.11 Q. You held securities at other banks as well;12 is that right?13 A. Correct.14 Q. They included Chase Manhattan, Continental,15 Commercial Bank of North America, Meadowbrook,16 Marine Midland, Barclays, Bear Stearns, National17 Westminster Bank and Bankers Trust; is that correct?18 MS. FEIN: Objection to form.19 THE WITNESS: Correct, plus other20 brokerage firms.21 MR. KRATENSTEIN: Thank you. You can put22 that document aside.23 (Exhibit Number 40 was marked for24 identification.)25 Q. (By Mr. Kratenstein) There's Exhibit 40.

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1 Mr. Madoff, do you see that this is a June 30, 19862 account statement for the Maurice Sage Trust?3 A. Yes.4 Q. Another statement that would have been5 generated in the ordinary course of your firm's6 business?7 A. Yes.8 Q. Do you see that it shows that RCA bond we9 talked about earlier being sold on or around10 June 19th, 1986, top entry?11 A. Yes.12 Q. And, again, that was a real sale?13 A. Yes.14 Q. Actual transaction; correct?15 A. Yes.16 Q. Thank you. You can put that document17 aside. I'm going to switch topics. In addition to18 convertible bond arbitrage trading, did your firm do19 trading or other types of arbitrage trading?20 A. Yes.21 Q. Did that include -- have you heard of the22 term corporate events arbitrage?23 A. Yes.24 Q. What is that?25 A. It's when -- it could be a stock split, it

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1 could be a special dividend payment, could be any2 number of events that happened in a particular3 company.4 Q. You described when you talked about the5 convertible bond arbitrage trading you did something6 called legging in?7 A. Correct.8 Q. Which I believe you described as9 accumulating a position over time and then averaging10 a price; is that right?11 MS. FEIN: Objection to form.12 THE WITNESS: That's correct.13 Q. (By Mr. Kratenstein) That's correct;14 right?15 A. Yes.16 Q. When you did these other corporate events17 arbitrage, would you also leg in?18 A. Yes.19 (Exhibit Number 41 was marked for20 identification.)21 Q. (By Mr. Kratenstein) I'm showing you22 Exhibit 41. Mr. Madoff, do you see that this is a23 statement from Sage Realty dated May 31, 1994?24 A. Yes.25 Q. And do you see in the middle of the

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1 statement there are transactions involving General2 Electric Company including a stock split?3 A. Correct, yes.4 Q. Could you describe what that transaction5 is?6 A. It's the company splits their stock two for7 one or any number of variables.8 Q. And in this case it appears that you are9 buying General Electric stock, 2,099 shares, on or10 around May 6th, 1994; is that correct?11 A. Correct.12 Q. And that's before a two-to-one stock split?13 A. Correct.14 Q. And then there's a sale of 4,198 shares in15 two pieces on or around May 23rd; is that correct?16 A. Correct.17 Q. And is this an example of the stock split18 arbitrage that you were discussing earlier?19 A. Correct.20 Q. Would this have been an actual transaction?21 A. Yes.22 MR. KRATENSTEIN: You can put that23 document aside.24 (Exhibit Number 42 was marked for25 identification.)

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1 Q. (By Mr. Kratenstein) I'm showing you2 Exhibit 42. If you turn to the second page of the3 document there, let me see that. Do you see on the4 first page of this document, which is a Sage Realty5 statement from December 31, 1996, do you see that?6 A. Yes.7 Q. And do you see that there's a purchase on8 or around December 24th, 1996 of 47,814 shares of9 AT&T?10 A. Correct.11 (Exhibit Number 43 was marked for12 identification.)13 Q. (By Mr. Kratenstein) Do you see that?14 Now, let me show you another document. Just keep15 that in mind. This is Exhibit 43. And do you see16 that this is a Sage -- yep? Okay. I apologize.17 MS. CHAITMAN: Thank you.18 Q. (By Mr. Kratenstein) Do you see that this19 is a Sage Realty statement dated January 31, 1997?20 MS. FEIN: Objection.21 THE WITNESS: Correct, '94.22 MR. KRATENSTEIN: Sorry. We're right. We23 may have the wrong -- hang on a second. Let me just24 check this.25 MS. FEIN: Yeah. Mine has '96.

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1 MR. KRATENSTEIN: Let me see.2 MS. FEIN: Sorry. This one? Yeah, sorry.3 '94, yeah.4 MR. KRATENSTEIN: This is right, so you5 have the right one. I apologize. That's the right6 one.7 MS. FEIN: Okay.8 MS. CHAITMAN: Which is the right one?9 MR. KRATENSTEIN: Which is the right one?10 Hang on a second. You know what? Let me -- is that11 not the NCR? Let me get the right one.12 THE WITNESS: Do I have the right to ask a13 question about these records?14 MR. GOLDMAN: Why don't we -- you want to15 do it now because we'll just take a short recess and16 I'll talk to you for two minutes.17 MR. KRATENSTEIN: Well, let me actually18 remark this document. I just made a -- I have the19 document there, so I'm going to give you the right20 exhibit. I'm remarking 43. You can give me that21 one back.22 (Exhibit Number 43 was remarked for23 identification.)24 MS. FEIN: Why don't we do the Bates for25 this one?

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1 MR. KRATENSTEIN: This one is -- yeah,2 sure. This one is Sage 0009352 through 53.3 MS. FEIN: Okay. Thank you.4 Q. (By Mr. Kratenstein) And do you see --5 MS. CHAITMAN: Now I need one, too.6 Sorry.7 MR. KRATENSTEIN: That's fine.8 MS. CHAITMAN: Thank you.9 Q. (By Mr. Kratenstein) Sorry about that.10 And do you see here this is now a January 31, 199711 Sage Realty statement? Do you see that?12 A. Yes.13 Q. And you see now this is the year -- so in14 the first document we saw, Exhibit 42, that was at15 the end of the year 1996 and this is in the new16 year, 1997. Do you see that?17 A. Yes.18 Q. And at the top there's a transaction. It19 says NCR Corp spin-off from AT&T Corp. And then20 there are various AT&T and NCR transactions. Do you21 see that?22 A. Yes.23 Q. Can you describe what this transaction is?24 A. It looks like a distribution of -- AT&T25 went through a whole series of divestitures of their

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1 other companies, which was referred to as baby2 bells. I'm not sure what period that they took3 place, but we were a major market maker in AT&T4 forever over the 50 years that I was in business.5 So there were lots of events regarding AT&T and I'm6 assuming this is one of them.7 Q. Okay. And this trade if we look at8 Exhibits 42 and 43, this trade involves if I'm not9 mistaken buying AT&T before the spin-off and then10 after the spin-off selling AT&T as well as newly11 received NCR shares?12 A. Correct.13 Q. Because AT&T had spun off NCR?14 A. Correct.15 Q. And what's the idea behind that? That the16 spin-off creates greater value?17 A. Yes.18 Q. Was this an actual transaction, a real19 transaction?20 A. Yes.21 Q. You can put that document aside. By this,22 I mean, the transactions we see on 42 and 43, real23 transactions?24 A. Yes.25 MR. KRATENSTEIN: Thank you. One more,

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1 please. And this is the one I just showed you a2 minute ago. That's going to be 44 now.3 MS. CHAITMAN: I have that one.4 MR. KRATENSTEIN: You have that one?5 MS. CHAITMAN: Yeah. You gave it to me6 before.7 MR. KRATENSTEIN: Thanks, yes.8 (Exhibit Number 44 was marked for9 identification.)10 Q. (By Mr. Kratenstein) Mr. Madoff, do you11 see that this is a Sage Realty statement dated12 July 31, 1994?13 A. Yes.14 Q. And do you see that there are various15 transactions on this statement involving UAL?16 A. Yes.17 Q. Can you tell from looking at this what this18 transaction entails?19 A. Similar to the other transaction, looks20 like a spin-off of some sort.21 Q. Is it fair to say that this is a trade to22 buy UAL before the -- a recapitalization and then23 selling the stock after receiving a cash24 distribution?25 MS. FEIN: Objection.

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1 THE WITNESS: Possibly.2 Q. (By Mr. Kratenstein) Your answer was?3 A. Possibly.4 Q. Thank you. Would this transaction have5 been an actual real transaction as reflected on this6 statement?7 A. Correct.8 Q. In terms of your corporate event arbitrage9 trading, would you sometimes take market risk over a10 period of time of weeks?11 A. Correct.12 Q. You can put that aside. Do you want to13 take a break now? We're changing topics.14 MR. GOLDMAN: Yeah. You wanted to ask me15 a question, so let's go in the other room. You can16 ask me what you want to ask me and then we'll see.17 THE VIDEOGRAPHER: Going off the record.18 The time is 9:40.19 (A recess was taken.)20 THE VIDEOGRAPHER: Back on the record.21 The time is 9:51.22 (Exhibit Number 45 was marked for23 identification.)24 Q. (By Mr. Kratenstein) Mr. Madoff, we talked25 about the fact that the Sages had an account called

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1 Sage Associates, so I'm going to ask a few questions2 about that account now. I'm going to start with3 another document we're going to mark as Exhibit4 Number 45. I'm going to focus my questions on the5 first page and then the page that is Bates labeled6 MF 0091185. So I'm just going to -- I'll hand out7 copies to everyone else.8 A. Your records.9 MR. KRATENSTEIN: Yeah. There you go.10 MS. CHAITMAN: I'm sorry. Take note of11 that Bates number. Was that 185?12 Q. (By Mr. Kratenstein) 941185. I'm going to13 start on the first page and then I'll flip it for14 you. So if you don't mind, I'll just keep my finger15 there so we can get to the page, which will help us16 move through this relatively quickly. Mr. Madoff,17 you see that this is a document called house 1718 stock record summary through 5-31-85?19 A. Yes.20 Q. Do you recognize this type of document?21 A. Yes.22 Q. What is it?23 A. It's usually a month-end report that lists24 the securities in each account.25 Q. And these reports would be generated in the

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1 ordinary course of your firm business?2 A. Correct.3 Q. And would they be generated on or around4 the date indicated at the top, May 31, 1985 in this5 case?6 A. Correct.7 Q. And were these reports like this kept on8 your firm's premises?9 A. Yes.10 Q. And created in the ordinary course of11 business?12 A. Yes.13 Q. Okay. Now I'm going to turn to the page I14 indicated, which is again MF 00941185. And are you15 there, counsel?16 MS. CHAITMAN: Yeah.17 Q. (By Mr. Kratenstein) Okay. I'm going to18 draw your attention to -- it's actually this page19 right here. See the bottom of the page, towards the20 bottom there's a Walt Disney Productions entry. Do21 you see that?22 MS. FEIN: Is this the page ending in 184,23 Andrew?24 MR. KRATENSTEIN: 85.25 MS. FEIN: It's 85?

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1 MR. KRATENSTEIN: Yes.2 MS. FEIN: Okay.3 Q. (By Mr. Kratenstein) Do you see Walt4 Disney Productions right here?5 A. Yes.6 Q. Okay. So and do you see under Walt Disney7 Productions there are various customer accounts8 listed including Sage Associates and Maurice Sage9 Trust?10 A. Yes, yes.11 Q. And do you see according to this report12 there are 9,000 shares of Walt Disney in Sage13 Associates and 5,000 in Maurice Sage Trust?14 A. Correct.15 Q. And according to this report, when you add16 up all of the customer's holdings, so in addition to17 Sage Associates and Maurice Sage Trust, there are18 entries for Appleby and then other customers. Do19 you see that?20 A. Yes.21 Q. And they add up to 34,780 shares. Do you22 see that?23 A. Correct.24 Q. That's of Disney stock; correct?25 A. Yes.

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1 Q. And then there's an entry at the bottom2 next to that 34,780 shares for the National3 Westminster Bank USA. Do you see that?4 A. Correct.5 Q. What does that mean, that all the stock is6 listed next to that bank?7 A. That the securities are held at that bank8 or one of their clearing agents.9 Q. And this is a 1985 report. So I take it10 from your prior testimony that these are actual11 securities that were actually held at the National12 Westminster Bank?13 A. Correct.14 MR. KRATENSTEIN: I'm going to move this15 document and mark as Exhibit 46 another document.16 (Exhibit Number 46 was marked for17 identification.)18 Q. (By Mr. Kratenstein) Mr. Madoff, do you19 see that what we've marked as Exhibit Number 46 is a20 report that at the top says 5-31-85, so May 31,21 1985, National Westminster Bank USA? Do you see22 that?23 A. Yes.24 Q. And do you recognize this type of document?25 A. Yes.

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1 Q. What is it?2 A. It's activity in the account of National3 Westminster Bank.4 Q. And, again, is this a document that would5 have been created in the ordinary course of your6 firm's business?7 A. Yes.8 Q. And would have been kept at your firm's9 premises?10 A. Yes.11 Q. That would have been generated on or around12 May 31, 1985?13 A. Correct.14 Q. And would have been maintained in the15 ordinary course of your firm's business; is that16 correct?17 A. Correct.18 Q. And if you turn -- and I'll do this -- to19 page 965279, if you look in the middle of the page20 -- is everybody with me?21 MS. DASARO: Yeah.22 Q. (By Mr. Kratenstein) At 965279 do you see23 that there are 34,780 shares of Walt Disney stock24 listed as being held at the National Westminster25 Bank?

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1 A. Correct.2 Q. And that matches up with the previous3 record that we just saw?4 A. Correct.5 Q. And these are actual securities held at the6 National Westminster Bank?7 A. Correct.8 MR. KRATENSTEIN: Thank you.9 MS. CHAITMAN: Oh, I see. Right here?10 MR. KRATENSTEIN: Yes. Top entry in the11 middle.12 MS. CHAITMAN: Thank you.13 MR. KRATENSTEIN: Okay. I want to make a14 suggestion. I want to take a short break and just15 sticker a whole bunch of exhibits instead of doing16 it on the record and then that way it will be a lot17 faster when we're on the record.18 MS. CHAITMAN: Why don't you let me do it19 for you?20 MR. KRATENSTEIN: I think because I know21 where I want to go.22 MS. CHAITMAN: Oh, okay.23 MR. KRATENSTEIN: It will take five24 minutes. Let's just do that.25 MS. DASARO: Okay.

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1 MR. KRATENSTEIN: Let's take a quick2 break. I don't want to waste your time on the3 record. You can get up and stretch.4 THE VIDEOGRAPHER: Going off the record.5 The time is 9:57.6 (A recess was taken and Exhibit Number 477 was marked for identification.)8 THE VIDEOGRAPHER: Back on the record.9 The time is 10:13.10 Q. (By Mr. Kratenstein) Welcome back, Mr.11 Madoff. You had talked earlier about the Sages12 directing you to do trades in their accounts. I13 want to show you a few documents on that topic. I'm14 showing you Exhibit Number 47. Mr. Madoff, do you15 see that this is a letter from Malcolm Sage to you?16 A. Yes.17 Q. It's on the letterhead of Sage Associates18 and Sage Associates II?19 A. Yes.20 Q. Those were each Sage accounts?21 A. Yes.22 Q. And do you have any reason to believe that23 you did not receive this letter?24 A. No.25 Q. This letter would have been kept by your

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1 firm?2 A. Correct.3 Q. Probably by Annette Bongiorno?4 A. Correct.5 Q. By the way, was Ms. Bongiorno, do you6 recall if she was left handed?7 A. I believe so.8 Q. So when she made a check mark, it would be9 a left-handed check mark?10 A. Yes.11 Q. Do you see that the letter begins Dear12 Bernie, after discussions with Paul we have come up13 with the following plan with regards to the Sage14 Associates IS-004 and Sage Associates II IS-00515 accounts. Do you see that?16 A. Yes.17 Q. First of all, do you know who Mr. Sage is18 referring to when he says Paul?19 A. I would assume it's his accountant.20 Q. And who is he?21 A. I believe it's Paul Koenigsberg.22 Q. And he says we have come up with the23 following plan. Do you know what -- have an24 understanding of what he means when he says the25 following plan?

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1 A. I assume his tax plan.2 Q. And do you see the backwards lefty checks3 on this letter?4 A. Correct.5 Q. Do you believe those to be Ms. Bongiorno's?6 A. Correct.7 Q. And do you see in the letter Mr. Sage is8 directing you to take various actions with respect9 to securities in the Sage Associates and Sage10 Associates II accounts?11 A. Correct.12 Q. For example, in the first entry with13 respect to Abercrombie & Fitch he says please14 deliver the short position in the seven account to15 the three account to close out this position. Do16 you see that?17 A. Correct.18 Q. And do you recall that Mr. Sage or the19 Sages rather had subaccounts within Sage Associates20 for long positions, short against the box positions21 and naked short positions?22 A. Correct.23 Q. Does it make sense to you that three would24 have been the long position account?25 A. Correct.

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1 Q. And seven the short against the box2 position account?3 A. Correct.4 Q. Eight, the naked short position account?5 A. Yes.6 Q. What is a short against the box?7 A. Short against the box is when you're8 selling -- you're selling stock that you are also9 long in another account. You're long and short the10 same security.11 Q. Does it mean you're actually holding the12 security when you go short or no?13 A. Yes.14 Q. And what's --15 A. Well, I have to correct that. If it's the16 short against the box account, you would be long17 security as well. You could -- if it was what's18 called a naked short, you're not long in the19 corresponding security.20 Q. And do you see that there are obviously21 various transactions here for -- instructions for22 Abercrombie, Dow, International Paper, Oracle and23 Qualcomm? Do you see that?24 A. Correct.25 Q. And then he asks you at the end in .1(f) to

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1 please realize the approximately $600,000 of gain in2 the eight account; correct?3 A. Correct.4 Q. Which would be the naked short account?5 A. Yes.6 Q. And then there are instructions for Gateway7 and Coca-Cola in Sage Associates II. Do you see8 that?9 A. Yes.10 Q. And at the end he says after these steps11 have been taken, we would like to withdraw the sum12 of $6 million from Sage Associates. Do you see13 that?14 A. Correct.15 Q. And then he asks you if you have any16 questions, to call him or Paul; right?17 A. Correct.18 Q. Would you have followed these instructions?19 A. Yes.20 Q. How do you know that?21 A. Just clients telling us to. We have no22 choice.23 (Exhibit Number 48 was marked for24 identification.)25 Q. (By Mr. Kratenstein) I'm going to show you

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1 what we've marked as Exhibit Number 48, and you can2 compare that with this. If you look at this3 document, you see that this is the Sage Associates4 statement from November 30th, 2001?5 A. Yes.6 Q. And can you see on this statement the7 transactions that Mr. Sage directed you to do in his8 letter that we marked as Exhibit 47?9 A. Correct.10 Q. And you would have performed those11 transactions?12 A. Yes.13 Q. Would they have been real transactions?14 A. Yes.15 Q. You can put that document aside. And by16 the way, just note before actually putting it aside17 that this is the Sage Associates subaccount numbered18 seven. Do you see that?19 A. Correct.20 (Exhibit Number 49 was marked for21 identification.)22 Q. (By Mr. Kratenstein) Okay. And then now23 I'm going to give you Exhibit Number 49, which is24 Sage Associates subaccount three from the same date.25 Do you see that?

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1 A. Yes.2 Q. And, again, because there were -- he was3 asking you to transfer between the seven and three4 accounts. Do you see the flip side on this?5 A. Yes.6 Q. Thank you. And then you recall at the end7 of the letter he asked you to realize -- he asked8 you to recognize a $600,000 gain. Do you recall9 that?10 A. Correct.11 (Exhibit Number 50 was marked for12 identification.)13 MR. KRATENSTEIN: Here's Exhibit 50.14 There's an extra copy.15 MS. FEIN: Okay.16 Q. (By Mr. Kratenstein) And do you see the17 $600,000 being recognized --18 A. Yes.19 Q. -- in Exhibit 50?20 A. Yes.21 (Exhibit Numbers 51, 52 and 53 were marked22 for identification.)23 Q. (By Mr. Kratenstein) Thank you. I'm going24 to hand you a group of documents, which I'll25 represent to you are the confirms reflecting all

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1 these transactions. And I'm just going to ask you2 when you have these in front of you are these3 documents the confirms that reflect the transactions4 that we just saw in the statements.5 Okay. So I'm just going to put them in6 front of you and I'm going to ask you to confirm7 that that's what they at least appear to you to be.8 So here's Exhibit -- and just wait until I give you9 them all. Here's Exhibit 51. This is Exhibit 52.10 MR. GOLDMAN: Are those exhibits multiple11 pages, just so the record is clear?12 MS. CHAITMAN: We didn't get 50.13 MR. KRATENSTEIN: 50 was a one page.14 MS. CHAITMAN: Yeah, but I don't have 51.15 Did you get two copies of 51?16 MS. FEIN: No.17 THE WITNESS: Helen, move your soda18 because he's about to knock it over.19 MS. CHAITMAN: Oh, thank you.20 THE WITNESS: I don't want to have to go21 through this again.22 Q. (By Mr. Kratenstein) Here's 53. Just take23 a look at it while I'm handing them out and see if24 you can flip through and just make sure you agree25 whether these are the confirms showing the trades

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1 that we saw in the last document?2 MS. CHAITMAN: Can you --3 Q. (By Mr. Kratenstein) Do you4 understand what -- what is Exhibit -- what is that,5 Mr. Madoff? Exhibit 53, what is that?6 A. This is just a memo of transferring monies.7 Q. Is it a -- what is known as a trade8 confirm?9 A. No.10 Q. Okay. It's a memo. So what does that11 mean?12 A. It's a memo. It's a making note of a13 particular money transaction or receiving the14 movement of securities. Confirmation is what15 appears behind it.16 Q. You see what's behind -- I see. So --17 A. Confirmation is an actual purchase and sale18 of a transaction.19 Q. Okay. I see. And so when you see -- these20 are memos you're saying, Exhibit 53, for example?21 A. Yes.22 (Exhibit Number 54 was marked for23 identification.)24 Q. (By Mr. Kratenstein) Okay. And here's25 Exhibit 54.

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1 MR. GOLDMAN: Are you looking at2 Exhibit 53?3 THE WITNESS: Fifty-three and four.4 MR. GOLDMAN: Okay. Under 53, the top5 page is the memorandum, I think, you suggested for6 the transfer of money. Is there anything else7 attached to that? Fifty-three, look at 53.8 THE WITNESS: Yeah. I have 53.9 MR. GOLDMAN: Okay. What's underneath it?10 THE WITNESS: Yeah, the confirmation.11 Q. (By Mr. Kratenstein) Is that the confirm?12 A. Confirmation.13 Q. So that's the confirm, the second page of14 53?15 A. Right.16 MR. KRATENSTEIN: Thank you.17 MS. FEIN: Sorry. Just to clarify, that18 second page isn't the same as the first page. The19 transaction isn't the same. My understanding that20 the memo -- or the difference between the memo and21 the confirm I understand, but the transaction is a22 different dollar amount.23 MR. KRATENSTEIN: Well, there are actually24 several. If you look, there are multiple25 transactions.

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1 MS. FEIN: Okay. So --2 MR. KRATENSTEIN: So they add up, I3 believe, but you can see. You can look. There are4 multiple. It's multiple transactions. You want a5 minute?6 MS. FEIN: I can't see the math. It looks7 like the last page, the last page ending in 42948 corresponds to the memo page that's the page ending9 in 290, but the two pages in between appear to be10 different.11 MR. KRATENSTEIN: Let's see. Which number12 is that? What's the first page number?13 THE WITNESS: 4290.14 MR. KRATENSTEIN: Okay. And then there's15 another, 4291, and then there are 4292, 93, 94.16 MS. FEIN: Yeah. And, actually, my copy17 doesn't have 4291. It just goes from 4290 to 4292,18 but 4292 and 4293 appear to be different19 transactions.20 MR. KRATENSTEIN: Let me take a look at21 it. Fifty-three this is? Here. Well, here's 4-2.22 This is Exhibit 16. We'll get it worked out at a23 break. Let me do it at a break. I don't want to24 take up the time now, but thank you.25 MS. FEIN: I understand.

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1 MR. GOLDMAN: I only did that so the2 record was clear. As I said, there are multiple3 pages in each exhibit.4 MR. KRATENSTEIN: Right.5 MR. GOLDMAN: Once you go through it --6 MS. CHAITMAN: What is the exhibit number7 that you're talking about?8 MR. KRATENSTEIN: Fifty-three.9 MS. FEIN: Fifty-three. My concern was10 the same. It was just about getting the record11 clear. So if we clear it up on a break, we can do12 it that way.13 Q. (By Mr. Kratenstein) Yeah, sure. And then14 Exhibit 54 you have in front of you?15 A. Yes.16 Q. Does that show in addition to a memo17 confirms behind?18 A. Yes.19 (Exhibit Number 55 was marked for20 identification.)21 Q. (By Mr. Kratenstein) Okay. That's this22 one. And now I'm going to give you 55, which again23 is a memo followed by the confirms?24 A. Yes.25 MS. FEIN: Thank you.

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1 THE WITNESS: No. Wait a minute. I don't2 see a confirmation. I see just memos.3 Q. (By Mr. Kratenstein) Just memos for 55?4 A. Right.5 MR. KRATENSTEIN: Okay.6 MS. CHAITMAN: How about the last page?7 Is that a confirm?8 MR. GOLDMAN: Yeah.9 THE WITNESS: No. These are just --10 MR. GOLDMAN: Go to the last page.11 MR. KRATENSTEIN: The last page, 224.12 THE WITNESS: Yes.13 Q. (By Mr. Kratenstein) That's a confirm?14 A. Yes.15 (Exhibit Number 56 was marked for16 identification.)17 Q. (By Mr. Kratenstein) 224 is a confirm.18 Thank you. Okay. And then the last one for this19 set is number 56, which is the $600,000 we saw20 earlier.21 MR. GOLDMAN: You okay? You look like you22 had a --23 MS. FEIN: Well, Exhibit 55 on my copy is24 missing a page but it may be the one that's missing25 a page, so --

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1 MR. KRATENSTEIN: Let me look. Which page2 is missing?3 MS. FEIN: For me it's missing what would4 be 4223. It goes from 4222 to 4224.5 MR. KRATENSTEIN: This has -- it does. So6 mine is marked the same way. It's marked the same7 way.8 MS. FEIN: Understood.9 Q. (By Mr. Kratenstein) Okay. All right. So10 is it fair to say that the documents that we have11 now marked as Exhibits 51 to 55 reflect the12 transactions that we saw in the letter that we13 marked as Exhibit 47?14 MS. FEIN: Objection to form.15 THE WITNESS: Correct.16 (Exhibit Number 57 was marked for17 identification.)18 Q. (By Mr. Kratenstein) Thank you. Now I'm19 going to mark Sage Associates two statements20 quickly. That was for Sage Associates. Those were21 the Sage Associates trades. Now, two Sage22 Associates II transactions that were shown in the23 letter which is Exhibit 47, I'm just going to show24 you the statements now. That's Exhibit 57. Put25 these here. Keep this letter here. Exhibit 57.

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1 MS. FEIN: Thank you.2 Q. (By Mr. Kratenstein) And if you see at the3 end of the letter, he talks about the Gateway4 delivery of short positions and closing out5 Coca-Cola. And if you look at Exhibit Number 20, do6 you see the Gateway and Coca-Cola transactions7 reflected on this statement?8 A. Yes.9 (Exhibit Number 58 was marked for10 identification.)11 Q. (By Mr. Kratenstein) And then looking at12 Exhibit Number 58 --13 MS. CHAITMAN: Did you mean to say14 Exhibit 20?15 MS. FEIN: Did you mean Exhibit 57?16 MR. KRATENSTEIN: I said 57. What did I17 say?18 MS. CHAITMAN: 20.19 MS. FEIN: 20.20 Q. (By Mr. Kratenstein) So do you see on21 Exhibit 57, sorry, the Sage Associates II, the Sage22 Associates II transactions for Gateway and Coca-Cola23 reflected on Exhibit 47?24 A. Yes.25 Q. And now Exhibit 58.

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1 MS. CHAITMAN: What you're saying is2 Exhibit 57 shows the transactions that Malcolm3 instructed?4 MR. KRATENSTEIN: Correct.5 MS. CHAITMAN: Okay.6 Q. (By Mr. Kratenstein) Do you agree with7 that, Mr. Madoff?8 A. Yes.9 Q. Thank you. And Exhibit 58, which is the10 other side of the Sage Associates II transaction, do11 you see again the Gateway transfer to that account12 as directed by Mr. Sage --13 A. Yes.14 Q. -- in his letter?15 A. Uh-huh.16 Q. Correct?17 A. Yes.18 MS. FEIN: Objection to form.19 (Exhibit Numbers 59 and 60 were marked for20 identification.)21 Q. (By Mr. Kratenstein) Thank you. And here22 are memos and confirms, Exhibit 59. This is going23 to be the same set of questions, whether the24 confirms also reflect this time Sage Associates II25 activity we see in the letter that was marked as

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1 Exhibit 47?2 MS. FEIN: Objection to form.3 THE WITNESS: Yes.4 MR. KRATENSTEIN: Thank you. Do you have5 this one, Amanda?6 MS. FEIN: I do. Thank you.7 MS. CHAITMAN: What number is this?8 MS. FEIN: 60. Andrew, was your question9 with respect to Exhibits 59 and 60?10 Q. (By Mr. Kratenstein) Yeah. I'm asking11 whether on 59 and 60 they reflect the -- so it will12 be 59 you see, Mr. Madoff, reflects the Gateway13 transaction that is shown in Exhibit 47 at the14 bottom under Sage Associates II; correct?15 A. Yes, correct.16 Q. And Exhibit 60 shows the Coca-Cola17 transaction --18 A. Correct.19 Q. -- and to be in Exhibit 47; correct?20 A. Correct.21 (Exhibit Number 61 was marked for22 identification.)23 Q. (By Mr. Kratenstein) Thank you. I'm going24 to show you another letter. This is Exhibit25 Number 61. Mr. Madoff, do you see that this is a

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1 letter from Mr. Sage to you on the letterhead of2 Sage Associates and the Maurice S. Sage Foundation?3 A. Yes.4 Q. Do you have any reason to believe that you5 did not receive this letter?6 A. No.7 Q. Do you believe the handwriting on this8 letter to be Annette Bongiorno's?9 A. Yes.10 Q. Do you see that in this letter Mr. Sage11 writes, although it's addressed to you, he writes12 Dear Annette. Do you see that?13 A. Correct.14 Q. And that's Ms. Bongiorno?15 A. Yes.16 Q. He writes after discussions with Paul we17 have come up with the following plan with regard to18 the Sage Associates IS-0004 and Maurice S. Sage19 Foundation, Inc. IS-0197 accounts. Do you see that?20 A. Yes.21 Q. And, again, do you have any understanding22 of what plan Mr. Sage was talking about?23 A. It's a tax plan.24 Q. And do you have any understanding of what25 he was trying to accomplish tax-wise?

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1 A. Yes.2 Q. What was that?3 A. To realize certain gains, gains and losses4 based upon making a sale of security.5 Q. Okay. And do you see that he for Sage6 Associates directs you with respect to Emulex stock7 to please deliver the short position --8 A. Right.9 Q. -- in the seven account to the three10 account to close out this position; correct?11 MS. FEIN: Objection to form.12 THE WITNESS: Correct.13 MR. KRATENSTEIN: Sorry. What's the basis14 for the objection?15 MS. FEIN: You said he directs you, but16 the letter is not only addressed to him. It also17 has attention Annette Bongiorno right under the18 addressee line.19 Q. (By Mr. Kratenstein) Okay. Do you see Mr.20 Sage directing Ms. Bongiorno, who worked for you;21 correct?22 A. Correct.23 Q. To please deliver the short position in the24 seven account to the three account to close out this25 position in Emulex. Do you see that?

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1 A. Yes.2 Q. The amount to be delivered is the entire3 amount held, 220,000 shares; correct?4 A. Correct.5 Q. With respect to Broadcom, Mr. Sage writes6 please deliver 15,000 shares in the seven account to7 the three account. This will leave the remaining8 40,000 shares in the three and seven accounts. Do9 you see that?10 A. Correct.11 Q. And then with respect to the Maurice S.12 Sage Foundation, Inc. account he says we would like13 to withdraw the sum of $25,000. This will not14 require the sale of any stock because this sum is15 available in money market funds. Do you see that?16 A. Yes.17 Q. And do you see that in the handwriting for18 Ms. Bongiorno the date is 12-24-02? Do you see19 that?20 A. Yes.21 Q. And then he asks at the end, Mr. Sage asks22 if you have any questions, please call him. Do you23 see that?24 A. Yes.25 Q. Would you have followed these instructions?

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1 A. Yes.2 Q. And that's the same reason as before,3 because you have to follow the instructions of your4 customers; correct?5 A. Correct.6 MS. FEIN: Objection to form.7 (Exhibit Number 62 was marked for8 identification.)9 Q. (By Mr. Kratenstein) All right. Just10 going to show you a few documents concerning whether11 you did follow those instructions. We'll start with12 Exhibit 62.13 MS. FEIN: Andrew, can you just clarify14 when you're saying you followed the instructions in15 your questioning?16 Q. (By Mr. Kratenstein) What did you17 understand what I meant you follow the instructions?18 A. What does it mean?19 Q. Yeah.20 A. It means I did what the client asked me to21 do.22 Q. And would you sometimes if a client asked23 you to do something, would you -- who would you have24 do it?25 A. Usually, you know, Annette.

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1 Q. In this case it would be Annette because2 she was working with you?3 A. Right.4 Q. Do you know if she would have come to you5 -- do you know if you would have seen this letter6 that we marked as Exhibit 61?7 A. I either would have seen it or been told8 about it.9 Q. By Annette?10 A. By Annette.11 Q. Would that be true of all written12 instructions from clients?13 A. I assume so.14 MS. FEIN: Objection to form.15 Q. (By Mr. Kratenstein) And why do you assume16 so?17 A. Depends upon the -- could have been one of18 her assistants, you know, calling me if she was not19 available.20 Q. But is your point that if a client gave you21 instructions, you'd want to know about it?22 MS. FEIN: Objection to form.23 THE WITNESS: Correct.24 Q. (By Mr. Kratenstein) So we've marked25 Exhibit 62. And if you look at Exhibit 62, we

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1 talked about Emulex and Broadcom in the letter. And2 do you see movements of Emulex and Broadcom as3 directed in the letter reflected in this statement4 that we marked as Exhibit 62?5 A. Yes.6 (Exhibit Number 63 was marked for7 identification.)8 Q. (By Mr. Kratenstein) Same for Exhibit 63?9 A. Yes.10 Q. Same question. Do you see the movements in11 the Sage Associates account being directed by Mr.12 Sage in his letter that we've marked as Exhibit 6113 actually on the statements being executed?14 A. Yes.15 (Exhibit Number 65 was marked for16 identification.)17 Q. (By Mr. Kratenstein) And then with respect18 there was a direction on the Maurice Sage19 Foundation, so I'm going to show you Exhibit 65.20 MS. CHAITMAN: Did we have Exhibit 64?21 MS. DASARO: I think, yeah.22 MS. FEIN: I think this should be 64.23 MR. KRATENSTEIN: It should be. We might24 have a miss. So if we have a miss, I apologize.25 I'm not sure what happened there. Let's just call

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1 this Exhibit 65 and we'll come back and if we missed2 64, we'll just have this gap.3 Q. (By Mr. Kratenstein) Do you see that there4 in the Sage -- in Exhibit 61 he's asking to withdraw5 $25,000 and do you see that in Exhibit Number 65,6 the $25,000 withdrawal?7 A. Yes.8 (Exhibit Numbers 66, 67 and 68 were marked9 for identification.)10 Q. (By Mr. Kratenstein) Finally, the memos11 and/or confirms. I'm showing you Exhibit 66,12 Exhibit 67 and Exhibit 68. And, again, Mr. Madoff,13 do Exhibits 66 through 68 reflect the execution of14 the instructions that were contained in the letter15 that we marked as Exhibit 61?16 A. Yes.17 (Exhibit Number 69 was marked for18 identification.)19 Q. (By Mr. Kratenstein) Thank you. I'm20 showing you Exhibit Number 69. Mr. Madoff, do you21 see that this is a letter from Maurice Sage to22 Annette Bongiorno and you on the letterhead of Sage23 Associates and Sage Associates II?24 MS. FEIN: Objection to form.25 THE WITNESS: Yeah. From Malcolm Sage.

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1 Q. (By Mr. Kratenstein) From Malcolm Sage,2 yes.3 A. Right, yes.4 Q. Do you have any reason to believe that you5 did not receive this letter?6 A. No.7 Q. Would it have been maintained by your firm8 after it was received?9 A. Yes.10 Q. Mr. Sage writes Dear Annette, just wanted11 to touch base with you regarding certain stocks in12 Sage Associates IS-004 and Sage Associates II13 IS-005. To the best of my understanding the only14 stocks which were held short against the box and not15 grandfathered, and the word grandfathered is in16 quotes, with respect to the constructive sales rules17 are Broadcom, and then he puts in parentheses Sage18 Associates, and RJR, and then he puts in parentheses19 Sage Associates and Sage Associates II.20 Let me just stop there for a second. We21 talked about what a short against the box is. Do22 you have an understanding of what Mr. Sage meant23 when he referred to grandfathered?24 A. Not really.25 Q. Okay. Therefore -- then he goes on in his

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1 sentence and says, therefore, I assume that these2 positions will be bought into prior to January 30 so3 as to avoid a constructive sale. Do you see that?4 A. Yes.5 Q. Do you understand him to be instructing you6 to buy into Broadcom and RJR?7 MS. FEIN: Objection to form.8 THE WITNESS: Yes.9 MR. KRATENSTEIN: What's the basis for the10 objection?11 MS. FEIN: This letter is addressed to12 Annette, the letterhead is Annette and it's also13 Dear Annette and you're saying instructing you,14 directing you. I just -- I have an objection to15 that in the past and in the future.16 MR. KRATENSTEIN: I will fix. Thank you.17 Q. (By Mr. Kratenstein) Do you see that the18 letter is addressed both to you and Ms. Bongiorno,19 Mr. Madoff?20 MS. FEIN: Objection. I don't -- the firm21 name is listed here underneath Annette's name. I22 don't see that this letter is addressed to both Mr.23 Madoff and Annette.24 Q. (By Mr. Kratenstein) I see. Okay. So Mr.25 Madoff, going back to prior testimony, is this the

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1 type of letter that you would have expected Ms.2 Bongiorno to show you?3 A. Yes.4 Q. And do you have any reason to believe that5 she did not show it to you?6 A. Either showed me or told me on the phone.7 Q. Okay. And when this letter says I assume,8 Mr. Sage writes I assume that these positions will9 be bought into prior to January 30 so as to avoid a10 constructive sale, do you understand Mr. Sage to be11 directing your firm to follow those instructions?12 A. Correct.13 (Discussion off the record.)14 Q. (By Mr. Kratenstein) And do you have any15 recollection of the tax law being changed with16 respect to short against the box transactions and17 certain of those transactions being grandfathered?18 A. Yes, yes.19 Q. What do you recall of that?20 A. I recall that it happened. I can't tell21 you the details.22 (Exhibit Number 70 was marked for23 identification.)24 Q. (By Mr. Kratenstein) Okay. And now we're25 just going to go through the same drill and I'm

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1 going to ask you through statements whether any of2 these transactions being directed in Exhibit 70 show3 -- 69 rather show up on the Sage Associates4 statements as Exhibit 70?5 MS. FEIN: Objection to form. Thank you.6 Q. (By Mr. Kratenstein) And do you see that7 this is a January 31, 2003 Sage Associates8 statement?9 A. Yes.10 Q. And do you see in the middle it shows11 buying into RJR and Broadcom?12 A. Yes.13 Q. And is that as instructed in Exhibit 69?14 A. Yes.15 MR. KRATENSTEIN: You can put that16 document aside and now we'll just do the memos or17 confirms quickly, Exhibit 71. Make sure this is18 right. Thanks.19 (Exhibit Numbers 71 and 72 were marked for20 identification.)21 Q. (By Mr. Kratenstein) Exhibit 71, and here22 is Exhibit 72. And if you look at Exhibit 71 and23 72, what are they?24 A. Confirmations.25 Q. Of what?

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1 A. Sage Associates, R. J. Reynolds and2 Broadcom.3 Q. And those are the transactions reflected in4 Exhibit 69 --5 A. Correct.6 Q. -- being executed by your firm?7 A. Yes.8 (Exhibit Number 73 was marked for9 identification.)10 Q. (By Mr. Kratenstein) One more to go.11 Here's Exhibit 73. Are you okay, Mr. Madoff? You12 need a break?13 A. No. I'm fine.14 Q. Okay. We're almost there. I'm showing you15 Exhibit 73, Mr. Madoff, which do you see that it's a16 letter to Bernard L. Madoff Investment Securities,17 attention, Annette Bongiorno, from Malcolm Sage?18 A. Yes.19 Q. It's on the letterhead of Sage20 Associates --21 A. Uh-huh.22 Q. -- and Sage Associates II and the Maurice23 S. Sage Foundation?24 A. Yes.25 Q. Do you have any reason to believe you would

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1 not have been made aware of this letter by Ms.2 Bongiorno?3 A. No.4 Q. In other words, she would have made you5 aware of it; correct?6 A. Yes.7 Q. And do you have any reason to believe that8 Ms. Bongiorno did not receive this letter?9 A. No.10 Q. Do you see the handwriting on the letter?11 A. Yes.12 Q. Is that Ms. Bongiorno's?13 A. Definitely.14 Q. How do you recognize it?15 A. I recognize the handwriting now that I'm16 looking at it.17 Q. Okay. The letter says -- and I'm sorry.18 You recognize it from having worked with her;19 correct?20 A. Yes.21 Q. And Mr. Sage writes after discussions with22 Paul, we have come up with the following plan with23 regards to Sage -- the Sage Associates IS-004, Sage24 Associates II IS-005 and Maurice S. Sage Foundation,25 Inc. IS-197 accounts. Do you see that?

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1 A. Yes.2 Q. And, again, do you have any understanding3 of what this plan was?4 A. It's just a tax plan realizing gains when5 you have a short against the box transaction.6 Q. Do you understand what Ms. Bongiorno's7 notes mean on this left-hand margin?8 A. By looking at -- by her saying $3 million9 gain, it's realizing only part of the transaction.10 Q. What do you mean by that?11 A. In other words, she must have more shares12 than she wants to sell.13 Q. Okay. And then it says in a box no14 long-term. Do you see that?15 A. Yes.16 Q. Do you have an understanding --17 A. She doesn't want --18 Q. Let me finish. Do you have an19 understanding of what that means?20 A. Not to receive -- doesn't -- do not take a21 long-term gain.22 Q. That would be for a tax reason?23 A. Yes.24 Q. Under Sage Associates there are four25 transactions being directed. Do you see that?

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1 A. Yes.2 Q. And under Sage Associates II there's one3 transaction?4 A. Yes.5 Q. Under Maurice S. Sage Foundation there's6 one transaction; correct?7 A. Yes.8 Q. Would these transactions have been9 executed?10 A. Yes.11 Q. And that's because your firm would follow12 your client's instructions; correct?13 A. Correct.14 (Exhibit Number 74 was marked for15 identification.)16 Q. (By Mr. Kratenstein) Let's just again go17 through the quick drill of confirming whether these18 show up on the statements and in the memos and19 confirms, so I'm going to put this letter here. I'm20 going to show you Exhibit 74, which is the21 December 31, 2013 Sage Associates statement --22 sorry -- 2003 Sage Associates statement. Do you see23 that?24 A. Yes.25 Q. And do you see the transfer of the Amgen

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1 and Symantec as directed --2 A. Yes.3 Q. -- in Exhibit 73?4 A. Yes.5 (Exhibit Number 75 was marked for6 identification.)7 Q. (By Mr. Kratenstein) And I'm going to show8 you Exhibit 75. And in Exhibit 75, do you see that9 that is a December 31, 2003 Sage Associates10 statement?11 A. Yes.12 Q. And do you see there the transactions that13 had been directed by Mr. Sage with respect to14 National Semiconductor, RJR, Amgen and Symantec?15 A. Yes.16 MS. FEIN: We didn't receive that.17 MR. KRATENSTEIN: Oh, you didn't get that18 one? I'll just make sure I have the right one.19 Yes.20 MS. FEIN: Thank you. Yes.21 MS. CHAITMAN: That's Exhibit 74?22 MS. FEIN: This is Exhibit 75; right?23 MR. KRATENSTEIN: It's Exhibit 75.24 MS. CHAITMAN: I'll ask do you have25 another one?

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1 MR. KRATENSTEIN: Yes.2 MS. CHAITMAN: Thanks.3 (Exhibit Numbers 76, 77, 78 and 79 were4 marked for identification.)5 Q. (By Mr. Kratenstein) And now let's just do6 the memos and confirms quickly and we're almost7 done. Here's Exhibit 76, Exhibit 77 --8 MS. FEIN: Thank you.9 Q. (By Mr. Kratenstein) -- and 78 and 79.10 Mr. Madoff, have you had an opportunity to look at11 what we've marked as Exhibits 70 -- what is it? 76,12 77, 78 and 79?13 A. Yes.14 Q. And can you tell me what those documents15 are?16 A. Confirmations.17 Q. Do they reflect the instructions with18 respect to the -- the execution of the instructions19 with respect to the Sage Associates account that are20 contained in the letter that we marked as Exhibit21 Number 73?22 A. Yes.23 (Exhibit Numbers 80 and 81 were marked for24 identification.)25 Q. (By Mr. Kratenstein) Thank you. And there

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1 were in that letter instructions for Sage Associates2 II, so let's just look at those statements quickly.3 This is Exhibit Number 80 and Exhibit 81.4 And just to refresh your recollection, with5 respect to Sage Associates II in the letter6 Exhibit 73, there's an instruction with respect to7 Symantec for Sage Associates II. And I'm going to8 ask if you see on Exhibits 80 and 81 the execution9 of that instruction?10 A. Yes.11 Q. And Exhibit -- just so the record is clear,12 Exhibit 80 is a Sage Associates II statement from13 December 31, 2003. That's for the sub three14 account. And the next exhibit, 81, is a Sage15 Associates II statement, also December 31, 2003, for16 the seven subaccount of Sage Associates II; correct?17 A. Yes.18 (Exhibit Number 82 was marked for19 identification.)20 Q. (By Mr. Kratenstein) Thank you. Finally,21 the confirm. This is Exhibit 82. Is that a -- what22 is Exhibit 82?23 A. It's a memo.24 Q. It's a memo? Does it --25 A. Showing movement of monies.

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1 Q. Does the second page show the Symantec2 move?3 A. Yes.4 Q. Thank you. And, finally, at the end of the5 letter, Exhibit 73, you'll see that there's a6 request to withdraw the sum of $16,000. Do you see7 that?8 A. Yes.9 (Exhibit Number 83 was marked for10 identification.)11 Q. (By Mr. Kratenstein) I'm just showing you12 Exhibit Number 83. Do you recognize Exhibit 83?13 A. Yes.14 Q. What is it?15 A. A check, memo for a check.16 Q. For how much?17 A. Sixteen thousand dollars.18 Q. To the Maurice S. Sage Foundation?19 A. Yes.20 Q. That shows the execution of the instruction21 at the end of Exhibit 73, the letter?22 A. Correct.23 (Exhibit Number 84 was marked for24 identification.)25 Q. Thank you. We'll put that aside. I'm

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1 showing you Exhibit 84. Do you recognize2 Exhibit 84, Mr. Madoff?3 A. Yes.4 Q. What is it?5 A. It's a note from Annette.6 Q. And you recognize her handwriting?7 A. Yes.8 Q. Would this document have been prepared --9 well, strike that. Are you familiar with year-end10 note documents prepared by Ms. Bongiorno?11 A. Yes.12 Q. How are you familiar with them?13 A. I've seen it before.14 Q. She prepared them in the ordinary course of15 her business?16 A. Yes.17 Q. And it was a regular part of her18 responsibilities to create notes like this?19 A. Yes.20 Q. And these documents would have been kept, a21 document like this one would have been kept under22 your firm's custody or control?23 A. Yes.24 Q. Do you see that there are notes here for25 the Sage group?

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1 A. Yes.2 Q. And do you understand that to be referring3 to the Sage family accounts we've been talking4 about?5 A. Yes.6 Q. And do you have an understanding of what7 the notes on the first page if you look at them8 mean?9 A. I can't even read it.10 Q. Okay. Well, do you see the second sentence11 says -- tell me if you disagree with this -- could12 have gone SAB in eBay but cust did not want it?13 A. Correct.14 MS. FEIN: Objection to form.15 Q. (By Mr. Kratenstein) Correct?16 A. Could have brought short against the box on17 eBay, but customer did not want it.18 Q. Do you understand that a member of the Sage19 family was instructing your firm not to go short20 against the box on eBay?21 A. Yes.22 Q. Would your firm have followed that23 instruction?24 A. Yes.25 (Exhibit Number 85 was marked for

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1 identification.)2 Q. (By Mr. Kratenstein) You can put that3 document aside. Exhibit 85. Mr. Madoff, do you see4 that this is a letter from Malcolm Sage to you?5 A. Yes.6 Q. Any reason to believe that you did not7 receive this letter?8 A. No.9 Q. He writes Dear Bernie, it was nice to see10 you at Ruth -- it was nice to see you and Ruth at11 Paul's party. Do you see that?12 A. Yes.13 Q. And I'll skip some of the rest and I'll go14 to the second paragraph. In the second sentence he15 says, quote, when we spoke last year we decided that16 it would be best to transition away from the managed17 portfolio accounts.18 And then he goes on to say a sentence later19 or two sentences later since then our main holding,20 eBay, has dropped significantly. As that holding is21 a long-term one, I was hoping that you had shorted22 it against the box a while back. If you have a23 chance, can you confirm that? Do you see that?24 A. Yes.25 Q. And do you have any recollection as to

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1 whether you had, in fact, shorted against the box as2 Mr. Sage had hoped?3 A. When was this letter written? I don't4 know.5 (Exhibit Number 86 was marked for6 identification.)7 Q. (By Mr. Kratenstein) Well, let me see if I8 can refresh your recollection. He didn't date his9 letters for whatever reason, so we have to match10 them up against statements and/or confirms and11 memos. So I'm going to show you Exhibit 86. And do12 you see that this is a Sage Associates account13 statement for April 30, 2006?14 A. Yes.15 Q. And do you see that there are various short16 against the box positions for eBay?17 A. I see sales transactions on eBay, right.18 (Exhibit Number 87 was marked for19 identification.)20 Q. (By Mr. Kratenstein) Sorry. Sales21 transactions, correct. And then if we look at22 Exhibit 48 -- I'm sorry -- Exhibit 87. I apologize.23 These are memos from this time period. If you look,24 April 2006, memos and/or confirms. If you'll just25 take a look at those and tell me what you see in

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1 Exhibit 87? What are those?2 A. I'm looking now. These are all3 confirmations.4 Q. And do you see that they say short against5 the box?6 A. Yes.7 Q. So those would have been short against the8 box transactions?9 A. Correct.10 Q. Presumably as requested in the letter that11 we marked as Exhibit 85?12 A. Yes.13 (Exhibit Number 88 was marked for14 identification.)15 Q. (By Mr. Kratenstein) Thank you. Last16 letter, last one. This is Exhibit 88. Mr. Madoff,17 do you see that Exhibit 88 is a letter from Malcolm18 Sage to you?19 A. Yes.20 Q. And it's got handwriting on it?21 A. Yes.22 Q. Whose handwriting?23 A. Annette's.24 Q. And, again, you recognize that from your25 time working with her?

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1 A. Yes.2 Q. Do you have any reason to believe that you3 did not receive this letter?4 A. No.5 Q. Do you see that Mr. Sage is writing to you,6 Mr. Madoff, about sale of certain Sage Associates'7 positions?8 A. Yes.9 Q. And he says Martin and I recently met with10 Paul. Let me stop there. Do you understand Martin11 to be Malcolm's brother, Martin Sage?12 A. Yes.13 Q. Martin and I recently met with Paul in14 regard to selling our positions in the Sage15 Associates accounts and to transfer the proceeds16 into index option accounts. Do you see that?17 A. Right, yes.18 Q. And do you have an understanding of what he19 meant by index option accounts?20 A. That's a split strike transaction.21 Q. So prior to this date in Sage Associates it22 was directed trading and he's now talking about23 moving to split strike?24 MS. FEIN: Objection.25 THE WITNESS: Right.

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1 Q. (By Mr. Kratenstein) Your answer was?2 A. Correct.3 Q. Thank you. And if you look on the second4 page, you can see at the bottom that Ms. Bongiorno's5 notes have dates in them, one being 8-23-06. Do you6 see that at the bottom?7 A. Yes.8 Q. So do you believe that these notes were9 created on or around August 23rd, 2006?10 A. Yes.11 Q. And Mr. Sage talks about -- he says, quote,12 he referring presumably to Paul; correct?13 A. Right.14 Q. Had some ideas from a tax standpoint and15 suggested that he with us meet with you at your16 availability to finalize the transfer and the timing17 thereof. Do you see that?18 A. Yes.19 Q. Do you recall whether you, in fact, met?20 A. No.21 Q. You may have, you just don't recall?22 A. Correct.23 Q. Then Mr. Sage writes the only concern he24 had of any immediacy was that we not buy back into25 the eBay short position because that would trigger a

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1 short-term recognition as opposed to, quote,2 delivering, unquote, the stock. Do you see that?3 A. Yes.4 Q. Do you have an understanding of what Mr.5 Sage was talking about there?6 A. Yes. He wanted us to deliver the7 securities as opposed to -- I'm not sure whether he8 was talking about delivering the securities from one9 account to the other account, you know, to trigger a10 particular gain or whether he was talking about11 delivering the securities out, period, out of the12 firm.13 Q. Okay. But he is telling you that he14 doesn't want you to buy back into the eBay short;15 correct?16 A. Right.17 Q. And that's an instruction from him?18 A. Yes.19 Q. You would have followed that instruction?20 A. Yes.21 MS. FEIN: Objection.22 Q. (By Mr. Kratenstein) Would you have23 followed that instruction?24 A. Yes.25 Q. In the notes at the bottom Ms. Bongiorno --

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1 well, first, notes at the top Ms. Bongiorno writes2 ask Bernie about this. Do you see that?3 A. Yes.4 Q. Do you recall being asked about this?5 A. Do I recall? No. I can't --6 Q. Right.7 A. I can't say that I do.8 Q. Right. It's too long ago?9 A. Yes.10 Q. Okay. You may have been asked about it,11 but you just can't remember?12 A. That's correct.13 Q. At the bottom she writes don't do anything.14 We cannot -- the next word may be trim or tran. Do15 you have any idea?16 A. Must be transfer.17 Q. Transfer everything and leave open short18 eBay. Do you see that?19 A. Yes.20 Q. Do you have an understanding of what she's21 saying there?22 A. She's telling us to leave the positions as23 they appear, as they are.24 Q. Okay. And then on the next page she writes25 about several calls she had with Malcolm Sage. Do

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1 you see that?2 A. Yes.3 Q. So she writes first I called Malcolm Sage4 end of June to say the accounts were as close to5 even and should we do the transfers, exclamation6 point. Do you see that?7 A. Yes.8 Q. He said he would talk to Paul, call back.9 Do you see that?10 A. Yes.11 Q. So is it fair to say that Ms. Bongiorno was12 seeking instruction from Mr. Sage?13 A. Yes.14 Q. Next note, called again end of July. He15 said he didn't get a chance to get to talk to Paul16 and he will call me back. Do you see that?17 A. Yes.18 Q. And, again, do you understand Ms. Bongiorno19 to be seeking instructions from Mr. Sage?20 A. Yes.21 Q. Last note, called again 8-23-06. He said22 the or he, it's hard to tell, promises to call me23 back by Tuesday, August 29, 8-29, exclamation point.24 Do you see that?25 A. Yes.

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1 Q. And, again, fair to say that Ms. Bongiorno2 was looking for direction from Mr. Sage?3 A. Correct.4 Q. Okay. We have talked about the Sage5 Associates account and the fact that it was not a6 split strike account; correct?7 A. Correct.8 Q. And we can pull out the year-end account9 statements if you like, but we've marked a couple of10 them. We marked the December 31, '02 and we marked11 other year-end statements for Sage Associates during12 the course of this deposition, but at the end of the13 year in a split strike account what would -- what14 types of securities would be in the account?15 A. Typically, a basket of S&P 100 securities16 and index options hedging that account.17 Q. But at the end of the year didn't you go to18 treasuries and cash in most accounts?19 A. At the end of the year?20 Q. Yes.21 A. What period are you talking about?22 Q. Well, was there ever a period when in split23 strike accounts you would at the end of the year at24 least on the statements show that you had liquidated25 the portfolio of securities in that account and

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1 moved it into treasuries and cash?2 A. What period are you talking about because3 we weren't -- I didn't actually do the split strike4 trade --5 Q. Correct.6 A. -- at a certain period of time post-1992.7 Q. I'm talking about post-1992.8 A. Well, then we wouldn't have gone into the9 -- we never would have done the transaction.10 Q. Right.11 A. So the monies could have been in12 treasuries, you know, but it wouldn't be fair to say13 that we were actually executing the split strike14 trade post-1992.15 Q. Right. But on a customer statement16 post-1992 at the end of the year what would you17 show?18 A. It would appear. It would appear in19 treasuries.20 Q. And in the Sage Associates year-end21 statements would you show treasuries or would you22 show actual positions?23 MS. FEIN: Objection.24 THE WITNESS: If it was in a split strike25 strategy, we would not show the positions typically.

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1 We would just show treasuries, which is a position.2 Q. (By Mr. Kratenstein) Right. And if it was3 not in split strike, what would you show? The4 actual securities that were there?5 A. Yes.6 Q. And so, for example -- let me pull out the7 document. Hang on.8 MS. CHAITMAN: Is that Exhibit 80?9 Q. (By Mr. Kratenstein) Here's Exhibit 63,10 which we've already marked. So here's Exhibit 63.11 See, it's a Sage Associates account statement for12 12-31-02?13 A. Correct.14 Q. And this is for the sub three account?15 A. Yes.16 Q. And you're showing actual securities in the17 account at the end of the year, not treasuries and18 cash?19 A. Correct.20 Q. And that shows it's not split strike;21 right?22 A. Correct.23 Q. Your split strike accounts, they would24 generate on paper steady returns; correct?25 A. Depends upon what period you're talking

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1 about.2 Q. Post-1992?3 A. Yes.4 Q. Of 10 to 20 percent; correct?5 A. No.6 Q. What was the general --7 A. Talking about an annualized return?8 Q. Annualized?9 A. Yes.10 Q. So 10 to 20 percent annually?11 A. Correct.12 Q. For an account like the Sage Associates13 account which was not split strike and which was14 showing actual securities, what kind of returns15 would that type of account show?16 A. I have no idea. It depends.17 Q. It would depend on the type of securities18 in the account; right?19 A. That's right.20 Q. It wouldn't be a steady return?21 A. No. Could be, but depends upon there were22 never really steady returns. That's been mentioned23 before. There was some -- there was some -- you24 know, depends upon the strategy and depends upon the25 period of time. It could have been -- if you're

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1 talking about at the end of the month or the end of2 the quarter, the returns could be all over the3 place.4 Q. So in Sage Associates in 2002, for5 example --6 A. Yes.7 Q. -- if Malcolm Sage was directing you to buy8 and sell securities in Sage Associates; correct?9 A. Yes.10 Q. And you were holding those securities;11 correct?12 A. Yes.13 Q. The Sage Associates accounts certainly in14 2002 and any other year in which that type of15 trading was being done would reflect the return of16 the transactions that were executed in the account;17 correct?18 A. Correct.19 Q. And that may not be a steady return? It20 would follow the market for those securities;21 correct?22 MS. FEIN: Objection.23 THE WITNESS: Correct.24 Q. (By Mr. Kratenstein) Correct?25 A. Yes.

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1 MR. KRATENSTEIN: Thank you very much, Mr.2 Madoff. I have no further questions at this time.3 Why don't we take a break?4 MR. GOLDMAN: Your food from the wherever5 they make it is here.6 THE VIDEOGRAPHER: Going off the record.7 The time is 11:09.8 (A recess was taken and Exhibit 53A was9 marked for identification.)10 THE VIDEOGRAPHER: Back on the record.11 The time is 11:58.12 Q. (By Mr. Kratenstein) Mr. Madoff, it was13 pointed out during your examination that we had an14 error in one of our exhibits, so I just want to15 correct the error.16 I put in front of you, back in front of you17 Exhibit 47, which was the -- a letter from Malcolm18 Sage to Bernard L. Madoff Investment Securities.19 And it says Dear Bernie -- we marked it as20 Exhibit 47. One of the transactions in that letter21 under 1(c) involved movement of International Paper22 moving the short position from the Sage Associates23 seven account to the three account. Do you see24 that?25 A. Yes.

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1 Q. And I had showed you as Exhibit 53 memos2 and/or confirms relating to that and it was pointed3 out that we had some mispagination. So I'm showing4 you Exhibit 53A, which bears production numbers Sage5 0004290 to 91. Do you see that?6 A. Uh-huh.7 Q. And can you tell me what that is?8 A. It's a credit memo.9 Q. And that shows the transfer of the10 international paper short position from the seven11 account to the three account --12 A. Right.13 Q. -- as reflected --14 A. Right.15 Q. -- as instructed rather in Exhibit 47?16 A. Correct.17 Q. And you would have these memos instead of18 confirms because it's an internal transfer?19 A. That's correct.20 Q. If you were doing a -- you'd have a confirm21 when you were actually buying or selling?22 A. Right.23 MR. KRATENSTEIN: Thank you very much.24 That concludes my direct examination. Thank you.25 MS. FEIN: I understand from you, Helen,

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1 that you're not planning to do an examination today.2 We are waiting until the direct examination of Mr.3 Madoff is finished to start our cross-examination.4 That's what was contemplated by the order that was5 entered by this Court September 11th, 2017 regarding6 Mr. Madoff's second day deposition.7 To the extent for whatever reason that we8 don't have time to finish our cross-examination9 tomorrow, we will object to the use of the testimony10 and move to strike the direct testimony. Thanks.11 MR. KRATENSTEIN: Before you go off, I12 want to make sure I understand that. If you don't13 have time to finish your cross tomorrow, you reserve14 the right to strike everything we did today?15 MS. FEIN: What I should say is to the16 extent we're not permitted equal time to finish17 tomorrow, so if for some reason Mr. Madoff is18 unavailable tomorrow or there's some reason where we19 don't have sufficient time in one day; not that we20 would need -- be seeking future days after that, but21 as long as we are provided what the order22 contemplated, which is one day of direct testimony23 and we shouldn't need more than that and that's what24 we've agreed to, then that's all that we would need.25 MR. KRATENSTEIN: Okay. Well, I think I

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1 understand your position, but we reserve all2 rights --3 MS. FEIN: Certainly.4 MR. KRATENSTEIN: -- and cross these5 bridges if and when we get to them.6 MS. FEIN: Certainly. Thank you.7 MR. KRATENSTEIN: Thanks.8 THE VIDEOGRAPHER: We're off the record in9 the November 8th, 2017 deposition of Bernard L.10 Madoff, Volume III. The number of discs used was11 one. The time is 12:02.12 (Reading and signing of the deposition by13 the witness was reserved and the deposition was14 adjourned at 12:02 p.m.)1516 * * * * *171819202122232425

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1 C E R T I F I C A T E2 NORTH CAROLINA:3 GUILFORD COUNTY:4 I hereby certify that the foregoing5 deposition was reported, as stated in the caption,6 and the questions and answers thereto were reduced7 to the written page under my direction; that the8 foregoing pages 386 through 493 represent a true and9 correct transcript of the evidence given. I further10 certify that I am not in any way financially11 interested in the result of said case.12 I have no written contract to provide13 reporting services with any party to the case, any14 counsel in the case, or any reporter or reporting15 agency from whom a referral might have been made to16 cover this deposition. I will charge my usual and17 customary rates to all parties in the case.18 This, the 21st day of November, 2017.1920

<%Signature%>2122 K. Denise Neal, RPR


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1 E R R A T A S H E E T23 Pursuant to Rule 30(7)(e) of the Federal Rules4 of Civil Procedure, any changes in form or substance5 which you desire to make to your deposition6 testimony shall be entered upon the deposition with7 a statement of the reasons given for making them.89 To assist you in making any such corrections,10 please use the form below. If supplemental or11 additional pages are necessary, please furnish same12 and attach them to this errata sheet.13 * * * * *14 I, the undersigned, BERNARD L. MADOFF, do hereby15 certify that I have read the foregoing deposition16 and that to the best of my knowledge said deposition17 is true and accurate (with the exception of the18 following corrections listed below).19202122232425

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1 Page Line should read:2 Reason for change:34 Page Line should read:5 Reason for change:67 Page Line should read:8 Reason for change:910 Page Line should read:11 Reason for change:1213 Page Line should read:14 Reason for change:1516 Page Line should read:17 Reason for change:1819 Page Line should read:20 Reason for change:21 Signature:22 Sworn to and Subscribed before me23 , Notary Public.24 This day of , 2017.25 My Commission Expires:

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annette 402:4437:3 453:8,12454:17 456:25457:1,9,10 459:22460:10 461:12,12461:13,23 464:17472:5

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asks 439:25440:15 455:21,21

assist 492:9assistants 457:18associates 387:11

390:17,19,21391:14,16,18,20391:23 392:3,17392:23 393:3,9,11393:18 395:6396:12 398:7,12430:1 432:8,13,17436:17,18 437:14437:14 438:9,10438:19 440:7,12441:3,17,24449:19,20,21,22450:21,22 451:10451:24 452:14453:2,18 454:6458:11 459:23,23460:12,12,18,19460:19 463:3,7464:1,20,22465:23,24 466:24467:2,21,22 468:9469:19 470:1,5,7470:12,15,16475:12 477:6,15477:21 482:5,11483:20 484:11485:12 486:4,8,13487:22

assume 410:3415:17 437:19438:1 457:13,15

461:1 462:7,8assuming 408:11

409:5 427:6assumption 416:5at&t 424:9 426:19

426:20,24 427:3,5427:9,10,13

attach 492:12attached 445:7attack 397:20attending 394:23attention 431:18

454:17 464:17attorneys 394:23atypical 400:10audio 394:6august 478:9

481:23availability

478:16available 455:15

457:19avenue 387:6,15averaging 422:9avoid 461:3 462:9aware 402:8 465:1

465:5

b

b 387:13baby 427:1back 408:14 410:4

416:8 425:21429:20 436:8,10459:1 461:25474:22 478:24479:14 481:8,16481:23 487:10,16

backwards 438:2baker 388:6

395:14

bakerlaw.com388:10

bank 390:14 405:7411:11,14,17412:3,5,14,15,18417:19 418:2,3,7418:12,24 419:2419:18 420:15,17433:3,6,7,12,21434:3,25 435:6

bankers 420:17bankruptcy 386:1

394:20banks 420:11barclays 420:16base 460:11based 419:10

454:4basically 400:15

401:3 402:2basis 454:13 461:9basket 482:15bates 410:5 425:24

430:5,11bear 420:16bears 488:4begins 437:11behalf 386:17

387:3,11 388:3,12395:9,10,12,15

believe 396:6422:8 436:22437:7,21 438:5446:3 453:4,7460:4 462:4464:25 465:7474:6 477:2 478:8

bells 427:2bernard 386:8,12

386:16 389:2394:17,22 395:11

[annette's - bernard] Page 4



395:19 464:16487:18 490:9492:14

bernie 437:12474:9 480:2487:19

best 397:13 460:13474:16 492:16

bit 417:17bob 388:20 394:8bond 399:2,5

413:17 418:20419:1,11 421:8,18422:5

bonds 420:5bongiorno 402:4

437:3,5 453:14454:17,20 455:18459:22 461:18462:2 464:17465:2,8 472:10479:25 480:1481:11,18 482:1

bongiorno's402:12,20 438:5453:8 465:12466:6 478:4

bookkeeper 402:9bookkeeping

404:13bottom 410:13,20

411:12 418:15,19431:19,20 433:1452:14 478:4,6479:25 480:13

bought 461:2462:9

box 438:20 439:1439:6,7,16 460:14460:21 462:16466:5,13 473:16

473:20 474:22475:1,16 476:5,8

break 429:13435:14 436:2446:23,23 447:11464:12 487:3

bridges 490:5broadcom 455:5

458:1,2 460:17461:6 463:11464:2

broadway 411:12brokerage 405:8

406:22 412:7420:20

brook 388:15brother 477:11brought 473:16building 399:24bunch 435:15business 404:8

407:1,8 410:2413:13 414:22417:2 419:25421:6 427:4 431:1431:11 434:6,15472:15

butner 386:21394:12,14

buy 400:7,22401:9 415:18428:22 461:6478:24 479:14486:7

buying 423:9427:9 463:11488:21

c

c 487:21 491:1,1call 440:16 455:22

458:25 481:8,16

481:22called 398:7,9

403:14 406:11422:6 429:25430:17 439:18481:3,14,21

calling 457:18calls 480:25caption 394:15

491:5carolina 386:21

394:14 491:2case 394:16,19,21

407:5 408:24423:8 431:5 457:1491:11,13,14,17

cash 389:11,15406:12,18 407:17407:22 408:1,7,22409:4,7,25 410:25412:1 428:23482:18 483:1484:18

cell 394:4central 404:24certain 402:11,11

454:3 460:11462:17 477:6483:6

certainly 486:13490:3,6

certify 491:4,10492:15

cetera 420:5chaitman 387:4,5

395:8,8 408:20410:9,11 412:22414:15 424:17425:8 426:5,8428:3,5 430:10431:16 435:9,12

435:18,22 443:12443:14,19 444:2447:6 448:6450:13,18 451:1,5452:7 458:20468:21,24 469:2484:8


chance 474:23481:15

change 400:3493:2,5,8,11,14,17493:20

changed 462:15changes 492:4changing 429:13charade 416:8,13charge 491:16charitable 397:21chase 420:14check 393:14

424:24 437:8,9471:15,15

checks 438:2children 396:24

398:2choice 440:22civil 492:4clarify 445:17

456:13clear 443:11 447:2

447:11,11 470:11cleared 419:6clearing 433:8client 389:9

402:10 403:8405:5 406:22456:20,22 457:20

client's 467:12

[bernard - client's] Page 5



clients 397:8400:14 402:23403:1,21 408:4440:21 457:12

close 438:15454:10,24 481:4

closing 450:4clvs 388:20coca 440:7 450:5,6

450:22 452:16cola 440:7 450:5,6

450:22 452:16collier 388:20

394:8come 396:17 397:5

406:23 408:14437:12,22 453:17457:4 459:1465:22

commencing386:22

commercial420:15

commission493:25

companies 427:1company 422:3

423:2,6compare 441:2complete 396:6concern 447:9

478:23concerning 456:10concludes 488:24confident 419:10confidential

386:15confirm 443:6

444:8 445:11,13445:21 448:7,13448:17 470:21

474:23 488:20confirmation

390:23 391:3,6,9391:11,13 392:10392:12,14 393:13444:14,17 445:10445:12 448:2

confirmations392:19,20 393:5,6393:7,8,20 463:24469:16 476:3

confirming 467:17confirms 391:19

391:21 442:25443:3,25 447:17447:23 451:22,24459:11 463:17467:19 469:6475:10,24 488:2488:18

considered 400:20constructive

460:16 461:3462:10

contained 459:14469:20

contemplated489:4,22

contents 389:1continental 420:14continue 394:7continued 390:1

391:1 392:1 393:1contract 491:12control 404:16

472:22conversation

402:8conversations

394:4

conversion 401:6convertible 399:2

399:5 401:5413:16 418:20421:18 422:5

copies 430:7443:15

copy 442:14446:16 448:23

corner 404:5410:5,7

corp 413:16426:19,19

corporate 421:22422:16 429:8

corporation 386:5394:16

correct 398:1,8,10398:16,17,19,20398:24 399:3,4,10399:12,15 402:18404:10 405:15407:2,6 411:2412:6 413:6,14,21414:19 416:1417:21 418:12419:12,20,22420:1,7,10,13,17420:19 421:14422:7,12,13 423:3423:10,11,13,15423:16,19 424:10424:21 427:12,14429:7,11 431:2,6432:14,23,24433:4,13 434:13434:16,17 435:1,4435:7 437:2,4438:4,6,11,17,22438:25 439:3,15439:24 440:2,3,14

440:17 441:9,19442:10 449:15451:4,16 452:14452:15,18,19,20453:13 454:10,12454:21,22 455:3,4455:10 456:4,5457:23 462:12464:5 465:5,19467:6,12,13470:16 471:22473:13,15 475:21476:9 478:2,12,22479:15 480:12482:3,6,7 483:5484:13,19,22,24485:4,11 486:8,11486:17,18,21,23486:24 487:15488:16,19 491:9

corrected 412:19correction 394:13correctional

386:20corrections 492:9

492:18correspondence

403:9corresponding

439:19corresponds 446:8counsel 387:1

388:1 394:14431:15 491:14

county 491:3couple 416:22

482:9course 406:25

410:2 413:12414:22 417:2419:25 421:5

[clients - course] Page 6



431:1,10 434:5,15472:14 482:12

court 386:1394:20,25 395:16489:5

cover 491:16create 472:18created 431:10

434:5 478:9creates 427:16credit 391:7 488:8credits 405:10cross 489:3,8,13

490:4cust 473:12custody 404:16

472:22customary 491:17customer 397:2,5

397:14 432:7473:17 483:15

customer's 403:6432:16

customers 386:18387:3 389:8 390:2391:2 392:2 393:2396:15,17 398:3398:18 401:2,13432:18 456:4

d

dasaro 388:5395:12,12 418:17434:21 435:25458:21

date 394:10 404:5407:4 409:2 431:4441:24 455:18475:8 477:21

dated 403:23406:14 408:23411:1 413:6

417:19 419:21422:23 424:19428:11

dates 399:21 478:5davis 387:4 395:8day 386:21 489:6

489:19,22 491:18493:24

days 489:20deal 402:3dear 437:11

453:12 460:10461:13 474:9487:19

debtor 386:13december 403:24

406:14 407:5409:17 411:1416:23 424:5,8467:21 468:9470:13,15 482:10

decided 474:15decision 400:14,15

400:22defendant 386:9

394:18defendants 395:9define 403:1

415:12definitely 465:13definition 400:16deliver 438:14

454:7,23 455:6479:6


delivering 479:2,8479:11

delivery 410:16416:3 450:4

denise 386:18394:25 395:17491:22

department404:14

depend 485:17depending 419:5depends 419:4

457:17 484:25485:16,21,24,24

deponent 388:12deposition 386:16

394:6,12 482:12489:6 490:9,12,13491:5,16 492:5,6492:15,16

depository 418:6419:8

describe 397:7423:4 426:23

described 422:4,8desire 492:5details 462:21died 398:1difference 445:20different 395:9

401:1 402:7 409:2417:17 445:22446:10,18

dinner 397:21direct 400:4,5

488:24 489:2,10489:22

directed 401:8441:7 451:12458:3,11 463:2466:25 468:1,13477:22

directing 436:12438:8 454:20461:14 462:11

486:7direction 458:18

482:2 491:7directs 454:6,15disagree 473:11discretion 400:17

400:18,20discretionary

400:16,23 401:2discs 490:10discussing 423:18discussion 462:13discussions 437:12

453:16 465:21disney 431:20

432:4,6,12,24434:23

distribution426:24 428:24

district 386:1394:20

divestitures426:25

dividend 422:1document 389:10

403:16,18,21406:1,2 413:2,11413:11 414:3416:20 417:14,17417:22 419:14,24420:3,22 421:16423:23 424:3,4,14425:18,19 426:14427:21 430:3,17430:20 433:15,15433:24 434:4441:3,15 444:1463:16 472:8,21474:3 484:7

documents 404:4404:15 412:12

[course - documents] Page 7



414:21 416:13436:13 442:24443:3 449:10456:10 469:14472:10,20

doing 435:15488:20

dollar 445:22dollars 471:17dow 439:22dr 404:21draw 431:18drill 462:25

467:17dropped 474:20duly 395:20

e

e 388:4 491:1,1492:1,1,1,3

earlier 403:14418:20 421:9423:18 436:11448:20

ebay 473:12,17,20474:20 475:16,17478:25 479:14480:18

eight 439:4 440:2either 407:19

410:1 412:6 457:7462:6

electric 423:2,9emery 387:14

395:3emulex 454:6,25

458:1,2ends 410:6entails 428:18entered 489:5

492:6

entire 455:2entities 396:11entries 405:9

411:24 418:19432:18

entry 411:11421:10 431:20433:1 435:10438:12

equal 489:16equivalent 409:1,2errata 492:12error 487:14,15esq 387:4,13 388:4

388:5,13estate 395:5et 420:5event 429:8events 421:22

422:2,16 427:5everybody 418:16

434:20evidence 491:9exact 402:20examination 389:2

395:22 487:13488:24 489:1,2,3,8

examined 395:20example 423:17

438:12 444:20484:6 486:5

exception 492:17exclamation 481:5

481:23excuse 396:20executed 398:23

399:8 458:13464:6 467:9486:16

executing 483:13

execution 459:13469:18 470:8471:20

exhibit 389:9,11389:13,15,17,19389:21,23,24390:3,5,7,9,11,13390:15,17,19,21390:23 391:3,5,7,8391:10,12,14,16391:18,20,22,23392:3,5,5,7,9,11392:13,15,17,19392:20,21,23393:3,5,6,7,8,9,11393:13,14,15,16393:18,20,21403:11,16 405:23406:2,6 408:12,17408:22 409:3,16410:4,14,15,15412:20,25 414:4,7414:14 416:9,19416:20 417:11,14419:15,17 420:23420:25 422:19,22423:24 424:2,11424:15 425:20,22426:14 428:8429:22 430:3433:15,16,19436:6,14 440:23441:1,8,20,23442:11,13,19,21443:8,9,9 444:4,5444:20,22,25445:2 446:22447:3,6,14,19448:15,23 449:13449:16,23,24,25450:5,9,12,14,15

450:21,23,25451:2,9,19,22452:1,13,16,19,21452:24 456:7,12457:6,25,25 458:4458:6,8,12,15,19458:20 459:1,4,5,8459:11,12,12,15459:17,20 462:22463:2,4,13,17,19463:21,22,22464:4,8,11,15467:14,20 468:3,5468:8,8,21,22,23469:3,7,7,20,23470:3,3,6,11,12,14470:18,21,22471:5,9,12,12,21471:23 472:1,2473:25 474:3475:5,11,18,22,22476:1,11,13,16,17484:8,9,10 487:8487:17,20 488:1,4488:15

exhibits 389:7390:1 391:1 392:1393:1 427:8435:15 443:10449:11 452:9459:13 469:11470:8 487:14

expand 400:25expected 462:1expires 493:25explain 401:1extent 489:7,16extra 442:14

[documents - extra] Page 8



f

f 439:25 491:1facility 394:13fact 429:25 475:1

478:19 482:5fair 428:21 449:10

481:11 482:1483:12

fairlawn 388:14familiar 472:9,12family 396:13,15

473:3,19faster 435:17father 396:18,24

397:6,8,11federal 386:20

394:12 492:3fein 388:4 395:14

395:14 398:25399:11 405:22406:4 408:15,19409:19 411:13,22412:10,13 414:10414:12 415:4,7,9415:12 417:15419:3 420:18422:11 424:20,25425:2,7,24 426:3428:25 431:22,25432:2 442:15443:16 445:17446:1,6,16,25447:9,25 448:23449:3,8,14 450:1450:15,19 451:18452:2,6,8 454:11454:15 456:6,13457:14,22 458:22459:24 461:7,11461:20 463:5468:16,20,22

469:8 473:14477:24 479:21483:23 486:22488:25 489:15490:3,6

fifty 445:3,7446:21 447:8,9

file 403:6files 403:9finalize 478:16finally 459:10

470:20 471:4financially 491:10fine 426:7 464:13finger 430:14finish 466:18

489:8,13,16finished 489:3firm 398:4 399:9

402:4 405:8407:18 409:24418:4 421:18431:1 437:1 460:7461:20 462:11464:6 467:11473:19,22 479:12

firm's 404:16406:25 407:7,14408:5 413:13414:22 417:2419:25 421:5431:8 434:6,8,15472:22

firms 406:22420:20

first 395:20 414:8424:4 426:14430:5,13 437:17438:12 445:18446:12 473:7480:1 481:3

fitch 438:13five 407:25 408:1

408:8,22 409:7,12409:13 435:23

fix 461:16flip 430:13 442:4

443:24floor 402:7focus 430:4follow 402:10

456:3,11,17462:11 467:11486:20

followed 440:18447:23 455:25456:14 473:22479:19,23

following 437:13437:23,25 453:17465:22 492:18

follows 395:21food 487:4foregoing 491:4,8

492:15forever 427:4form 398:25

399:11 409:19411:13,22 412:10415:4,7 419:3420:18 422:11449:14 451:18452:2 454:11456:6 457:14,22459:24 461:7463:5 473:14492:4,10

forth 416:8foundation 392:8

398:13 453:2,19455:12 458:19464:23 465:24

467:5 471:18four 418:19 445:3

466:24fraud 398:15,19

399:13frequently 415:13front 403:17 443:2

443:6 447:14487:16,16

full 396:6 400:23funds 455:15furnish 492:11further 487:2

491:9future 461:15

489:20

g

gain 440:1 442:8466:9,21 479:10

gains 454:3,3466:4

gap 459:2gateway 440:6

450:3,6,22 451:11452:12

general 400:13423:1,9 485:6

generate 404:8484:24

generated 404:4404:12 406:25413:12 414:21417:1 419:24421:5 430:25431:3 434:11

getting 447:10give 396:2,6 400:6

400:21 425:19,20441:23 443:8447:22

[f - give] Page 9



given 491:9 492:7giving 397:20gmail.com 388:17go 394:7 405:25

416:7,12 429:15430:9 435:21439:12 443:20447:5 448:10462:25 464:10467:16 473:19474:13 482:17489:11

goes 446:17 449:4460:25 474:18

going 400:4403:15 406:1408:10,14 412:11412:24 416:7418:14 421:17425:19 428:2429:17 430:1,2,3,4430:6,12 431:13431:17 433:14436:4 440:25441:23 442:23443:1,5,6 447:22449:19,23 451:22452:23 456:10458:19 461:25462:25 463:1467:19,20 468:7470:7 475:11487:6

goldman 388:13395:10,10 415:19415:21 425:14429:14 443:10445:1,4,9 447:1,5448:8,10,21 487:4

good 395:2,24

grandfathered460:15,15,23462:17

greater 427:16group 442:24

472:25guilford 491:3

h

h 492:1hand 430:6 442:24

466:7handed 437:6,9handing 443:23handled 400:13

402:22handwriting

402:13,16,17453:7 455:17465:10,15 472:6476:20,22

handwritten393:15

hang 424:23425:10 484:7

happened 397:7401:6 417:24422:2 458:25462:20

hard 481:22hchaitman 387:9head 402:9heard 421:21heart 397:20hedging 482:16held 394:12,19

398:4 418:3,5419:1,11 420:11433:7,11 434:24435:5 455:3460:14

helen 387:4 395:8443:17 488:25

help 430:15highway 386:20

394:13hmm 415:20hold 418:11holding 439:11

474:19,20 486:10holdings 432:16hoped 475:2hoping 474:21hostetler 388:6

395:14house 389:11,15

390:11 406:11407:22,25 408:1,8408:22 409:3,7,12409:13,16 410:1,1430:17

huh 396:22 403:25405:1 406:13,17410:22 413:7451:15 464:21488:6

i

idea 427:15480:15 485:16

ideas 478:14identification

403:12 405:24408:18 412:21414:5 416:10417:12 419:16420:24 422:20423:25 424:12425:23 428:9429:23 433:17436:7 440:24441:21 442:12,22444:23 447:20

448:16 449:17450:10 451:20452:22 456:8458:7,16 459:9,18462:23 463:20464:9 467:15468:6 469:4,24470:19 471:10,24474:1 475:6,19476:14 487:9

identify 394:24ii 391:14,16,18,20

393:9,11 398:13436:18 437:14438:10 440:7449:22 450:21,22451:10,24 452:14459:23 460:12,19464:22 465:24467:2 470:2,5,7,12470:15,16

iii 386:17 490:10immediacy 478:24inadvertently

392:5include 402:24

421:21included 420:14including 399:7

420:5 423:2 432:8index 389:7 390:1

391:1 392:1 393:1477:16,19 482:16

indicated 404:5407:4 431:4,14

indicates 411:18individually 395:4industry 400:17instances 402:11institution 386:20

403:2,3

[given - institution] Page 10



instructed 451:3463:13 488:15

instructing 461:5461:13 473:19

instruction 470:6470:9 471:20473:23 479:17,19479:23 481:12

instructions 400:7402:10 439:21440:6,18 455:25456:3,11,14,17457:12,21 459:14462:11 467:12469:17,18 470:1481:19

instruments 420:2interested 491:11interfere 394:6

396:4internal 488:18international

439:22 487:21488:10

investment 386:8394:17 464:16487:18


involved 487:21involves 427:8involving 423:1

428:15

j

j 464:1january 417:19

419:21 424:19426:10 461:2462:9 463:7

july 428:12 481:14

june 414:18 421:1421:10 481:4

k

k 386:18 491:22kaiser 404:22keep 407:8 424:14

430:14 449:25kept 431:7 434:8

436:25 472:20,21kind 485:14knock 443:18know 396:18

404:11,13 407:10407:16 408:13409:6 417:22425:10 435:20437:17,23 440:20456:25 457:4,5,18457:21 475:4479:9 483:12485:24

knowing 419:8knowledge 403:5

403:8 409:24492:16

known 399:13444:7

koenigsberg437:21

kratenstein387:13 389:3395:2,3,23 399:1399:12 403:13405:25 406:5408:16,21 409:21410:10,12 411:14411:23 412:11,17412:23 413:1414:2,6,11,13,16415:5,11,14,23416:11 417:13,16

418:18 419:9,13419:17 420:21,25422:13,21 423:22424:1,13,18,22425:1,4,9,17 426:1426:4,7,9 427:25428:4,7,10 429:2429:24 430:9,12431:17,24 432:1,3433:14,18 434:22435:8,10,13,20,23436:1,10 440:25441:22 442:13,16442:23 443:13,22444:3,24 445:11445:16,23 446:2446:11,14,20447:4,8,13,21448:3,5,11,13,17449:1,5,9,18 450:2450:11,16,20451:4,6,21 452:4452:10,23 454:13454:19 456:9,16457:15,24 458:8458:17,23 459:3459:10,19 460:1461:9,16,17,24462:14,24 463:6463:15,21 464:10467:16 468:7,17468:23 469:1,5,9469:25 470:20471:11 473:15474:2 475:7,20476:15 478:1479:22 484:2,9486:24 487:1,12488:23 489:11,25490:4,7

l

l 386:8,12,16389:2 394:17,22395:11,19 464:16487:18 490:9492:14

labeled 430:5law 396:18 397:6

462:15law's 397:8,11leave 455:7 480:17

480:22ledger 389:23

419:19left 404:5 437:6,9

466:7lefty 438:2leg 422:17legal 394:9 395:1legging 422:6legitimate 415:17letter 390:15

391:22 392:15,21393:16,21 436:15436:23,25 437:11438:3,7 441:8442:7 449:12,23449:25 450:3451:14,25 452:24453:1,5,8,10454:16 457:5458:1,3,12 459:14459:21 460:5461:11,18,22462:1,7 464:16465:1,8,10,17467:19 469:20470:1,5 471:5,21474:4,7 475:3476:10,16,17477:3 487:17,20

[instructed - letter] Page 11



letterhead 436:17453:1 459:22461:12 464:19

letters 475:9lillian 398:2lillian's 395:5limited 399:13

400:14,15,17,18line 454:18 493:1

493:4,7,10,13,16493:19

lipstick 399:23liquidated 482:24listed 418:23

432:8 433:6434:24 461:21492:18

listing 403:21lists 430:23little 417:17llc 386:8 394:18llp 387:5,14 395:3located 394:13long 417:25

438:20,24 439:9,9439:16,18 466:14466:21 474:21480:8 489:21

look 410:6,12418:18 427:7434:19 441:2443:23 445:7,24446:3,20 448:21449:1 450:5457:25 463:22469:10 470:2473:7 475:21,23475:25 478:3

looking 404:18411:10 428:17445:1 450:11

465:16 466:8476:2 482:2

looks 426:24428:19 446:6

losses 454:3lot 397:8 435:16lots 427:5

m

madison 387:15madoff 386:8,12

386:17 389:2394:17,22 395:11395:19,24 403:17406:5 411:10413:1 414:17417:16 419:18421:1 422:22428:10 429:24430:16 433:18436:11,14 444:5451:7 452:12,25459:12,20 461:19461:23,25 464:11464:15,16 469:10472:2 474:3476:16 477:6487:2,12,18 489:3489:17 490:10492:14

madoff's 489:6main 474:19maintain 403:5,8

407:8maintained

404:16 407:11434:14 460:7

major 427:3maker 427:3making 400:14,15

408:4 444:12454:4 492:7,9

malcolm 387:12392:15,21 393:16393:21 395:4396:10,25 398:2401:23 402:2436:15 451:2459:25 460:1464:17 474:4476:17 480:25481:3 486:7487:17

malcolm's 477:11managed 474:16manhattan 420:14march 413:6margin 466:7marine 420:16mark 408:10

430:3 433:15437:8,9 449:19

marked 403:11,16404:20 405:23406:2,6 408:17,22412:20 414:4,7,14416:9 417:11419:15 420:23422:19 423:24424:11 428:8429:22 433:16,19436:7 440:23441:1,8,20 442:11442:21 444:22447:19 448:15449:6,6,11,13,16450:9 451:19,25452:21 456:7457:6,24 458:4,6458:12,15 459:8459:15,17 462:22463:19 464:8467:14 468:5

469:4,11,20,23470:18 471:9,23473:25 475:5,18476:11,13 482:9482:10,10 484:10487:9,19

market 408:3427:3 429:9455:15 486:20

marking 416:19martin 387:12

395:6 396:10,25398:2 401:23477:9,10,11,13

match 475:9matches 435:2math 446:6maurice 389:13,17

389:19,24 390:15392:7 396:19,21397:2,13,16398:12,13 403:15404:1 410:16413:5,10 414:17414:20 416:23421:2 432:8,13,17453:2,18 455:11458:18 459:21464:22 465:24467:5 471:18

mcdermott 387:14395:3

meadowbrook420:15

mean 400:5 405:2405:5 411:24412:4 416:12418:2 419:1427:22 433:5439:11 444:11450:13,15 456:18

[letterhead - mean] Page 12



466:7,10 473:8meaning 415:16means 405:3

411:25 413:23437:24 456:20466:19

meant 456:17460:22 477:19

medication 396:1396:4

meet 401:22478:15

meetings 399:16399:19 400:2401:17,20

member 473:18memo 444:6,10,12

445:20,20 446:8447:16,23 470:23470:24 471:15488:8

memorandum391:5,7,8,10,12,19391:21 392:9,11392:13 393:14445:5

memos 444:20448:2,3 451:22459:10 463:16467:18 469:6475:11,23,24488:1,17

mentioned 396:9485:22

met 477:9,13478:19

mf 430:6 431:14microphones

394:2,5middle 404:19

413:15 414:24

417:4 422:25434:19 435:11463:10

midland 420:16million 440:12

466:8mind 424:15

430:14mine 424:25 449:6minute 408:13

428:2 446:5 448:1minutes 425:16

435:24mispagination

488:3missed 459:1missing 448:24,24

449:2,3mistaken 427:9mmrn 398:13money 444:13

445:6 455:15monies 406:9

444:6 470:25483:11

month 389:21407:20 417:23,24417:25 430:23486:1

morning 395:2,24395:25

mother 395:5move 430:16

433:14 443:17471:2 489:10

moved 483:1movement 406:9

406:20 444:14470:25 487:21

movements 458:2458:10

moving 477:23487:22

multiple 443:10445:24 446:4,4447:2

mwe.com 387:18

n

naked 438:21439:4,18 440:4

name 394:8,21397:11 412:13461:21,21

named 396:19national 390:13

411:11,14,17412:3,5,14,15,18417:19 418:1,3,7418:11,23 419:2419:18 420:16433:2,11,21 434:2434:24 435:6468:14

ncr 425:11 426:19426:20 427:11,13

neal 386:18394:25 395:17491:22

necessary 492:11need 416:18 426:5

464:12 489:20,23489:24

never 483:9485:22

new 386:1 387:7,7387:16,16 388:8,8388:15 394:20426:15

newly 427:10nice 474:9,10normally 402:9

north 386:21394:14 412:3,5,15412:18 417:19418:2,3,7,12,24419:2,19 420:15491:2

notary 386:19491:23 493:23

note 393:15 394:2430:10 441:16444:12 472:5,10481:14,21

notes 466:7 472:18472:24 473:7478:5,8 479:25480:1

november 386:22394:10 441:4490:9 491:18

number 389:9,11389:13,15,17,19389:21,23,24390:3,5,7,9,11,13390:15,17,19,21390:23 391:3,5,7,8391:10,12,14,16391:18,20,22,23392:3,5,7,9,11,13392:15,17,19,20392:21,23 393:3,5393:6,7,8,9,11,13393:14,15,16,18393:20,21 394:21395:9 403:11405:23 406:3,11406:23 408:17410:4,14,15412:20,25 414:4,7414:14 416:9417:11 419:15420:23 422:2,19

[mean - number] Page 13



423:7,24 424:11425:22 428:8429:22 430:4,11433:16,19 436:6436:14 440:23441:1,20,23442:11 444:22446:11,12 447:6447:19 448:15,19449:16 450:5,9,12452:7,21,25 456:7458:6,15 459:5,17459:20 462:22464:8 467:14468:5 469:21470:3,18 471:9,12471:23 473:25475:5,18 476:13490:10

numbered 441:17numbers 410:5

442:21 451:19459:8 463:19469:3,23 488:4

o

object 489:9objecting 415:9objection 398:25

399:11 405:22409:19 411:13,22412:10 415:4,7419:3 420:18422:11 424:20428:25 449:14451:18 452:2454:11,14 456:6457:14,22 459:24461:7,10,14,20463:5 473:14477:24 479:21483:23 486:22

obviously 439:20occasion 402:17occurred 417:9offices 399:17oh 412:1 435:9,22

443:19 468:17okay 402:3 403:5

406:5 407:22408:15 409:6410:11 412:8416:16 419:9,23424:16 425:7426:3 427:7431:13,17 432:2,6435:13,22,25441:22 442:15443:5 444:10,19444:24 445:4,9446:1,14 447:21448:5,18,21 449:9451:5 454:5,19460:25 461:24462:7,24 464:11464:14 465:17466:13 473:10479:13 480:10,24482:4 489:25

old 386:20 394:13once 447:5ones 416:18

417:17open 480:17opportunity

469:10opposed 479:1,7option 477:16,19options 482:16oracle 439:22order 412:24

489:4,21

ordinary 404:7406:25 413:12414:22 417:2419:25 421:5431:1,10 434:5,15472:14

outset 396:9

p

p.m. 490:14page 389:8 390:2

391:2 392:2 393:2404:19 410:9,13410:20 411:9,9,10411:12 413:16414:8,25 416:19417:5 418:14,15418:19 424:2,4430:5,5,13,15431:13,18,19,22434:19,19 443:13445:5,13,18,18446:7,7,8,8,12448:6,10,11,24,25449:1 471:1 473:7478:4 480:24491:7 493:1,4,7,10493:13,16,19

pages 411:8 414:9443:11 446:9447:3 491:8492:11

pagoldman 388:17paper 439:22

484:24 487:21488:10

paragraph 474:14parentheses

460:17,18park 387:6parkway 388:14

part 407:7 416:20466:9 472:17

particular 401:4422:2 444:13479:10

particularly401:21

parties 394:7,24491:17

party 474:11491:13

passer 387:12395:6 396:11

passing 397:16paul 397:12

437:12,18,21440:16 453:16465:22 477:10,13478:12 481:8,15

paul's 474:11payment 422:1penn 404:24pepper 404:21percent 485:4,10performed 441:10period 427:2

429:10 475:23479:11 482:21,22483:2,6 484:25485:25

periodically409:10

permitted 489:16peter 388:13

395:10phone 462:6phones 394:4physically 405:6pick 394:3pieces 423:15

[number - pieces] Page 14



place 394:5 402:8407:14 415:19,21416:4 427:3 486:3

plaintiff 386:6394:15,17

plan 437:13,23,25438:1 453:17,22453:23 465:22466:3,4

planning 489:1plaza 388:7please 394:2,4

395:17 428:1438:13 440:1454:7,23 455:6,22492:10,11

plus 420:19point 457:20 481:6

481:23pointed 487:13

488:2portfolio 474:17

482:25position 422:9

438:14,15,24439:2,4 454:7,10454:23,25 478:25484:1 487:22488:10 490:1

positions 411:4420:9 438:20,20438:21 450:4461:2 462:8475:16 477:7,14480:22 483:22,25

possibly 429:1,3post 483:6,7,14,16

485:2practice 404:7premises 407:15

431:8 434:9

prepared 472:8,10472:14

present 394:23presumably

476:10 478:12previous 435:2previously 398:15

399:2price 400:18

422:10primarily 402:22principal 408:5printed 407:4prior 410:14

415:24 416:6419:10 433:10461:2,25 462:9477:21

private 394:3probably 397:15

399:22 402:5,6407:19 412:6418:5 437:3

procedure 492:4proceed 395:18proceeds 405:13

477:15production 488:4productions

431:20 432:4,7professional

386:19 491:22promises 481:22proprietary 408:4protection 386:5

394:16provide 491:12provided 489:21public 386:19

491:23 493:23

pull 482:8 484:6purchase 416:2

424:7 444:17pursuant 492:3put 403:16 406:1

412:12 414:2417:13 419:13420:21 421:16423:22 427:21429:12 441:15443:5 449:24463:15 467:19471:25 474:2487:16

puts 460:17,18putting 441:16

q

qualcomm 439:23quarter 407:20

486:2question 401:18

408:6 425:13429:15 452:8458:10

questioning456:15

questions 415:24430:1,4 440:16451:23 455:22487:2 491:6

quick 436:1467:17

quickly 416:14,14430:16 449:20463:17 469:6470:2

quote 474:15478:11 479:1

quotes 460:16

r

r 464:1 491:1492:1,1

rates 491:17rca 404:24 413:16

418:19 421:8read 473:9 492:15

493:1,4,7,10,13,16493:19

reading 490:12real 398:22 399:3

399:8 405:16,17405:19 409:13,18411:4,6 412:8413:25 415:2,6,10415:11,12,15,23415:25 416:7417:8 419:11420:9 421:12427:18,22 429:5441:13

realize 440:1442:7 454:3

realizing 466:4,9really 402:14

460:24 485:22realty 387:11

390:3,5,7,9 395:7396:12 398:9399:7 422:23424:4,19 426:11428:11

reason 396:2416:21 436:22453:4 456:2 460:4462:4 464:25465:7 466:22474:6 475:9 477:2489:7,17,18 493:2493:5,8,11,14,17493:20

[place - reason] Page 15



reasons 492:7recall 396:13,19

397:13,16,19,22398:6,11 399:16399:19,21 400:1401:16,19 437:6438:18 442:6,8462:19,20 478:19478:21 480:4,5

recapitalization428:22

recd 405:2receipt 413:16receipts 405:16,17

413:22receive 436:23

453:5 460:5 465:8466:20 468:16474:7 477:3

received 404:21405:3,7 413:23,23427:11 460:8

receiving 428:23444:13

recess 425:15429:19 436:6487:8

recognition 479:1recognize 402:12

402:16 403:17406:6 413:2430:20 433:24442:8 465:14,15465:18 471:12472:1,6 476:24

recognized 442:17recollection

462:15 470:4474:25 475:8

record 390:12394:2,8 397:10

429:17,20 430:18435:3,16,17 436:3436:4,8 443:11447:2,10 462:13470:11 487:6,10490:8

recording 394:6records 407:8,10

425:13 430:8reduced 491:6referral 491:15referred 427:1

460:23referring 437:18

473:2 478:12reflect 443:3

449:11 451:24452:11 459:13469:17 486:15

reflected 429:5450:7,23 458:3464:3 488:13

reflecting 442:25reflects 452:12refresh 470:4

475:8regard 453:17

477:14regarding 427:5

460:11 489:5regards 437:13

465:23registered 386:18

491:22regular 407:7

472:17regulation 400:24relating 488:2relatively 430:16remaining 455:7

remark 425:18remarked 425:22remarking 425:20remember 396:21

480:11remotely 394:24report 390:14

407:3,23 409:3430:23 432:11,15433:9,20

reported 491:5reporter 386:19

394:25 395:17491:14,22

reporting 491:13491:14

reports 406:24407:16,18,25408:2 410:1430:25 431:7

represent 394:25396:10 408:3442:25 491:8

representative395:5

representing394:8 395:1,4

request 471:6requested 476:10require 455:14reserve 489:13

490:1reserved 490:13respect 402:21

438:8,13 452:9454:6 455:5,11458:17 460:16462:16 468:13469:18,19 470:5,6

responsibilities472:18

rest 474:13result 491:11retail 402:22

403:1return 485:7,20

486:15,19returns 484:24

485:14,22 486:2reynolds 404:24

464:1right 397:1,24

403:4 413:18,24420:12 422:10,14424:22 425:4,5,5,8425:9,11,12,19431:19 432:4435:9 440:16445:15 447:4448:4 449:9 454:8454:17 456:9457:3 460:3463:18 468:18,22475:17 477:17,25478:13 479:16480:6,8 483:10,15484:2,21 485:18485:19 488:12,14488:22 489:14

rights 490:2risk 429:9rjr 460:18 461:6

463:11 468:14rockefeller 388:7role 402:20 419:5room 394:23

429:15rpr 491:22rule 400:13 492:3rules 460:16 492:3run 407:18,25

409:8,10

[reasons - run] Page 16



running 409:25ruth 474:10,10rye 388:15

s

s 392:7 453:2,18455:11 464:23465:24 467:5471:18 492:1

s&p 482:15sab 473:12sage 387:11,11,12

387:12,12 389:13389:17,19,24390:3,5,7,9,16,17390:19,21 391:14391:16,18,20,23392:3,7,16,17,22392:23 393:3,9,11393:17,18,22395:4,6,6,6,7396:10,10,11,12396:12,13,15,19396:21 397:2,14397:16 398:7,9,12398:12,13 399:7402:2,21 403:15404:1 410:17413:5,10 414:17414:20 416:23421:2 422:23424:4,16,19 426:2426:11 428:11430:1 432:8,8,12432:13,17,17436:15,17,18,20437:13,14,17438:7,9,9,18,19440:7,12 441:3,7441:17,24 449:19449:20,21,21450:21,21 451:10

451:12,24 452:14453:1,2,2,10,18,18453:22 454:5,20455:5,12,21458:11,12,18459:4,21,22,23,25460:1,10,12,12,17460:19,19,22462:8,10 463:3,7464:1,17,19,22,23465:21,23,23,23465:24 466:24467:2,5,21,22468:9,13 469:19470:1,5,7,12,14,16471:18 472:25473:3,18 474:4475:2,12 476:18477:5,6,11,14,21478:11,23 479:5480:25 481:3,12481:19 482:2,4,11483:20 484:11485:12 486:4,7,8486:13 487:18,22488:4

sages 396:10398:18 399:6,17399:20 401:1,20401:22 402:3,24429:25 436:11438:19

sale 411:25 414:24416:3 417:5421:12 423:14444:17 454:4455:14 461:3462:10 477:6

sales 405:12,13,19405:19 410:17411:6,18 412:8

460:16 475:17,20saw 410:14 413:11

426:14 435:3443:4 444:1448:19 449:12

saying 444:20451:1 456:14461:13 466:8480:21

says 405:2 418:1426:19 433:20437:18,22,24438:13 440:10455:12 461:1462:7 465:17466:13 473:11474:15 477:9478:11 487:19

sec 400:23second 414:8,9

424:2,23 425:10445:13,18 460:20471:1 473:10474:14,14 478:3489:6

securities 386:4,8389:12,16 394:16394:18 400:17401:5,9 404:20405:11,17,17,20406:12,18,20407:17,23 408:2,7408:23 409:4,7,25410:16,18,25411:18 412:2,4413:20,23 415:18418:3,11 420:11430:24 433:7,11435:5 438:9444:14 464:16479:7,8,11 482:14

482:15,25 484:4484:16 485:14,17486:8,10,20487:18

security 400:19,22405:3,6 416:3,3417:6 439:10,12439:17,19 454:4

see 402:15,15,17403:23 404:1,19404:25 405:9406:11,16 407:23408:21,24 409:3410:13 411:10,17411:19 413:15414:7,16,24416:23 417:4,18418:15,21,24419:18 420:3,6421:1,8 422:22,25424:3,3,5,7,13,15424:18 425:1426:4,10,11,13,16426:21 427:22428:11,14 429:16430:17 431:19,21432:3,6,11,19,22433:3,19,21434:22 435:9436:15 437:11,15438:2,7,16 439:20439:23 440:7,12441:3,6,18,25442:4,16 443:23444:16,16,19,19446:3,6,11 448:2,2450:2,6,20 451:11451:25 452:12,25453:10,12,19454:5,19,25 455:9455:15,17,18,23

[running - see] Page 17



458:2,10 459:3,5459:21 461:3,17461:22,24 463:6463:10 464:15465:10,25 466:14466:25 467:22,25468:8,12 470:8471:5,6 472:24473:10 474:3,9,10474:11,23 475:7475:12,15,17,25476:4,17 477:5,16478:4,6,17 479:2480:2,18 481:1,6,9481:16,24 484:11487:23 488:5

seeking 481:12,19489:20

seen 457:5,7472:13

sell 400:8,22 401:9415:18 466:12486:8

selling 427:10428:23 439:8,8477:14 488:21

semiconductor468:14

sense 438:23sensitive 394:3sentence 461:1

473:10 474:14,18sentences 474:19september 489:5series 426:25services 491:13set 448:19 451:23settlement 389:12

389:16 406:12,19407:18,23 408:2,7408:23 409:4,7,25

411:1seven 438:14

439:1 441:18442:3 454:9,24455:6,8 470:16487:23 488:10

shares 423:9,14424:8 427:11432:12,21 433:2434:23 455:3,6,8466:11

sheet 492:12short 417:25

425:15 435:14438:14,20,21439:1,4,6,7,9,12439:16,18 440:4450:4 454:7,23460:14,21 462:16466:5 473:16,19475:15 476:4,7478:25 479:1,14480:17 487:22488:10

shorted 474:21475:1

show 403:15 406:1408:12 410:25424:14 436:13440:25 447:16449:23 452:24456:10 458:19462:2,5 463:2,3467:18,20 468:7471:1 475:11482:24 483:17,21483:22,25 484:1,3485:15

showed 428:1462:6 488:1

showing 414:6,13417:18 422:21424:1 436:14443:25 459:11,20464:14 470:25471:11 472:1484:16 485:14488:3

shown 405:14449:22 452:13

shows 406:9,20413:15 414:24417:25 419:23420:2 421:8 451:2452:16 463:10471:20 484:20488:9

side 442:4 451:10signature 491:20

493:21significantly

474:20signing 490:12similar 407:25

428:19sixteen 471:17skip 474:13skipped 392:6skyline 404:22,25smb 386:7 394:21soda 443:17sold 412:5,6 421:9solutions 394:9

395:1somebody 396:19sorry 404:8

408:16 409:21410:23 413:8415:5 424:22425:2,2 426:6,9430:10 445:17

450:21 454:13465:17 467:22475:20,22

sort 428:20sound 397:24sources 406:23southern 386:1

394:20special 422:1specialties 401:4specific 401:9

404:18 416:18418:14

speech 397:21spin 426:19 427:9

427:10,16 428:20split 399:13 401:6

401:14 421:25423:2,12,17477:20,23 482:6482:13,22 483:3483:13,24 484:3484:20,23 485:13

splits 423:6spoke 474:15spun 427:13stacy 388:5 395:12stand 412:19standpoint 478:14stapled 416:21start 430:2,13

456:11 489:3started 398:16,19starting 411:19state 416:6stated 491:5statement 389:14

389:18,20,21,25390:3,5,7,9,18,20390:22 391:15,17391:24 392:4,8,18

[see - statement] Page 18



392:24 393:4,10393:12,19 406:19408:23 409:12,13414:18 416:24417:23 421:2,4422:23 423:1424:5,19 426:11428:11,15 429:6441:4,6 450:7458:3 463:8467:21,22 468:10470:12,15 475:13483:15 484:11492:7

statements 404:9404:11 408:8409:8 411:1 443:4449:19,24 458:13463:1,4 467:18470:2 475:10482:9,11,24483:21

states 386:1394:20

steady 484:24485:20,22 486:19

stearns 420:16steps 440:10sticker 435:15stock 390:11

421:25 423:2,6,9423:12,17 428:23430:18 432:24433:5 434:23439:8 454:6455:14 479:2

stocks 460:11,14stop 409:25

460:20 477:10stored 404:12

strategy 401:4483:25 485:24

stretch 436:3strike 399:14

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[understanding - york] Page 21




Rule 30






















Exhibit D

08-01789-smb Doc 18151-4 Filed 11/01/18 Entered 11/01/18 18:04:08 Exhibit D Pg 1 of 231

CONFIDENTIAL


23

In re: )4 )



)7 vs. ) 08-01789 (SMB)



Defendant. )10 )

)11 In re: )


)13 Debtor. )

)1415 CONFIDENTIAL16 Videotaped Deposition of BERNARD L.17 MADOFF, VOLUME IV, taken on behalf of the Customers,18 before K. Denise Neal, Registered Professional19 Reporter and Notary Public, at the Federal20 Correctional Institution, 3000 Old Highway 75,21 Butner, North Carolina, on the 9th day of November,22 2017, commencing at 8:43 a.m.232425 * * * * *

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1 APPEARANCES OF COUNSEL:23 On Behalf of the Customers:4 HELEN DAVIS CHAITMAN, Esq.5 Chaitman, LLP6 465 Park Avenue7 New York, New York 100228 (908) 303-45689 [email protected] On Behalf of Sage Associates, Sage Realty,12 Malcolm Sage, Martin Sage and Ann Passer Sage13 ANDREW B. KRATENSTEIN, Esq.14 McDermott Will & Emery, LLP15 340 Madison Avenue16 New York, New York 10173-192217 (212) 547-569518 [email protected]

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1 APPEARANCES OF COUNSEL:23 On Behalf of the Trustee:4 AMANDA E. FEIN, Esq.5 STACY DASARO, Esq.6 Baker Hostetler7 45 Rockefeller Plaza8 New York, New York 10111-01009 (212) 589-462110 [email protected] On Behalf of the Deponent:13 PETER A. GOLDMAN, Esq.14 12 Fairlawn Parkway15 Rye Brook, New York 1057316 (914) 935-685717 [email protected] Videographer:20 Bob Collier, CLVS2122 * * * * *232425

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1 CONTENTS2 THE WITNESS: BERNARD L. MADOFF EXAMINATION3 BY MS. CHAITMAN 4994 BY MS. FEIN 5205 BY MR. GOLDMAN 5796 BY MS. FEIN 5827 BY MS. CHAITMAN 6678 BY MR. KRATENSTEIN 678910 * * * * *1112 INDEX OF EXHIBITS13 FOR THE CUSTOMERS: PAGE14 Exhibit Number 89, Schwab blotters - 50215 12-5-8616 Exhibit Number 90, Securities transaction 50417 report18 Exhibit Number 91, NSCC trade reporting 50519 blotter - 12-11-862021 FOR THE TRUSTEE:22 Exhibit Number 10, Customer statement - 52423 12-31-0724 Exhibit Number 11, House 5 daily stock 53525 Record activity - 7-16-87

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CONFIDENTIAL

1 INDEX OF EXHIBITS (Continued)2 FOR THE TRUSTEE: PAGE3 Exhibit Number 12, House 17 stock record 5584 summary through 12-31-075 Exhibit Number 13, Stock record summary - 5666 8-31-017 Exhibit Number 14, House 17 stock record 5698 summary - 3-31-949 Exhibit Number 15, House 17 stock record 57110 summary - 7-16-8711 Exhibit Number 16, Confirmation - 11-11-83 60012 Exhibit Number 17, House 17 stock record 60313 summary - 11-10-8314 Exhibit Number 18, Cash and securities 61115 blotter16 Exhibit Number 19, Cash and securities 61117 blotter18 Exhibit Number 20, Proffer meeting 62619 document - 12-16-0820 Exhibit Number 21, Report - 12-8-08 6442122232425

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1 THE VIDEOGRAPHER: We're now on the2 record. Please note that the microphones are3 sensitive and may pick up whispering and private4 conversations. Recording will continue until all5 the parties agree to go off the record. My name is6 Bob Collier representing Veritext Legal Solutions.7 Today's date is November 9th, 2017 and the time is8 approximately 8:43.9 This deposition is being held at Butner10 Federal Correction Facility located at 3000 Old 7511 Highway, Butner, North Carolina and is being taken12 by counsel for the Plaintiff-Applicant. The caption13 of this case is Securities Investor Protection14 Corporation, Plaintiff-Applicant v. Bernard L.15 Madoff Investment Securities, LLC, Defendant.16 This case is being held in the United17 States Bankruptcy Court, Southern District of New18 York, Case Number 0801789 (SMB). The name of the19 witness is Bernard L. Madoff. At this time the20 attorneys present in the room will identify21 themselves and the parties they represent.22 MS. CHAITMAN: Helen Davis Chaitman on23 behalf of numerous Defendants.24 MR. KRATENSTEIN: Andrew Kratenstein of25 McDermott Will & Emery, LLP on behalf of the Sage

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1 Defendants.2 MS. DASARO: Stacy Dasaro, Baker3 Hostetler, on behalf of the Trustee.4 MS. FEIN: Amanda Fein, Baker Hostetler,5 on behalf of the Trustee.6 MR. GOLDMAN: Peter Goldman on behalf of7 the witness, Mr. Madoff.8 THE VIDEOGRAPHER: Our court reporter,9 Denise Neal, representing Veritext Legal Solutions,10 will swear in the witness and we can proceed.11 BERNARD L. MADOFF,12 having been first duly sworn, was examined and13 testified as follows:14 EXAMINATION15 BY MS. CHAITMAN:16 Q. Good morning, Mr. Madoff. Yesterday you17 identified a document which was marked as18 Exhibit 38, which appears to be a January 31, 198319 statement bearing the name National Westminster20 Bank?21 A. Uh-huh.22 Q. And it shows --23 MR. GOLDMAN: You've got to answer yes or24 no, Bernie.25 THE WITNESS: Says National Bank of North

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CONFIDENTIAL

1 America.2 Q. (By Ms. Chaitman) Excuse me. National3 Bank of North America. Thank you. And was this4 generated by your firm or was it generated by5 National Bank of North America?6 A. I believe it was generated by my firm.7 Q. Did you receive on a monthly basis from8 National Bank of North America statements showing9 the securities transactions conducted in that month10 for your firm?11 A. I don't recall whether we received one. I12 don't know. I mean, you know, you're talking about13 1983. I don't know what the policy was. Typically14 we would receive statements from the banks at the15 end of a month.16 Q. Okay, okay. And, for example, here is17 Exhibit 46, which is another statement that was18 generated by your firm as well; right?19 A. Yes.20 Q. And do you know how the information was21 obtained that was incorporated into these22 statements?23 A. Well, these statements were generated by24 us. They're showing the transactions according to25 our records as they're done.

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CONFIDENTIAL

1 Q. Okay, okay.2 A. They're not the bank's records. So these3 are just, you know, the transactions as they4 appeared in this account.5 Q. Okay. And you testified yesterday that6 these all reflect accurate transactions that were7 fulfilled --8 A. That's correct.9 Q. -- is that correct?10 A. Yes.11 Q. Okay. And I'm showing you again12 Exhibit 39, which is a January 31, 1983 statement of13 transactions with National Bank of North America.14 A. Yes.15 Q. And is that an accurate reflection of the16 transactions that were done in that prior month for17 National Bank of North America?18 A. Correct.19 Q. Okay. Now, let me show you what I'm going20 to mark as Exhibit 89. These are it says Schwab21 blotters for 12-5-86 and it says house five.22 MS. FEIN: Thank you.23 MR. KRATENSTEIN: Thank you.24 Q. (By Ms. Chaitman) Can you tell me what25 this document is?

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CONFIDENTIAL

1 A. It looks like the activity that took place2 in the Charles Schwab & Company.3 Q. Okay. And, again, would these be actual4 transactions that were conducted by your firm?5 A. They would be.6 Q. Okay. And would you have received in the7 ordinary course of business some documentation from8 Schwab evidencing these same transactions?9 MS. FEIN: Objection.10 THE WITNESS: It depends upon what period11 of time. I mean, people stopped using12 confirmations. Broker-to-broker confirmations were13 eliminated after a certain period of time. I don't14 know when that was. Before that period we received15 confirmations on every trade every day.16 After that there were no confirmations17 because the trades went to the clearing corporation18 and those trades were all netted, which is a19 practice so that the transaction that you did with20 Schwab doesn't -- would not be what you would21 receive from the clearing corporation because they22 net all the -- from market makers like Madoff what23 happens is they take all of the transactions, all24 the transactions that you had in a particular25 security, so if we had every trade that we did with

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CONFIDENTIAL

1 say in General Motors for any of the thousands of2 brokers that exist that buys and sells, if you sold,3 for example, 2 million -- if you brought 2 million4 shares from assorted brokers and then you sold5 1,500,000 shares, they would send you what they call6 a balance order at the end of the day that said you7 bought or sold 500 shares, which is the net amount.8 And they would give you the dollar amount9 of the net practice. And -- and the person10 guaranteeing the trade became the clearing11 corporation.12 Q. (By Ms. Chaitman) Was there a system in13 place at your firm to verify the information you14 received on a daily basis from the clearing15 corporation?16 A. Yes, you know, there was. I can't tell you17 exactly what it was because I'm not part of the back18 office operation.19 Q. Okay. But there was such a system in20 place?21 A. Yes.22 (Exhibit Number 90 was marked for23 identification.)24 Q. (By Ms. Chaitman) I'm going to show you25 what I've marked as Exhibit 90, and I apologize. I

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CONFIDENTIAL

1 only have one copy of this, but I'll show it to2 everybody after you identify it. Can you tell me3 what this is?4 A. It reflects the securities we bought for5 Vanguard and Wells Fargo.6 Q. During this -- the period indicated?7 A. During that period of time, right.8 Q. Okay. And is this a report that was also9 generated by your firm?10 A. Correct.11 Q. Okay. And were these transactions actual12 transactions?13 A. Yes. They were.14 (Exhibit Number 91 was marked for15 identification.)16 Q. (By Ms. Chaitman) Okay. I'd like to show17 you what I've marked as Exhibit 91. Can you tell me18 what this document is?19 A. It looks like a trade reporting blotter20 under National Securities Clearing Corporation.21 Q. Okay. Now, is the National Securities22 Clearing Corporation generally referred to as NSCC?23 A. Correct.24 Q. And was NSCC the precursor to DTC, the25 Depository Trust Company?

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CONFIDENTIAL

1 A. Yes, then they merged.2 Q. Okay. So what does this document reflect?3 It reflects trade date December 11th, 1986. Can you4 tell me what this document shows?5 A. It would show the transactions that we did6 with other brokerage firms in the street but not7 reflect any customer transactions.8 Q. Okay. And is there an indication on this9 document as to which brokerage firms were on the10 other side of these transactions?11 A. I don't believe so.12 Q. The member number ID of 0158, was that your13 member number?14 A. No. Oh, yes.15 Q. The first column on the left?16 A. No. That's -- ours was 646. This member17 ID would be -- refer to another brokerage firm.18 Q. So this document -- which I don't represent19 is complete. I just printed out a portion of it.20 The column on the left represents another brokerage21 firm and this lists all the transactions done on22 December 11th, 1986 by your firm with 0158?23 A. Let me just look at this. Yes.24 MS. FEIN: It looks like there -- on25 future pages there might be others.

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CONFIDENTIAL

1 MS. CHAITMAN: Right, right. I just2 wanted to clarify this.3 MS. FEIN: Understood.4 MS. CHAITMAN: Yeah. I didn't print out5 complete.6 THE WITNESS: These are the transactions7 of the market making or proprietary trading side of8 the firm.9 Q. (By Ms. Chaitman) Okay. As a matter of10 fact, Mr. Kratenstein just pointed out to me if you11 look on page two there are other numbers in the12 left-hand column. Do you see that?13 A. Yes. You mean other ID numbers?14 Q. Yes.15 A. Yes.16 Q. So that means -- I didn't notice that, so17 this lists transactions with all the other firms and18 they're identified by their code number?19 A. That is correct.20 Q. And were these all legitimate transactions?21 A. Yes.22 Q. And they were all executed?23 A. Yes.24 Q. Now, would -- as of December 11th, 198625 would this kind of report reflect 100 percent of the

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CONFIDENTIAL

1 trading activities of your firm or were there2 other --3 A. No.4 Q. Okay. So what other categories of5 activities were there that are not reflected on a6 report like this?7 A. If we were trading with a client, you know,8 out of our own inventory principal, it would not be9 reflected on this -- on this report.10 Q. Anything else?11 A. I don't believe so.12 Q. If you were doing convertible bond trading,13 would that show up on this report --14 MS. FEIN: Objection.15 Q. (By Ms. Chaitman) -- or would that be on a16 different report?17 A. I do not believe it would be on this18 report.19 Q. Do you recall that your firm generated20 reports which -- in the 1980s which showed all of21 the convertible bond purchases and sale on a daily22 basis?23 A. It would reflect, be reflected in a24 customer's account if -- and it would be reflected25 in the firm's account, in the firm's trading --

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CONFIDENTIAL

1 you'd have to look at the trading ledger for the2 firm. It depends upon also whether we did it as3 principal or whether we did it as agent. Most of4 our trades were done as principal. We're selling5 out of our own inventory account to the customer.6 I don't know exactly where that would7 appear, but it would not appear -- these are what's8 called street side transactions, as I said, mostly9 from a market making proprietary trading side of the10 firm, broker-to-broker trades.11 Q. Okay. You had testified previously that12 with respect to the convertible bond trading,13 99 percent of it in the 1980s was done in the14 over-the-counter market?15 MS. FEIN: Objection.16 Q. (By Ms. Chaitman) Do you recall that?17 A. Depends upon the bond. The bonds,18 convertible bonds traded -- most convertible bonds19 traded in the over-the-counter market. Some of them20 were traded on an exchange, but the great majority21 of them would trade over the counter.22 Q. Okay. Now, if I wanted to find a record on23 any specific date in the 1980s of the volume and24 specific transactions that you did in the25 over-the-counter market, what document would I look

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CONFIDENTIAL

1 for?2 A. You'd have to look at the firm trading3 account records and blotters, but I don't -- and if4 you're talking about period in the '80s, I doubt5 whether or not you would be able to find them6 because the record retention period was six years in7 the industry. So there would be no reason the firm8 would keep those.9 Q. Now, Mr. Madoff, I believe you're aware10 that there were microfilm records that the Trustee11 found?12 A. Yes.13 Q. Do you recall how it came about that some14 of your records were microfilmed?15 A. It depends upon what the policy of the firm16 was at that -- during that period of time. I mean,17 there was a -- there was a lot of confusion within18 the industry as to whether you had to microfilm19 records or whether you would put them -- send the20 records to a place like Stone Mountain, which was an21 off premises places.22 Everybody had a different policy, so -- and23 I'm not particularly aware of what our firm's policy24 was. It's not something I would be involved in.25 Q. Okay. Was the decision to microfilm

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CONFIDENTIAL

1 records your decision or did someone else in your2 firm make that decision?3 A. It wasn't my decision, no.4 Q. It was not?5 A. No.6 Q. Okay. So is it fair to say that you didn't7 instruct your staff as to what should be microfilmed8 and what should not be microfilmed?9 A. No.10 Q. Did you ever seek to verify that documents11 were being microfilmed?12 A. Probably not. It's not an area that I13 would be involved in. That would be something that14 somebody in the systems department would make those15 decisions or someone in the operations department.16 Q. Okay. Can you think of anyone in17 particular who would have been responsible for that?18 A. It varied, you know, over the years. No.19 Q. Okay. There was a person named Asha,20 A-s-h-a. Do you recall that name?21 A. No.22 Q. Okay. Do you know you've testified23 previously that the -- all of the trading that you24 did except for the split strike was actual trading?25 MS. FEIN: Objection to form.

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CONFIDENTIAL

1 MS. CHAITMAN: I'm just trying to lay the2 background.3 THE WITNESS: Yes.4 Q. (By Ms. Chaitman) You testified to that5 yesterday. Okay.6 A. Up to a certain period of time. There were7 actual trades done in split strike prior to 1990,8 some period in the '90s.9 Q. Okay, okay, okay. So just to clarify, when10 you started the split strike for some period of time11 you actually did the trades?12 A. Correct.13 Q. And at some point which you haven't been14 able to specify you stopped doing the trades?15 A. Correct.16 Q. Okay. Now, I want to ask you something17 about that, Mr. Madoff. Is it your understanding18 from your experience in the securities business that19 it was illegal for you to send a customer statement20 to a customer which said in essence I've purchased21 five shares of IBM for you when, in fact, you hadn't22 actually made that purchase?23 A. Was it what?24 Q. Was there anything improper or illegal25 about your in a sense selling a short, a naked short

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1 to a client?2 MS. FEIN: Objection.3 THE WITNESS: No.4 Q. (By Ms. Chaitman) Can you explain to me5 why that was not illegal?6 A. Short selling is a very common practice and7 a significant part of the stock market, whether it8 be an over-the-counter transaction or whether it be9 an exchange-traded transaction.10 That is -- as a matter of fact, there are11 -- you can look at any one of the financial records12 that are produced, you know, by the media and get13 what the open short positions are in every14 particular security. So the concept of selling15 short has been in existence since the securities16 started trading in the market maker.17 Q. And the fact that you did that, that you18 may have done naked short selling --19 A. Right.20 Q. -- was that illegal or improper?21 A. No.22 Q. Okay. So is it fair to say that because23 you were a market maker, you had not only the right24 but also the obligation --25 A. That is correct.

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CONFIDENTIAL

1 MS. FEIN: Objection.2 Q. (By Ms. Chaitman) -- to sell?3 A. The rule was that if you were a registered4 market maker, you were required to post on a regular5 and continuous basis a two-sided market, meaning6 what you're willing to buy and what you're willing7 to sell. And in order to -- in order to continue to8 be a registered market maker, you had to honor that9 quote. Otherwise, it would be a violation of the10 SEC.11 Q. Okay. But you say it's not a violation of12 any SEC rule to indicate on a customer statement13 that the customer owns certain securities when you14 hadn't actually purchased them?15 A. Of course.16 Q. It's not -- that's not improper?17 A. No.18 Q. Okay. So what was improper, if anything,19 about the fact that with respect to the split20 strike, at a certain point in time you stopped21 buying the securities shown on the statements?22 MS. FEIN: Objection.23 THE WITNESS: What was improper was when24 we reported our -- when we gave the SEC our25 financial statements, you would have to show what

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1 your -- you wouldn't -- you wouldn't show whether2 you were long or short for any particular customer.3 That policy was changed many, many years ago, but4 you had to reflect the liability of what was5 involved in your total short positions.6 Q. (By Ms. Chaitman) Okay. So just to be7 clear, if you sent customer A a statement which8 showed that he had a portfolio worth a million9 dollars in various Fortune 100 company stocks and10 you did not own those stocks at that time, you would11 have had to reflect on your FOCUS report to the SEC12 that you owed that customer a million dollars worth13 of stocks?14 MS. FEIN: Objection. Helen, we covered15 this on the first day of Mr. Madoff's testimony back16 in April.17 MS. CHAITMAN: Okay.18 MS. FEIN: So I just want to put on the19 record that this is day one testimony.20 MS. CHAITMAN: Okay.21 THE WITNESS: You would -- if the firm was22 short to a customer, you would reflect on -- you23 would reflect -- that would reflect what your open24 position was that's a short position; but if you had25 an arbitrage transaction in that particular

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1 security, you would net the long positions versus2 the short position of the firm, both the market3 making, proprietary and the customer transaction.4 Plus, you would have to take options into5 consideration. You'd have to -- there were certain6 exemptions and instructions of how you treated your7 capital.8 Q. (By Ms. Chaitman) Okay. But, in fact, you9 never disclosed to the SEC that you had naked short10 positions. Is that fair to say?11 A. During the period where we didn't sell the12 stock, that is correct.13 Q. Where you didn't buy the stock you mean?14 A. Didn't buy the stock.15 Q. Okay, okay. And in your mind is that what16 was illegal about what you did?17 A. Correct.18 Q. Okay. Now, in all the years you were in19 business prior to the global economic collapse in20 2008, did you ever find yourself unable to satisfy a21 customer demand for a withdrawal from a --22 MS. FEIN: Objection. This is not only --23 it's outside the scope of the day two deposition.24 We didn't enter the order today, but this was all --25 these were things that were covered on the day one

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1 deposition.2 MS. CHAITMAN: Okay. You've made your3 record.4 THE WITNESS: No.5 Q. (By Ms. Chaitman) So you're sure that6 there was never a time from 1992 when you started7 the split strike until 2008 when you were unable to8 satisfy a customer demand for a redemption?9 A. That's correct.10 Q. Did you ever need to take in a new11 customer's money in order to pay money to an12 existing customer?13 A. No.14 Q. In the entire time you were in business?15 A. Up until the collapse of the financial16 market.17 Q. Okay. Now, did you make margin loans to18 some customers?19 A. Yes.20 Q. And were those margin loans in your view21 debts from the customers to you?22 A. Of course, yes.23 Q. And why is that? Tell us what a margin24 loan is.25 A. Margin loan is regulations set by the

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1 Federal Reserve. If a customer wants to buy --2 wants to buy securities, he is allowed to pledge,3 you know, other securities in his account, you know,4 to purchase it. So the margin rates varied. I5 believe in the period of time that you're talking6 about it would be 50 percent, but again, it depends7 upon the securities, whether they were bond, whether8 they were -- you know, the type of bond, whether or9 not they had options involved with it.10 It was a complicated practice, but11 basically it was the customer's ability to borrow to12 be able to purchase more securities without posting13 cash for that particular transaction. So he was --14 it's similar to when you have a house and you take a15 mortgage loan out to buy the house or to expand the16 house. Well, use it for whatever you want. Those17 regulations are set by the Federal Reserve Board.18 Q. Okay. And would you have made a margin19 loan to someone who didn't own any securities?20 A. No.21 Q. So is it fair to say that almost by22 definition if you made a margin loan to a customer,23 that customer had real securities in his account?24 MS. FEIN: Objection.25 THE WITNESS: Yes.

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1 Q. (By Ms. Chaitman) And do you recall that2 you made substantial margin loans to the Sages?3 A. That I can't recall.4 Q. Okay. But it would be reflected on their5 statements; wouldn't it?6 A. You could figure it out from the statement,7 yes. You'd see by whether it had a debit balance in8 their account --9 Q. Okay.10 A. -- past the settlement date of the11 transaction.12 Q. Okay. And was it your practice to insist13 that margin loans be repaid by customers?14 A. Yes.15 MS. CHAITMAN: I have nothing further.16 Thank you very much, Mr. Madoff.17 MS. FEIN: Okay. We can get started if18 that's okay with you. Would you prefer that we take19 a break now?20 THE WITNESS: No, no. I'm fine.21 MS. FEIN: Okay.22 MR. GOLDMAN: You want something to drink?23 THE WITNESS: Anything, water or Pepsi is24 fine.25 MR. GOLDMAN: You want water or Pepsi?

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1 THE WITNESS: Pepsi.2 MS. CHAITMAN: Do you need a dollar?3 MR. GOLDMAN: No.4 EXAMINATION5 BY MS. FEIN:6 Q. Good morning, Mr. Madoff.7 A. Good morning.8 Q. When -- I want to define a couple of terms9 up front so when we talk about them later, you know10 what I'm referring to; but if I ask a question about11 the IA business or house 17, would you agree that12 that's referring to your investment advisory13 business?14 A. Yes.15 Q. And if I ask a question about market making16 or proprietary trading or house five, I might use17 those terms somewhat interchangeably. I might use18 house five to refer to the market marking and19 proprietary trading business, but do you agree that20 we can use those terms?21 A. Yes.22 Q. And yesterday I believe Mr. Kratenstein23 asked for clarification about what -- at my request,24 so thank you, about what a real trade was and you25 had -- and we have that term defined. We can use

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1 that term today as well?2 A. Yes.3 Q. For the period of time where your4 customers' statements showed trades that where the5 underlying securities weren't purchased, what term6 would you refer to those as?7 A. Basically, short.8 Q. Okay. Would you agree that can we say that9 the statements at least were fake statements? They10 showed transactions that didn't occur?11 A. Well, depends upon -- I have to think12 about, you know, how you would define that. In13 other words, because selling short is -- is not14 considered a legitimate trade or a trade that was15 not real, in other words, let me just for the record16 make sure that you understand that when a brokerage17 firm sells short, all right, that is no different18 than a broker selling stock long as to whether or19 not it's legal.20 In other words, that is -- it's a valid21 transaction. I noticed in the GA -- in the expert22 witness, I guess it would have been referred to as23 the Dubinsky report and in the Trustee's reports24 that I have seen, they consistently refer to short25 sales as fake or illegitimate transactions.

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1 Anybody in the industry would not2 understand using that terminology because if you3 sell -- if you make a short sale through a brokerage4 firm, the brokerage firm is under the same5 obligation to deliver those securities to you if you6 request them as long and you have -- and you have7 the same obligation to pay for those securities.8 There is no difference between whether the9 transaction was actually purchased or not. If the10 broker said that he sold you the stock, whether he's11 long or short does not affect his obligation, does12 not alter his obligation to honor that transaction13 upon your request.14 So you can't say -- otherwise, if you ever15 had -- went into court with that and said this is a16 fake transaction, this is a real transaction, they17 would not know what you're talking about.18 Q. I understand. We spoke yesterday a bit and19 we're going to talk about it today as well that20 there are amounts listed on customer statements21 where you hadn't purchased the amounts that are22 listed --23 A. Correct.24 Q. -- correct? So and that would be I believe25 it's your testimony after 1992 that you would have

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1 customer statements that showed transactions that2 didn't have the underlying securities purchased by3 your firm; correct?4 A. We would show short positions on a customer5 statement at any time, you know, that it took place,6 even if it was before 1992 because that's a --7 there's no brokerage firm that does a market making8 or proprietary trading. Well, there's no -- let me9 clarify that.10 There is not a brokerage firm in existence11 probably that sells stock short to a customer from12 his principal account if he's, in fact, maintaining13 a market making or proprietary trading account. So14 I know -- I'm not sure if I'm confusing you or not,15 but it is a perfectly legal -- a short sale or a16 naked short sale, which by definition is the same17 thing, is a perfectly legal transaction.18 So I could sell stock short. As a matter19 of fact, and I probably shouldn't go into all this.20 I don't know, but during my proffer agreement, my21 proffer session, the prosecutor in the presence of22 the SEC and the Trustee asked me to explain my23 market making business or my business in general.24 And during that period of time he asked me whether25 or not we ever sold stock to a customer short.

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1 And I said, of course, there was periods of2 time where we sold stock short to a customer. And3 he didn't seem to understand that. As a matter of4 fact, I had turned to the SEC people that were there5 and my own lawyer and said please explain to him,6 you know, how the market making worked, that they7 were sort of shocked.8 I can understand the prosecutor not9 understanding that, certainly not a prosecutor that10 was handling a securities case. So I don't know11 whether he was going through some exercise or not,12 but that's how -- they seemed to be focusing in on13 whether or not we ever sold short. I said if you're14 a market maker, you had to sell short at times. I15 don't know if I've clarified that or not.16 (Trustee's Exhibit Number 10 was marked17 for identification.)18 Q. (By Ms. Fein) I'll try -- I'm going to try19 a different way. So I'm handing you what's been20 marked as Trustee's Exhibit 10. And --21 MS. CHAITMAN: Thank you.22 Q. (By Ms. Fein) -- this appears to be a23 customer statement. Would you agree?24 A. Yes.25 Q. And it appears to be dated December 31st,

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1 2007. Do you see that?2 A. Yes.3 Q. This customer statement -- if you turn to4 the third page of the document, the Bates number is5 960. Do you see that page?6 A. Yes.7 Q. This customer statement shows the purchase8 of U.S. treasuries on December 31st. Do you see9 that transaction?10 A. Yes.11 Q. You previously testified that the12 individual transactions shown on customer statements13 like these weren't always -- I understand your14 position with respect to shorts, but if we went to15 where you held Treasury bills for this period or16 went to where you held the securities for the period17 shown on these statements, we wouldn't necessarily18 be able to find those securities at the DTC.19 We wouldn't necessarily be able to find20 those treasuries held at a depository or a21 third-party firm; correct?22 MS. CHAITMAN: Objection to form.23 THE WITNESS: If I said on treasuries, we24 never went short treasuries. So if, in fact, you25 went to locate them, you would find them.

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1 Q. (By Ms. Fein) So for the treasuries shown2 on your customer statements, you've told us in the3 past that you did not have -- the amount of4 treasuries you said you purchased was between5 two-and-a-half and $6 billion. Do you remember6 that?7 A. Depends upon the period of time.8 Q. Right. You said over any period of time,9 two-and-a-half to $6 billion was the amount of10 treasuries that you would have had on hand. Do you11 remember that?12 MS. CHAITMAN: I think you're misstating13 his testimony, but it stands. Bernie, you testify14 as to what you believe --15 MS. FEIN: What you understood.16 MS. CHAITMAN: -- not what --17 THE WITNESS: During this period of time18 if we said that we had -- if a Treasury transaction19 was in a client's account, that transaction was --20 that transaction was actually bought or it was held,21 the equivalent amount, at a third-party depository,22 which would be DTC or another brokerage firm like a23 Morgan Stanley or a Fidelity and so on.24 Q. (By Ms. Fein) So the same -- you're saying25 that this same -- the same Treasury bill, the same

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1 due date, the same CUSIP number, the same amount,2 that that information would appear on a third-party3 financial statement or a DTC record?4 A. Right, correct.5 Q. So for the period of time that this6 Exhibit 10 refers to --7 A. Uh-huh.8 Q. -- December 2007, your customer statements9 showed $56 billion in treasuries aggregated?10 A. 56 billion dollars?11 Q. Yes, your customer statements.12 A. During what period of time?13 Q. December 2007 when this statement --14 A. Oh, this is 2007.15 Q. Yes.16 A. I thought you were looking at an '87 date.17 Q. I see. Okay. So is your testimony18 somewhat different since this is a 2007 statement?19 A. Yes, yes, right.20 Q. Okay. So in the 2007 time frame would you21 say -- I mean, did you have $56 billion of22 treasuries in 2007?23 A. No.24 Q. And the treasuries that would be shown on25 your individual statements that aggregate to the 56

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1 billion, those amounts wouldn't be something that2 your firm held; correct?3 A. Not in 2007, no.4 Q. Understood.5 A. I've taught you -- we were on the last6 date, which was '87.7 Q. Got it. I'm glad you clarified so we're on8 the same page.9 A. All right.10 Q. Let's see. I wanted to ask -- we've11 discussed a bit about clearing firms in the past12 couple of days. The BLMIS back office had the13 capability to receive and deliver securities; right?14 A. Yes.15 Q. And is that -- and you refer to BLMIS as a16 self-clearing firm for that reason?17 A. Correct.18 Q. If you were a firm that did not have that19 back office capability, would you rely on a20 third-party clearing firm to clear your21 transactions?22 MS. CHAITMAN: Objection to form.23 THE WITNESS: Yes. Would I or would24 someone in general?25 MS. FEIN: Thank you. I'm going to

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1 rephrase the question.2 THE WITNESS: Yes.3 Q. (By Ms. Fein) Thank you. Would a firm4 that had -- did not have the back office capability5 to receive and deliver securities need to rely on a6 third-party clearing firm like Merrill Lynch or Bear7 Stearns?8 A. Correct.9 Q. For this firm that uses a third-party10 clearing firm, there were brokerage firms that acted11 this way; right?12 A. Correct.13 Q. And would that brokerage firm basically use14 Bear Stearns or Merrill Lynch as a back office to15 receive and deliver the securities?16 A. Correct.17 MS. CHAITMAN: Objection to form.18 Q. (By Ms. Fein) If the trades were cleared19 through a third-party clearing firm, would that firm20 issue statements to -- to the statements of the21 holders of those underlying securities?22 MS. CHAITMAN: Objection to form. I don't23 know what time period you're questioning him about.24 He's testified that the practice has varied through25 the decades. Can you just give him a time period?

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1 Q. (By Ms. Fein) Understood, yes. Did the2 practice of back office operations of receiving and3 delivering securities change over time?4 A. Yes.5 Q. Was one part of that change that DTC and6 other depositories were available after a certain7 period?8 A. Correct.9 Q. Would you say that would -- the time period10 where depositories were available was sometime in11 the '70s or '80s?12 A. No.13 Q. What time frame do you recall?14 A. Well, I don't -- well, there was -- there15 were always clearing firms like a Bear Stearns that16 would -- that would operate during the period of17 time you're talking about, but DTC came into18 existence later. So did National Securities19 Clearing Corporation come into existence later. It20 would be sometime probably in the '80s.21 Q. Okay. I believe we looked at a document22 with Ms. Chaitman from 1986 that had National23 Securities Clearing Corp on it. Is that date --24 A. Then that would probably be, you know, when25 National Securities Clearing Corporation existed was

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1 in operations.2 Q. Do you recall was the DTC also in operation3 around that time?4 A. It came in after. I don't know exactly5 what the date was, but National Securities Clearing6 Corporation was not a depository.7 Q. Understood.8 A. It just cleared the transactions.9 Q. Okay. So the difference between -- so DTC10 would -- was a depository in that it held the11 securities?12 A. Yes.13 MS. CHAITMAN: It helped them?14 MS. FEIN: Held.15 THE WITNESS: It depends upon the16 security, whether it was a bond or not, and also it17 depends upon you if you had a clearing arrangement18 with a bank or another brokerage firm, even after19 the clearing corporation or DTC came into existence20 you might use any one of the other clearing firms.21 Q. (By Ms. Fein) Understood. But BLMIS22 didn't need to use -- strike that. Typically23 because BLMIS was a self-clearing firm for every day24 transactions, it wouldn't rely on a third-party25 clearing firm; correct?

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1 MS. CHAITMAN: Objection to form.2 THE WITNESS: No. That's not correct.3 Q. (By Ms. Chaitman) Okay. Please tell me.4 A. In other words, it depends upon -- we had5 arrangements as most brokerage firms would have6 arrangements, particularly market making firms, with7 all sorts of clearing firms, whether it be a Bear8 Stearns, a Goldman Sachs or whether it be a bank,9 any number of banks that clear or they would clear10 themselves.11 And depending upon the type of transaction12 that they were doing, for example, if it was a13 Treasury bill transaction, only certain brokerage14 firms are registered to deal in treasuries.15 So you would have to use like a Bank of New16 York, for example, one or a Goldman Sachs and so on.17 So there is no general rule as to -- and it also18 depends upon how you were dealing with that other19 firm and what you in general do business with that20 other firm. I don't know if I'm confusing a little,21 but it varies.22 Q. If you -- you held securities at DTC;23 correct?24 A. Some securities, yes.25 Q. If -- and what was the difference between

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1 why you would hold a security at DTC or elsewhere2 other than the fact that DTC didn't clear a certain3 security or couldn't hold a certain security for4 you, like treasuries?5 A. It depends upon who the securities -- who6 the contra-side of the securities we bought or sold,7 depending upon what brokerage firm we were dealing8 with. It depends upon the type of security and that9 we were dealing with it, what we planned to do with10 the security, in other words, whether we would be a11 long-term holder of the security, whether there was12 a customer involved in the transaction.13 There's any number of reasons why we would14 do a -- the same reason -- there was different15 reasons why we buy and sell through different16 brokerage firms and, for example, also depends upon17 where that firm is located.18 So, for example, if we're dealing with a19 firm in Chicago, we would use a different clearing20 facility, whether it be a bank or a firm that's21 located in Chicago because -- and then, again, it22 depends upon the period of time whether people are23 using physical securities or they were not using24 physical securities. In other words, there were --25 you know, some customers wanted to take possession

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1 of securities. The industry, you know, is trying to2 eliminate the movement of securities back and forth.3 And it depends upon how the security was being paid4 and whether this contra-party had the ability to5 pay.6 Some, for example, customer transactions,7 they would want you to deliver the securities to8 them or to a clearing agent against payment. Other9 customers had the money in their account. So10 there's any number of -- look, I was the chairman of11 a clearing corporation, you know, and was the12 founder of a clearing corporation, so I'm maybe more13 familiar with this than the average person is.14 I hope I'm not confusing you, but there's15 any number of reasons why a transaction gets cleared16 in one form or another.17 Q. Okay.18 A. If it makes you feel any better, Dubinsky19 has no clue either.20 Q. Thank you. We're trying to figure it out.21 I'm trying to figure it out.22 A. It's difficult. I understand. I'm not --23 Q. Thank you. I want to look at some24 documents with you that maybe will help. I think we25 want to make sure we're getting it right. I do.

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1 A. That's fine.2 Q. So let me show you a document. You've said3 in the past you kept stock records; correct?4 A. Correct.5 Q. And the stock records would show where the6 securities were held; correct?7 A. Correct.8 Q. We're going to take a look at one now. The9 stock records would also show your inventory for10 your long and short positions; right?11 A. Correct.12 (Trustee's Exhibit Number 11 was marked13 for identification.)14 MR. KRATENSTEIN: This is 11?15 Q. (By Ms. Fein) So what you're looking at is16 Trustee 11. And I want to go through some of these17 column headings with you.18 A. Uh-huh.19 Q. Are you familiar with this document?20 A. Yes.21 Q. Is this the type of document that you would22 have prepared around the date listed, which is23 July 16th, 1987?24 A. Yes.25 Q. Would this have been prepared in your

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1 ordinary course of business?2 A. Would this what?3 Q. Have been prepared in your ordinary course4 of business?5 A. Yes.6 Q. The title reads house five daily stock7 record activity --8 A. Correct.9 Q. -- for -- thank you -- July 16th, 1987?10 A. Yes.11 Q. If you look at the columns below --12 MS. CHAITMAN: I'm sorry. Where does it13 say that?14 MS. FEIN: The first line on the top.15 MS. CHAITMAN: Oh, I see. Okay.16 Q. (By Ms. Fein) Do you see the first column17 on the left, last act, is that last activity?18 A. Yes.19 Q. The column directly right next to that,20 safekeeping?21 A. Safekeeping, right.22 Q. And what's under that, STRT? Do you know23 what that refers to?24 A. No.25 Q. Okay. The next one, safekeeping owner?

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1 A. Correct.2 Q. The next column, transfer STRT. Start3 maybe, do you think?4 A. I don't know whether that's start or5 street. I don't know whether --6 Q. Okay. And then looks like transfer owner7 in the next line?8 A. Correct.9 Q. Okay. If you go over a couple of columns10 do you see securities/account name --11 A. Yes.12 Q. -- in the middle of the page?13 A. Uh-huh.14 Q. Okay. And then next to that what I think15 is previous balance?16 A. Correct.17 Q. Current long/short?18 A. Correct.19 Q. New balance and account number, do you see20 that?21 A. Yes.22 Q. So looking at this first transaction, the23 security name is AMR Corp?24 A. Uh-huh.25 Q. And the trader says Peter, dash, trading?

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1 A. Correct.2 Q. In the previous balance column do you see3 an amount, 2,307 L?4 A. Okay.5 Q. Do you think that would be 2,307 long?6 A. Correct.7 Q. And then if you keep going across it looks8 like there was some activity on this date. Do you9 agree?10 A. Yes.11 Q. In the long and short position?12 A. Uh-huh.13 Q. And the new balance --14 A. Yes.15 Q. -- is 3,157 long. Do you see that?16 A. Yep.17 Q. So looking at this trade, can we just go18 underneath where it says AMR Corp and Peter trading?19 The next line, Prudential Bach Sec, Inc.?20 A. Correct.21 Q. Do you know what that refers to?22 A. Prudential Bache Securities. That's23 another brokerage firm.24 Q. Okay. And do you see below that SIAC?25 A. Correct.

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1 Q. What does that refer to on this report?2 A. Securities Industry Automation Corp.3 That's -- they keep the clearing records. It's an4 automated system.5 Q. Okay. So at this -- for this date,6 July 1987, this automated records system was in7 place based on this report; right?8 A. Correct.9 Q. And the line below that looks like DTC?10 A. Yes.11 Q. Do you see in the previous balance column12 the 2,307 long, if you go down to DTC it has 2,30713 S. Would that be 2,307 short? I can show you.14 A. Okay, yes.15 Q. Do you agree that's the -- that appears to16 be the same holding in that 2,307 long is your17 firm's balance and the DTC is holding that security.18 That's what's reflected in 2,307 short?19 A. Yes.20 Q. Okay. And then the new balance column, I21 think you'll see the same thing somewhat. It22 appears there's a total of 3,357 long at the end of23 the day?24 A. Uh-huh.25 Q. And DTC is holding 3,357 short. Do you see

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1 that?2 A. Yep.3 Q. So if on this date, July 16th, 1987, you4 had -- does this show that your firm would have an5 inventory of 3,357 shares of AMR Corp?6 A. I'm a little bit confused myself with this7 because this is not a record that, you know, I would8 work with typically. I don't know whether this is a9 complete record. This is -- it seems to be10 reflecting the market making department, their11 trades. So does this show -- this looks like the12 market -- all the market making trades.13 Q. Okay.14 A. Because I did -- these people, Peter,15 Martin Joel, Mark, those -- it's identifying trading16 that took place in the market making. I don't see17 any customer transactions on here.18 Q. Okay. The customer transactions, your19 testimony is the customer transactions would come20 out of your inventory; right?21 A. Yeah, but this is -- not out of the -- I22 don't see the investment. That would be the23 investment account, not the market making account.24 This house five account is the market making25 account. So we also have a -- you know, an

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1 inventory here. These are not inventory2 transactions. These are the market making, the3 market makers' transactions.4 Q. Okay. You told us the stock records would5 show the inventory of long and short positions for a6 certain time; right?7 A. Of market makers.8 Q. So let's go back then. Because of the9 inventory documents that you kept, why don't you10 talk about the other documents that would show your11 trading inventory?12 A. Well, you should be able to -- if you --13 you should be able to find an account that showed14 the inventory in the trading account, you know, in15 the market making account, in -- not market -- the16 investment account. Do you have records that show17 whether the investment account was long or short?18 Q. I'm not sure what you're referring to when19 you say investment account. Can you give me more20 information about it?21 A. For example, that would be the firm itself.22 There's not a market maker assigned to that account.23 Q. Okay. So for --24 A. And there are other -- there are individual25 trading accounts. This is -- from looking at this

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1 record here, it's showing particularly market2 makers. You see it's identified. I don't see a3 record that shows what the investment account is.4 You'd also have to look at -- you'd also have to5 have something that would reflect option trading and6 convertible bond trading if, in fact, there was a7 convertible bond transaction.8 Q. Do you see the entry for America West9 Airlines about one, two, three, four, five down?10 A. Yes. That's a bond, right.11 Q. Okay. A convertible bond; right?12 A. Right.13 Q. And the traders listed here would be14 trading in your house five business; right?15 A. Correct.16 Q. It doesn't -- this report doesn't show the17 activity of a single trader. It shows multiple18 traders; right?19 A. If there was a -- if there were multiple20 traders, it's in here. And then this AMR shows --21 where is it again? Peter.22 Q. Okay.23 A. That would be my brother.24 Q. Okay. And then if you look to the aluminum25 company transaction, which is four down?

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1 A. Martin Joel, right.2 Q. That's another trader in your firm?3 A. Yes, uh-huh.4 Q. And the one below that, Mark, dash,5 trading, would that be another trader in your firm?6 A. Yes.7 Q. And you see a few lines down closer to the8 end of the page David, dash, trading?9 A. Correct.10 Q. And Margaret, dash, trading?11 A. Correct. Those are all market makers.12 Q. Okay. And did those traders also trade for13 your proprietary account as well?14 A. Sometimes. Sometimes I would trade for the15 investment account.16 Q. Okay. So this report shows your -- it17 shows more than one trader trading on the same day18 in a variety of securities; right?19 A. Correct.20 Q. And it shows that there's a previous21 balance in the security and a new balance. So it is22 showing that there are some held positions. It's23 not just reflecting the daily activity. It's24 reflecting the activity before that date as well and25 then it has a previous balance column?

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1 A. In that, for that particular trader. It's2 not showing the global position for the firm.3 Q. Well, the trader that's listed as the last4 activity trader, the trader on this day --5 A. Correct.6 Q. -- it doesn't mean -- you wouldn't say that7 this report means that the trader listed as the only8 trader in that security; right?9 MS. CHAITMAN: Objection to form.10 THE WITNESS: In other words, we had in11 some securities there could be multiple traders, you12 know, trading it. So and those, those names would13 be there also. For example, you would see Martin14 Joel and there could be Peter and so on.15 Here, for example, you see if you go down16 to American Express, you see Peter for trading and17 then there's Prudential Bache. You know, that's18 another -- another street side transaction. I don't19 know -- I don't know how to explain.20 Q. (By Ms. Chaitman) No, no. I think here's21 where we're misunderstanding each other.22 A. Right, okay.23 Q. There's a previous balance column that's24 here, which means that there's a held position25 before this daily activity starts; right?

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1 A. In that particular trading trader's2 account.3 Q. But these -- these aren't listed by trader.4 They're listed by security; right?5 A. I know, but if I did -- for example, if I6 traded in Allied for the firm's investment account7 for not a market maker's account, you know, that8 would not be reflected here. This is looking at --9 at what the trades were before and after in a10 particular trader's account.11 If there is no -- so if you look at any one12 of these transactions, you know, you would have to13 also find a stock record that reflected the -- that14 reflected these other traders' securities or the15 firm's investment account.16 Q. Okay. So my understanding was because if17 you look next to Peter's name, there's a date?18 A. Right.19 Q. And the date is July 16th, 1987?20 A. Right. That would be the last activity21 that that trader traded the security.22 Q. But why would it be any different? Why23 couldn't it be that other traders had traded that24 same security on a prior date? This is just showing25 that that's the last trader that traded in it;

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1 right?2 A. I'm not really sure. I don't know. I3 don't know what you're trying to -- I don't know4 what you're trying to identify.5 Q. Okay. Well, I'm trying to identify where6 your securities are held and this report shows --7 A. That I understand, but --8 Q. Okay.9 A. -- I don't know, you know, if you -- I10 don't know if these are all the records that reflect11 what you're trying to do. In other words, you'd12 have to -- do you have -- have you been able to find13 records for the investment account, you know, and14 other stock record?15 This is not necessarily just all the --16 just all the trading that took place in the firm17 itself. I don't see where you would be able to18 identify that.19 Q. Okay. Well, that's why we're asking you.20 A. I don't know.21 Q. Because this is a stock record and you told22 us that stock records showed where securities were23 held, we thought that the stock records that we had24 would show where those securities were held, but --25 A. If you have all the stock records.

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1 Q. Okay. But, I mean, you're referring to2 something different, which is something for an3 investment account. I'm not sure I understand what4 that document would look like.5 A. It would look -- it would be the same as6 this.7 Q. So even though this shows your market8 making activity, you're saying that there's another9 document that would show something else? Are you10 saying that -- what would be on that document?11 Would it have trader names?12 A. It would say investment account and it13 might have my name on it or someone else's name on14 it, probably -- I did most of the trading for the15 investment account.16 Q. Okay.17 A. It could have my brother's name on it.18 Q. Okay. But this has your brother's name on19 it; right?20 A. In his capacity as a market maker. He21 traded as a market maker and he also traded for the22 firm's investment account.23 Q. Is that the same as proprietary trading?24 A. Correct.25 Q. Okay. So it's your position that you'd

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1 have a different house five report for market making2 activity than you would for other legitimate3 activity that was also going on at your firm on the4 same day, same time?5 A. House five typically refers to the market6 making activity. I don't know what the -- I don't7 really know the answer to that, how you would8 identify that.9 Q. Well, when we spoke earlier today --10 A. Understand that I'm not from the back11 office, so I don't -- I understand the global12 concept of what we do; but as far as working records13 or how our firm kept certain records, that's not14 something -- I'm not a -- wasn't a clerk.15 Q. Okay. So you agree that this report shows16 that positions were held at DTC; right?17 A. It shows the position that -- it shows what18 is held at -- if it says -- if it says that it was19 held at DTC, then the security was held at DTC for20 this particular transaction, this particular21 account. If we had a trading inventory in the same22 -- if we had a position in the same security, it23 might be held through another broker. It might be24 held at Morgan Stanley. It might be held through25 one of our clearing banks.

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1 In other words, I could -- I do a trade,2 the firm could do a transaction in AMR and we could3 have it in three different locations depending upon4 who we bought the security, bought and sold the5 security for and whether the trade was cleared6 in-house or whether it was cleared through another7 -- through another -- another brokerage firm. And,8 you know, you can't -- there's no general rule.9 Q. So you're saying there isn't a document10 that would show --11 A. Yeah. There are documents that would show12 that but, you know, it wouldn't necessarily -- for13 example, if we had it at another brokerage firm, you14 know, there would be a document that would show15 that, you know, it's at that particular firm. You16 have to -- you'd have to -- you'd have to present to17 me -- and I can't tell you what all these records --18 whether you have a complete set of records there.19 Q. So will you turn ahead to page ending in20 950? It's the same document. It's about -- I'm21 sorry. Ending in 954, so it's four pages in.22 MR. KRATENSTEIN: I just realized23 something.24 MS. CHAITMAN: It has 950 on every page.25 MR. KRATENSTEIN: All of our copies appear

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1 to have 950.2 MS. FEIN: You know, there are two numbers3 listed.4 MR. KRATENSTEIN: Oh, you're looking at5 the top number.6 MS. FEIN: So I'm referring to the number7 that's changing, yes.8 MR. KRATENSTEIN: So what number are you9 on?10 MS. CHAITMAN: 954.11 MS. FEIN: 954.12 MR. KRATENSTEIN: Thank you. Sorry.13 THE WITNESS: What am I looking at now?14 Q. (By Ms. Fein) So there's a transaction for15 Continental Investment it looks like Corp Mass in16 the middle of the page?17 A. What page am I on?18 Q. 954. I'll show you. Do you see that?19 A. Yes.20 Q. This has it looks like 100 long is the21 balance, the new balance, and on the other side of22 the transaction it doesn't say DTC. It says23 Shearson Lehman Brothers, Inc. Do you see that?24 A. Correct.25 Q. Would that be another place that you held

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1 securities at this time?2 A. Could be.3 Q. Okay. So this report doesn't just show DTC4 activity. It shows other places where securities5 are held beyond DTC; right?6 A. I can't tell from this.7 Q. Well, is this transaction, this Lehman8 Brothers transaction showing that Lehman Brothers is9 holding the 100 shares for you?10 A. I'm not sure whether this is -- whether11 Lehman -- this looks like we bought the stock from12 Lehman, the other side.13 Q. So the counterparty?14 A. Would be the counterparty, I believe.15 That's what it looks like to me.16 Q. Okay. So this report has some -- will show17 some counterparties as well then?18 A. Yes.19 Q. Okay.20 A. Is this '87 or '07?21 Q. '87. This is '87.22 A. Okay, okay.23 Q. Would your answer change for '07?24 A. No.25 Q. Okay. Will you go ahead forward two more

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1 pages, actually, it's four more ending at 958?2 A. Uh-huh.3 Q. Do you see in the middle of the page MCI4 Communications Corp? Is that a bond trade that you5 see?6 A. I'm looking at the wrong page.7 Q. Oh.8 A. Yes. A bond trade.9 Q. Okay. So this report shows market making10 -- actually, let me back up. Initially we defined11 house five as encompassing the market making and12 proprietary trading businesses of your firm; right?13 A. I believe that's correct, yes.14 Q. Okay. This report shows some transactions15 in securities and some transactions in bonds. Do16 you agree?17 A. Yes. Well, I see here MCI sub convert,18 yes, correct.19 Q. And this trade actually has SIAC?20 A. Yes.21 Q. Does this appear to have SIAC on the other22 side?23 A. Uh-huh.24 Q. Could you -- can you explain trading? Did25 SIAC just keep track of the trades or were they a

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1 counterparty to trades as well?2 A. No. They weren't a counterparty of the3 trade. I can't -- I can't answer that question4 because I'm not sure myself.5 Q. Okay.6 A. SIAC you understand doesn't hold7 securities.8 Q. Understood.9 A. Okay.10 Q. If you look down a few more lines to Medco11 Research, Inc --12 A. Right.13 Q. -- WTSX 11-7-08, that would be a warrants14 trade?15 A. Yes.16 Q. And so tell me about the type of trading17 that you were doing at this time period.18 A. In '07?19 Q. In 1987.20 A. '87?21 MR. GOLDMAN: You mean money market or the22 IA, I mean, in the market? Pardon me. Which?23 Q. (By Ms. Fein) In the house five24 business --25 MR. GOLDMAN: Oh, all right.

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1 Q. (By Ms. Fein) -- what trading were you2 doing in 1987?3 A. Sort of beats me. I don't know. I did a4 little bit of everything. I wasn't -- I really --5 I'm not sure that I considered myself a market maker6 at that time. I traded for the firm's investment7 account.8 Q. Okay.9 A. And I also traded for customer accounts as10 well.11 Q. When you say you traded for customer12 accounts, is that what you referred to when we were13 talking about the inventory where you would move14 trades from inventory into customer accounts or are15 you talking about something different?16 A. No. Well, it could be a journal. If we17 had securities in an investment account and we had18 any number of investment accounts depending upon19 what the firm, whether we considered it a long-term20 transaction or it was just, you know, part of a --21 of trading for a client, there are various forms of22 trading that we did for the investment account, you23 know. So I don't know how to -- I'm not sure what24 you're trying -- maybe if I knew what you were25 trying to find out, I'd make it -- might be able to

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1 help you with that --2 Q. Okay.3 A. -- but I don't know.4 Q. Well, when you -- so you're saying you5 weren't doing much market making during this time6 frame, but you were trading -- you were doing some7 proprietary trading it sounds like?8 A. Correct.9 Q. Okay. Will you turn to the next page? It10 ends in 959. It's here. Do you see the County of11 Nassau on Series A transaction listed?12 A. Uh-huh.13 Q. And then under there it says Bernard, dash,14 trading?15 A. Correct.16 Q. Would this be a trade -- this means that17 there's a -- would that be your trade that's18 showing?19 A. It might be, yes. Well, if it says me, I20 mean, it meant that I did that, that I did that21 particular transaction.22 Q. So this report does show trades that you23 were doing in addition to your other traders?24 A. Correct.25 Q. I guess I'm trying to understand why you

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1 would say that this wouldn't represent the trades in2 your firm. It has the trades that you were doing.3 It has the trades your other traders were doing. It4 shows who the counterparties are. It shows where5 the securities are held.6 I understand if you're saying it's not7 100 percent comprehensive, but I'm trying to figure8 out what this report shows and what it doesn't show.9 Do you understand that?10 MR. KRATENSTEIN: Object to the form of11 the question.12 THE WITNESS: I'm not sure I understand13 it. I'm saying that I don't know if you'll -- if14 these are the only records that reflect that. I15 can't answer your question.16 Q. (By Ms. Fein) Okay. Got it. But it does17 reflect trades that you were doing --18 A. Some of the trades.19 Q. -- in July '87?20 A. Yes.21 Q. Okay.22 A. Are we back -- oh, yeah. These are '8723 you're talking about?24 Q. Yeah.25 A. Okay.

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1 Q. And it shows a counterparty or would you2 agree this report shows where the securities are3 held that are listed here?4 A. Yes.5 Q. Okay. Do you see any other counterparties6 listed on this page other than the ones we've7 reviewed so far?8 A. I see Smith Barney.9 Q. Okay.10 A. I also see SIAC.11 Q. Uh-huh.12 A. Now, I don't know whether SIAC is13 representing -- represents other traders or whether14 that's sort of a netting process. I don't know.15 That was done in '87.16 Q. Okay, yeah. Do you see in the second entry17 the Microsoft Corp? It says Peter, trading, and18 then Goldman Sachs underneath it?19 A. Correct.20 Q. Would that be another counterparty?21 A. Yes.22 Q. And do you see across from the names of the23 counterparties they have different account numbers24 as well? So DTC appears to have the number 9993115?25 A. Uh-huh.

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1 Q. Okay, okay. We can put this document aside2 for now.3 A. Thank you.4 (Trustee's Exhibit Number 12 was marked5 for identification.)6 Q. (By Ms. Fein) We've spent enough time with7 it; right? So I'm going to show you what's being8 marked as Trustee Exhibit 12. Oh, yeah. You have9 to share a copy. These are big.10 MS. CHAITMAN: Okay.11 Q. (By Ms. Fein) Okay. Mr. Madoff, do you12 see the date at the top of the page?13 A. '07.14 Q. Uh-huh.15 A. Yes.16 Q. Yeah. This is December 31st, 2007; is that17 right?18 A. Right.19 Q. Is the title house 17 stock record summary20 through 12-31-07?21 A. Yes.22 Q. And do you see the handwriting on the same23 line run -- it looks like one and then illegible24 '08?25 A. Right.

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1 Q. So would this document have been prepared2 in late 2007 or early 2008?3 A. Yes. I assume, right.4 Q. Okay. This report is another stock record,5 correct, and it shows some of the same columns that6 we were looking at on the last stock record. Do you7 see at the top of the page?8 A. Yes.9 Q. Do you recognize from this page there are10 some IA customer names on here?11 A. Uh-huh, yes.12 Q. And do you recognize that there are13 customer accounts listed on the right-hand side of14 the page?15 A. Yes.16 Q. This report would have been generated by17 your house 17 staff most likely; right?18 A. Correct.19 Q. And the computer system you were using on20 the house 17 side was an AS/400?21 A. Correct.22 Q. Would this report have been generated by23 the AS/400 system?24 A. I believe so.25 Q. That's the same system that generated the

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1 customer statements and trade confirmations; right?2 A. I don't know. I don't know what generated3 the -- what system generated the trade, market4 making.5 Q. I'm sorry. I was referring to IA customer6 trade confirmations and customer statements.7 A. Yeah. That would be -- that would be the8 AS/400.9 Q. Okay. Do you know who would be reviewing a10 report like this?11 A. No. I assume someone in Annette's12 department.13 Q. Do you see underneath the security listed14 there are customer names and then an entry below15 that that says clearing banks?16 A. Correct.17 Q. Do you agree that number for account number18 29000030 is not a customer account number; right?19 The customer numbers typically have letters?20 A. No. That looks like -- that looks like the21 number they use for the clearing banks.22 Q. Okay. The amount next to the clearing bank23 number looks like 199066; right?24 A. Correct.25 Q. And I can represent to you that the four

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1 amounts in the long position equal the same as2 what's shown here in the short position?3 A. That's correct.4 Q. We looked at a customer statement from5 December 2007 and we talked about at this time in6 December 2007 the customer statements showed7 activity where the underlying securities hadn't been8 purchased; right?9 A. Correct.10 MS. CHAITMAN: Objection. I do not11 believe that the -- the split strike statements for12 December ever showed securities.13 MS. FEIN: Excuse me? So you mean because14 I should have said treasuries instead of securities?15 MS. CHAITMAN: Yeah, yeah.16 MS. FEIN: So there were securities shown17 as sold and then there were treasuries shown as18 purchased on the December statement that we19 reviewed.20 MS. CHAITMAN: Okay, okay.21 Q. Okay. And I can be clearer. So the22 customer statements in December 2007 would have23 shown -- would have shown treasuries that hadn't24 been purchased; right?25 MS. CHAITMAN: Objection to form. He's

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1 already testified that they have been.2 MS. FEIN: No. That's not correct, not in3 2007. He said in 1987 that was true and in 2007 it4 was not true.5 MS. CHAITMAN: No. He said that he had --6 MS. FEIN: The record can speak for7 itself. It's okay. The record can speak for8 itself.9 MS. CHAITMAN: Okay. You're10 misrepresenting what he said.11 MS. FEIN: Okay. I'm going to continue --12 MS. CHAITMAN: He said he didn't buy 6413 billion, but he didn't say he didn't maintain the14 portfolio. It's very different.15 MS. FEIN: We can have this conversation16 offline.17 MS. CHAITMAN: Okay, okay.18 MS. FEIN: I'm talking about what is19 represented on the customer statements and the20 aggregate. We talked about the number that was21 represented on the customer statements, not the fact22 that there were treasuries purchased at that time.23 Okay.24 MS. CHAITMAN: Okay.25 Q. (By Ms. Fein) Okay. The term clearing

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1 bank here is used where you would typically have a2 counterparty listed for where the securities were3 held; right?4 MR. KRATENSTEIN: Object to form.5 THE WITNESS: It's the balancing number,6 yes.7 Q. (By Ms. Fein) Okay. And what do you mean8 by the balancing number?9 A. In other words, it typically would balance.10 In other words, you would always have the -- if it11 didn't balance, it would be -- it would be a broken12 trade. Typically your long -- your long side would13 always equal, always be represented on the short14 position, should be the same.15 Q. Okay.16 A. When they use the term clearing banks,17 that's not one single bank. It's just, you know,18 any number of clearing banks that the transactions19 were custodied at. And these -- I don't know why20 you're looking -- I mean, I've already stated that21 before that during this period in, you know, 2000s22 or certainly post-'90s in general, that there were23 times that I wasn't purchasing the securities.24 Q. Okay. So when clearing banks is used here,25 it's not --

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1 A. It doesn't --2 Q. -- it doesn't mean the same thing as it3 would if it showed DTC?4 A. No. It wouldn't -- that would -- that was5 a fraud period, in other words. So there's nothing6 -- I can -- I'm perfectly willing, I've already7 stated that anything post-'92 period is not going to8 be accurate in my records.9 Q. Okay. So the term clearing banks here is10 used as a place holder for the other side of the11 transaction; right?12 A. Correct.13 Q. Okay. I don't know. We've been going a14 while. Would you like to take a break or do you15 want to keep going?16 A. I'm fine.17 MS. FEIN: Okay.18 MR. KRATENSTEIN: Are you done with this19 one?20 MS. FEIN: I think -- oh, you know what?21 I have one more. I have one more thing I want to22 look at. Thank you. Sorry. Can you turn -- I can23 help you turn to the page, but the page is 498. Let24 me help you figure it out. There you go.25 Q. (By Ms. Fein) Do you see the transaction

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1 for the Treasury bill listed on this page due2 1-3-2008?3 A. Uh-huh.4 Q. And at the bottom of that entry there's the5 term clearing banks again?6 A. Correct.7 Q. And in this context it's being used as a8 place holder or filler --9 A. Right.10 Q. -- counterparty for the trade; right?11 A. Uh-huh.12 Q. Okay. So this trade is not -- is one that13 didn't happen in the market; right?14 A. Correct.15 Q. And would that be true for the entries that16 show this clearing banks on this report in 2007,17 would that be true for those trades?18 A. Correct.19 MS. FEIN: We'll try to go quickly. There20 are a couple more reports of this size. So we're21 going to mark one more, but we're done with this22 one.23 MR. KRATENSTEIN: I know all about trying24 to go quickly through reports.25 MS. FEIN: I'm not going to match your

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1 speed. I promise.2 MS. DASARO: This is a full one.3 MS. FEIN: Okay. So we have excerpts of4 this one --5 MR. KRATENSTEIN: Okay.6 MS. FEIN: -- because it's very large.7 MR. KRATENSTEIN: Thank you.8 MS. CHAITMAN: So what number is this?9 MS. FEIN: This is Number 13.10 (Trustee's Exhibit Number 13 was marked11 for identification.)12 MR. GOLDMAN: Do you have the date because13 this is sort of marked out. I just want to make14 sure. It looks like 8-31-0 --15 MS. FEIN: '01.16 MR. GOLDMAN: '01?17 MS. FEIN: Yes. It is, I know. It's18 easier on some pages to read than others.19 MS. CHAITMAN: I'd just like to make a20 statement for the record. Amanda, you objected to21 some of the areas of our questioning on the basis22 that it was not a part of the day two subjects.23 And, in fact, I had covered the T-bill issue in the24 day one topics and you had an opportunity to fully25 cross-examine Mr. Madoff on them, so --

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1 MS. FEIN: Understood. These reports are2 really part of the microfilm report3 cross-examination because that's one of the day two4 topics, but I understand your position.5 MS. CHAITMAN: Right. And, in fact, if6 you had produced these documents in a timely manner7 to us, we could have questioned him about them, but8 you certainly could have.9 MS. FEIN: I should clarify. These10 documents are in the data room. The reports that11 we're going through are all in the data room.12 MS. CHAITMAN: Right. So then you had the13 ability to question him about them during the day14 one depositions.15 MS. FEIN: And this is part of the day two16 topics with respect to the microfilm reports that17 I'm questioning him on. That's -- that's why18 they're part of these topics.19 MS. CHAITMAN: If this was in the data20 room, wasn't it available to you when you were21 questioning him?22 MS. FEIN: This is in response to your23 questioning. This is my cross-examination.24 MS. CHAITMAN: Okay. And I think it's not25 within the scope of the day two.

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1 MS. FEIN: Understood.2 Q. (By Ms. Fein) Okay. So, Mr. Madoff, this3 report is entitled abbreviated stock record summary4 through 8-31-01. Do you see that at the top of the5 page? I'm sorry. Let me get it ready for you.6 This report that I'm holding, abbreviated stock7 record summary through 8-31-01?8 A. Uh-huh.9 Q. And on the left it says distribution,10 Annette. Do you believe that's referring to Annette11 Bongiorno?12 A. I assume so because I don't think we have13 another person named Annette.14 Q. And this is 2001. If you look at the first15 transaction --16 A. Right.17 Q. -- do you see Daimler Chrysler AG listed as18 the security?19 A. Correct.20 Q. And at the bottom do you see customer names21 listed after that?22 A. Yes.23 Q. And customer account numbers listed to the24 left -- I'm sorry -- to the right of that; right?25 A. Yes.

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1 Q. At the bottom of this entry do you see2 clearing banks listed on the other side?3 A. Yes.4 Q. And would that be used as a place holder5 counterparty because there wasn't a counterparty to6 this trade?7 A. That's correct.8 Q. Do you agree that this report shows IA9 customer holdings?10 A. Right.11 MS. FEIN: Okay. We can be finished with12 that document.13 (Trustee's Exhibit Number 14 was marked14 for identification.)15 Q. (By Ms. Chaitman) Yes. We're all set with16 that. This is Trustee Exhibit 14.17 MR. KRATENSTEIN: Excuse me.18 Q. (By Ms. Chaitman) Is the title of this19 document house 17 stock record summary through20 3-31-94?21 A. Yes.22 Q. Does it appear similar to the other stock23 record summaries we reviewed previously?24 A. Uh-huh.25 Q. It has the same column headings; right?

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1 A. Right.2 Q. The first security that's listed under3 security account name, ATD, Ltd. Do you see that?4 A. Yes.5 Q. And then do you see customer names listed6 underneath the security.7 A. Yes.8 Q. And customer account numbers that are9 listed on the right-hand side; right?10 A. Yes.11 Q. So would this be referring to customer12 positions in -- in 1994 when this report was put13 together?14 A. Correct.15 Q. And do you see the clearing bank's entry at16 the end of the -- at the end of the ADT security17 list?18 A. Uh-huh, yes.19 Q. And the account number 29000030, do you see20 that?21 A. Yes.22 Q. Would this also be a place holder23 counterparty?24 A. Yes.25 MS. FEIN: So I think we're done with that

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1 one.2 (Discussion off the record.)3 MS. FEIN: Okay. I'm going to mark this4 Exhibit 15.5 MS. CHAITMAN: Will you be sending us a6 complete set of these exhibits?7 MS. FEIN: That's no problem.8 MS. CHAITMAN: Okay.9 MS. FEIN: Sorry it's so large. It's just10 -- whoops.11 Q. (By Ms. Fein) Okay. Do you see in the12 middle of the page the title of this report?13 A. Yes.14 Q. Is it house 17 stock record summary through15 7-16-87?16 A. Yes.17 Q. Do you see the first trade listed under the18 title AGS Computers, Inc. sub deb conv?19 A. Correct.20 Q. Is that a convertible arb trade?21 A. Yes.22 Q. And do you see IA customers listed23 underneath that?24 A. Uh-huh.25 Q. Okay. Do you see at the end of that same

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1 set the term clearing banks used?2 A. I don't see. Oh, yes.3 Q. Okay. Would that be used as a filler4 counterparty in this report?5 A. Yes.6 Q. And if you turn ahead to page ending -- I7 think it's two pages ahead ending in 064. Sorry8 about this. Do you see a transaction in -- oh, you9 know what? The pages for this one so that it would10 print out so we could read it, it's three pages per11 on your copy. His copy has a page --12 MR. KRATENSTEIN: Okay. Could you just13 show us where to go?14 MS. FEIN: No problem.15 MR. KRATENSTEIN: Thank you.16 MS. CHAITMAN: So what is the date of this17 document?18 MR. KRATENSTEIN: 7-16-87.19 MS. CHAITMAN: 7-16-87.20 MS. FEIN: This is the --21 MR. KRATENSTEIN: Thank you very much.22 Q. (By Ms. Fein) Do you see the AMR Corp23 transaction listed at the bottom of the page?24 A. Uh-huh.25 Q. Okay. And do you see clearing banks listed

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1 at the end of that transaction or at the bottom of2 the -- I'm sorry. Let me back up. Is there a list3 of IA customers underneath the AMR Corp listing4 security?5 A. Yes.6 Q. And do you see there on the right-hand7 column there are IA account numbers listed?8 A. Correct.9 Q. Do you see the clearing banks entry at the10 bottom of the AMR Corp transaction or the long11 positions?12 A. Correct.13 Q. And do you see the account number 2900030?14 A. Yes.15 Q. Would this be a filler counterparty that16 was used on your reports?17 A. When you say filler counterparty, why --18 what are you referring to?19 Q. Well, what we were referring to on the20 earlier reports is that those trades didn't occur,21 but you needed to have another side to the22 transaction; right?23 A. If, in fact -- if, in fact, it was during a24 period that we were not doing the transaction, the25 actual transaction.

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1 Q. Okay.2 A. You're talking about a period now in 19873 that we did the transactions.4 Q. Okay.5 A. So that would be -- when you say a filler,6 I'm assuming you're assuming that the trade wasn't7 done.8 Q. Okay.9 A. That doesn't mean that every time we used10 clearing banks that there wasn't an actual trade11 being done.12 Q. Okay.13 A. What I had said originally, I was14 explaining to you, it would be a balancing number.15 It should always -- it would always balance. If16 didn't balance, there would be a break in the17 transaction. That's -- so if that didn't balance,18 it didn't match the number of shares bought, it19 would alert the -- whoever was running the records20 that there's an error, you know, that we're missing21 something there.22 Q. Okay.23 A. You also have to understand that when24 you're talking about treasuries, for example, there25 were treasuries that were bought under the firm's

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1 name, you know, at a place like Morgan Stanley or2 Fidelity and so on that would not be reflected3 necessarily on my books and records.4 Q. You mean in the 1987 time frame?5 A. Not in the 1987. In the later period.6 Q. Okay. What do you mean they wouldn't be7 reflected on your books and records?8 A. In other words, I'm not sure how they9 handled -- even in the '87 period, I'm not sure, you10 know, how those treasuries were handled, you know,11 whether they were bought. Depends upon how they12 were purchased. You'd have to ask -- during '8713 wouldn't be Frank DiPascali because he wasn't14 handling that. You'd have to speak to someone else15 who would know that. I don't know how they handled16 that transaction.17 Q. Would Annette maybe know?18 A. Probably not, not during that period.19 Q. Okay. So this is a trade in AMR Corp20 that's listed?21 A. Uh-huh.22 Q. AMR Corp was -- the DTC held AMR Corp23 securities in 1987 because we saw that on the24 earlier report we reviewed; right?25 A. Correct.

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1 MR. KRATENSTEIN: Object to the form.2 Q. (By Ms. Fein) But it's your testimony that3 these shares weren't -- is it your testimony that4 these shares were not held at DTC even though DTC5 could hold the securities?6 A. I don't see the DTC.7 Q. Right.8 A. No. I don't see DTC.9 Q. It just says clearing banks; right?10 A. Clearing banks, right.11 Q. And it's --12 A. So that could be any number of five13 different clearing banks we had and, you know,14 probably eight different clearing banks that were15 used to -- as a depository to clear the transaction.16 Q. Wouldn't you need to know who was on -- who17 was holding the securities for your transactions?18 Why would it show up as clearing banks?19 A. It would. There would be a subsidiary20 ledger that would show that.21 Q. Okay.22 A. The stock record only shows -- just like at23 DTC, you know, it's just one entity. There were24 subsidiary ledgers that would show where the25 securities were held.

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1 Q. But these securities listed here wouldn't2 be held at DTC or else you would show DTC on the3 other side; right? So it has to be held at another4 clearing firm?5 A. That's correct.6 Q. Okay. I'm just going to go back to show7 you something on Exhibit 11. All right. So the8 first transaction in AMR Corp, the balance held at9 DTC as shown on this report for July 16th, 1987 is10 3,357; correct?11 A. Uh-huh.12 Q. If you look at the short position shown on13 the AMR Corp trade here for the same date,14 July 16th, 1987, how many shares does it say are15 held at the clearing banks?16 A. It looks like --17 MS. CHAITMAN: When you say here, what18 document are you asking to look at?19 MS. FEIN: Sorry. So now we're looking20 at --21 MS. CHAITMAN: Exhibit 15?22 MS. FEIN: -- Exhibit 15, page ending in23 064.24 THE WITNESS: Is that 290,000 or --25 MS. FEIN: I think it's -- let me just

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1 make sure.2 MS. CHAITMAN: So I can't read this.3 Trustee Exhibit 11 is house five? Is that what it4 says at the top?5 MR. KRATENSTEIN: Yes.6 MS. FEIN: It does.7 MS. CHAITMAN: And Trustee Exhibit 15 is8 house five also?9 MS. FEIN: House 17.10 MS. CHAITMAN: House 17, okay.11 Q. (By Ms. Fein) So just to be clear, we're12 looking at the AMC security at the bottom of that13 transaction. It says clearing banks. The account14 number listed is 29,000, three zero, and then15 there's a short position listed. What short are16 they showing?17 A. 332, right, 785.18 Q. Yes. So for the same date that you had a19 little over 3,000 shares held at DTC as shown on20 your house five stock record summary --21 A. Correct.22 Q. -- this shows over 330,000 shares in the23 same security; right?24 A. In the 17 -- in the 17 account.25 Q. Right. On the house 17 side?

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1 A. Right, right.2 MS. FEIN: Okay. Now is a good time to3 take a break if that's okay with everyone.4 EXAMINATION5 BY MR. GOLDMAN:6 Q. I have two questions. They're quick7 questions. I don't know if the answers are long,8 but Ms. Chaitman asked you earlier on about9 confirmations on transactions.10 A. Yeah. What? Oh, I didn't know you were11 talking to me.12 Q. Ms. Chaitman asked you some questions about13 confirmations, whether you got confirmations.14 Sometimes you did get confirmations, sometimes you15 didn't --16 A. Yes.17 Q. -- at the time you were looking through all18 the transactions that occurred?19 A. Correct.20 Q. Was there a procedure or protocol in place21 to authenticate that the transactions actually22 occurred? This is prior to '92. Did you get23 something back from whoever you contracted to have24 the transaction performed?25 A. If it was -- if it was a -- if the

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1 transaction was handled through NSCC, if it was part2 of the C&S netting practice. I'm not sure that I3 understand the question.4 Q. Okay. How did -- how were you assured that5 the order, whether it was a purchase or a sale,6 actually occurred if you have it listed on your7 account that's your own internal records? How were8 you assured that the transaction actually occurred?9 A. That was handled, would have been handled10 by the what we call the P&S department, the purchase11 and sales department. And they would typically12 either get a confirmation or if it went through the13 clearing house, you know, and, again, depending upon14 if that was during the netting period or not, you15 would get what they call a balance order from the16 clearing corporation.17 It also -- also depends upon whether or not18 we had an automatic interface with the firm that was19 on the other side of the transaction.20 Q. But there was some procedure or protocol in21 place?22 A. Oh, yeah. Of course, yes.23 Q. And the second question I have, did you24 send your clients, customers, clients quarterly or25 monthly financial statements?

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1 A. They had --2 Q. Statements of transactions?3 A. Some clients got them quarterly and some4 clients got them monthly.5 Q. Okay.6 A. Depends upon whether they requested them,7 when they requested them.8 Q. And if there were short transactions that9 occurred for that particular client or customer, was10 it indicated on the statement that it was a short11 transaction?12 A. No.13 Q. Nothing. Just --14 A. No brokers indicated to the customer15 because the customer didn't care whether it was a16 short transaction or it was a long transaction.17 They didn't care whether the broker was short or18 whether he was long. They looked -- the ownership19 rights were the same. In other words, you were20 entitled to the dividend. You were entitled to a21 stock split or any action, corporate action.22 MR. GOLDMAN: Okay. Thanks.23 MR. KRATENSTEIN: Take a break?24 MS. DASARO: Yes, thanks.25 THE VIDEOGRAPHER: Going off the record.

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1 The time is 10:32.2 (A recess was taken.)3 THE VIDEOGRAPHER: Back on the record.4 This begins tape number two in the deposition of5 Bernard L. Madoff in Butner, North Carolina on6 November 9th, 2017. The time is 11:07.7 FURTHER EXAMINATION8 BY MS. FEIN:9 Q. Mr. Madoff, do you remember yesterday Mr.10 Kratenstein asked you about a list of banks where11 you performed clearing functions?12 A. Correct.13 Q. You provided us a list when we met with you14 in April and I can show it to you --15 A. Uh-huh.16 Q. -- if you want to see it, if it helps17 refresh your recollection about what those firms18 are.19 A. Right.20 Q. This just the testimony from April 26,21 2017.22 A. Uh-huh.23 Q. Do you see around line ten there's a list24 that includes Meadowbrook National Bank, Commercial25 Bank of North America, Irving Trust Company, Bank of

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1 New York, Bankers Trust, Manufacturers Hanover,2 Chase Manhattan, Marine Midland, Chemical Bank,3 JPMorgan Bank, Continental Illinois Bank and M&T4 Bank?5 A. Yeah.6 Q. Do you recall any firms -- scratch that.7 Do you see right below that in the testimony --8 well, actually, here. You listed what services9 those banks provided to you on the next page. And10 then you were asked do they have custodial accounts11 where you maintain securities for customers.12 Did this list of banks we just went13 through, did any of those have custodial accounts14 where securities were maintained for customers?15 A. Okay. What is the question?16 Q. The list of banks that we just reviewed --17 A. Right.18 Q. -- did any of those banks have custodial19 accounts where you maintained securities for20 customers?21 A. When you say did they have accounts they22 maintained for customers, they would have -- no.23 The answer would be that they would have usually one24 account for the firm. They wouldn't -- they25 wouldn't have -- they wouldn't identify them by

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1 customers. That was the same practice with DTC. In2 other words, there was -- I don't know what the3 terminology would be because my brain isn't working,4 but they would have one account. They wouldn't5 break it out by clients.6 Q. This question was and my question to you,7 did you have custodial accounts where you maintained8 securities for customers?9 A. Yes.10 Q. Okay. When you were asked -- so this11 deposition took place on April 26, 2017. You12 remember you were under oath for that deposition;13 right?14 A. Correct.15 Q. And the answer to the question you provided16 then --17 MR. GOLDMAN: Why don't you read it?18 MS. FEIN: Sure.19 MR. GOLDMAN: Thanks.20 MS. FEIN: Yeah.21 MR. KRATENSTEIN: Tell us where you are.22 I have it here, so --23 MS. FEIN: Okay, sure. I'm on page 33.24 MR. KRATENSTEIN: Yes.25 MS. FEIN: And the line is line six.

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1 MR. KRATENSTEIN: Thank you.2 Q. (By Ms. Fein) This right here. You were3 asked by Ms. Chaitman about this list of banks. Did4 they have custodial accounts where you maintained5 securities for customers. Your answer, not that I'm6 aware of, no. So I guess I'm trying to understand7 why your answer is different today?8 A. I'm not sure that it's different. When you9 say do I own -- when you're asking was I own --10 maintain a custodial account for a customer, it11 would be -- the answer would be yes. It depends12 upon the period you're talking about. The stock13 records would show -- the stock record would show14 the customers that we had securities for. That's on15 the stock record.16 That's the only record that we would17 maintain of that. And I would assume that the18 question you were asking when you say did we have --19 did the banks have custodial, the answer would be,20 you know, they wouldn't know who our customers were.21 They would just have -- they would just -- the firm22 is the customer.23 We don't tell the bank that these24 securities -- that these securities that we're25 clearing through you are for John Jones. No one

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1 does that. We don't identify that. And they don't2 -- for example, they don't -- they don't have a3 record of who the clients were. It's the same thing4 with DTC.5 Q. I understand that.6 A. Oh, okay.7 Q. I do understand that.8 A. That's the question. I'm not sure what9 your question was.10 Q. Okay. Well, my question is you --11 A. I don't think it's -- what I'm saying, I12 don't know that my response to Helen Chaitman is13 different than what I had made then. At least I14 don't see the difference.15 Q. Well, this refers to accounts you would16 have, your firm would have --17 A. Right.18 Q. -- where you maintain securities for19 customers.20 A. Right.21 Q. Not that they would be segregated22 necessarily.23 A. Oh.24 Q. Just that you maintain the securities for25 customers.

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1 A. Right.2 Q. And when you were asked in April the answer3 to that question was no, but it sounds like today4 your answer is different?5 MR. KRATENSTEIN: I object to the form of6 the question.7 MS. CHAITMAN: Yeah. I think what he was8 saying was I think the way the first -- the way my9 question was worded, he thought does he maintain at10 an institution account for Mrs. Jones and Mrs. Brown11 and --12 MS. FEIN: Okay. Your interpretation13 notwithstanding --14 MR. KRATENSTEIN: Just for the record,15 you're interpreting his testimony, too, so --16 MS. FEIN: I was just trying to read it17 and then understand what it said.18 Q. (By Ms. Fein) Okay. So is your testimony19 today that the banks that we listed -- actually, let20 me go back. That set of banks that we went over21 didn't include NatWest; right?22 A. What do you mean didn't include it?23 Q. So you listed 11 banks during your24 testimony that day. NatWest wasn't one of them;25 right? And the list is here.

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1 A. Because it would have been NatWest took2 over -- as I said, I believe I said in the other3 testimony earlier, these banks merged with each4 other. So, for example, Meadowbrook National Bank5 became NatWest at one point in time, you know.6 Q. Okay. So --7 A. NatWest would have been one of them.8 Again, this was -- I said pretty much covers it. I9 was giving a list of the banks that I had remembered10 that I was familiar with, but Meadowbrook National11 was merged with NatWest the same way that Chase12 Manhattan and Manufacturers became Chase Manhattan13 and then Chase Manhattan became JP Morgan.14 Q. Okay. I had thought National Bank of North15 America had merged with NatWest. Does that ring a16 bell for you?17 A. No. Nat -- oh, I don't know. I don't18 remember.19 Q. Okay, okay. Understood.20 A. I mean, my question was answered just that21 I had other facilities, clearing facilities through22 banks and brokerage firms. I didn't list them all.23 It was just that -- just saying that besides being a24 self-clearing firm, I also had arrangements and did,25 in fact, clear certain transactions through other

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1 entities.2 Q. So if you were clearing transactions3 through those other entities, you wouldn't be4 relying on your back office for the purposes of5 delivery of the securities or --6 A. Well, the back office would eventually --7 they would start with us, you know. Like we bought8 the stock, but we would give instructions to the9 counterparty, deliver the securities to this broker10 or this bank and so on and so on. It depends upon11 the transaction.12 I mean, we were the one that would actually13 buy the securities, but then again there were times14 that we would call them depending upon what it was.15 Like if it was a Treasury instrument, we would16 typically just call JPMorgan or Bank of New York and17 they would actually buy the transaction.18 Q. And did you say where would you be keeping19 track of --20 A. We would have an internal record of that21 somewhere at the firm.22 Q. Okay.23 A. Whether -- and, again, it depends upon at24 what stage it was and what our ordination was and25 what the bank's -- we had direct interfaces with

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1 some of these banks and brokerage firms the same way2 that we had -- that we had direct interfaces with3 NCC and DTC and so on and so forth.4 Q. Okay. So your -- for the period of time5 let's say the 1980s --6 A. Uh-huh.7 Q. -- it's your testimony those transactions8 were taking place in the market; right?9 A. Yeah.10 Q. They were taking place within your house11 five business; is that right?12 A. It depends upon who would -- who we were13 acting for. If it was -- and whether it was just a14 transaction coming out of the inventory account of15 the firm, you know, out of the -- and we had any16 number -- we had different trading accounts17 depending upon the strategy and who was handling it.18 So there was internal records somewhere in the firm.19 I mean, obviously, you know, we had to have20 some record, you know, and to be able to track it.21 And then there was the stock record which showed22 the -- usually the global picture but, again, you23 can have any number of stock records.24 Q. Okay. The trades shown on your convertible25 arb customer statements in the '80s --

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1 A. Right.2 Q. -- would have -- so tell me, you're saying3 there's more than one place that those trades could4 have originated?5 A. Correct.6 Q. Is there more than one place that those7 trades would have been cleared through?8 A. Yes. Again, depends upon whether the9 entity or the bank was also a market maker in the10 security depending upon where they were located and11 so on. So, in other words, the bank -- these banks12 and other brokerage firms like a Bear Stearns or a13 low roads, they're also, you know, competitors of14 ours. In other words, they're also doing the same15 thing that we're doing.16 And there are any number of ways that you17 do a -- that you can buy or sell transactions. You18 can actually go out into the market -- into the19 street to buy the security.20 We might do a swap with a particular firm,21 which is -- I don't want to bore you with all the22 details, but the same way that when you're doing a23 convertible transaction trade, you can rather than24 put the bond into conversion to convert it into25 stock, which would eventually have to go to -- if

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1 you did that, you would have to put it through2 whoever the -- whoever was the conversion agent, you3 know, for that particular security. You could also4 go to -- we would -- we could go to another broker,5 another market maker and swap, in other words, swap6 our bond for stock, you know, that it was7 convertible into because then they may be doing the8 opposite side of the transaction that we do.9 These are things that in the Dubinsky10 report he seemed to be totally unaware of. Like he11 made statements, well, I contacted the conversion12 agent of the particular security that we -- the bond13 and they didn't have any agreement in place with14 Madoff as if that was the only way that you could15 exchange.16 The idea is when you're doing a convertible17 trade if you do it depending upon, again, what the18 strategy you're using, if it's strictly to buy the19 bond for the client and then sell the common stock,20 you know, short, you know, against that, and then21 you're going to -- you either convert it physically22 by sending it to the conversion agent or you can, in23 fact, go ahead and exchange with another market24 maker in that particular bond and say okay, look, I25 want to -- I'll exchange my bond.

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1 He may want the bond and he's willing to2 give me stock for it and then you do a stock swap.3 And when I say short, you know, you're talking about4 it's like a short exempt transaction. In other5 words, I'm selling stock, you know, that -- which is6 short, which I don't have the stock at the time but7 I have a bond at the time.8 Q. So are you saying that where your various9 bonds and securities cleared would be dependent on10 the type of bond or security in part, right, because11 some places wouldn't clear certain --12 A. Right.13 Q. -- certain bonds or certain securities?14 A. Well, any bank would -- any bank would15 clear any transaction that you do, but depending16 upon what you want to do. If I was looking to17 convert the bond into common stock, which means I'm18 going to exchange the bond position, then the bank19 itself might have -- you know, if they're a market20 maker they might be willing to say okay, look,21 Madoff wants to convert -- he wants to exchange the22 bond for stock.23 You know, we'll give him the stock --24 they'll give me the stock from their inventory to25 satisfy what I'm asking him to do and take the bond

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1 into their inventory. Did I lose you or not?2 MS. FEIN: Okay. No. So we looked at an3 exhibit yesterday, maybe also today. Maybe it's in4 this other pile.5 MR. KRATENSTEIN: What number are you6 looking for?7 MS. FEIN: I'm looking for 39. It's in8 that other pile. I wanted to look at one document9 that we looked at yesterday, but I don't see it.10 Thank you.11 MR. KRATENSTEIN: You want 39?12 MS. FEIN: Yeah. Didn't see it there.13 (Discussion off the record.)14 Q. (By Ms. Fein) So looking at this15 Exhibit 39 that we reviewed yesterday, thank you, do16 you see -- this looks like a customer statement,17 right, for the most part other than the client?18 A. Right.19 Q. This format I should say.20 A. Uh-huh.21 Q. Do you see where it says balance forward,22 $75,892,366.08? There's a debit balance listed?23 A. Right.24 Q. Do you know why there would be a debit25 balance on this report?

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1 MS. CHAITMAN: I'm sorry. Show me where2 you are.3 MS. FEIN: Just the first line of Exhibit4 39, yeah.5 MS. CHAITMAN: The debit, I see.6 MS. FEIN: Yeah.7 THE WITNESS: It might be, I'm assuming it8 arose from activity that occurred in that account.9 Q. (By Ms. Fein) Okay. That would mean that10 the bank had owed you 75 million and change; right?11 A. Based upon deliveries, what was taking12 place in the account. See, this -- these securities13 would have been -- these received and delivered14 would have monies attached to it and all, which15 doesn't show on the statement but it would be on16 another, another statement depending on what was --17 what was flowing through. Obviously, it represents,18 you know, the debits and credits that were involved19 in these transactions.20 MS. FEIN: Okay.21 MR. KRATENSTEIN: I mean, if you look at22 later -- if I could, if you look at later pages23 there are debit and credit numbers listed on some of24 the pages.25 MS. FEIN: I do see that, yes.

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1 MR. KRATENSTEIN: Okay.2 MS. FEIN: Thank you.3 Q. (By Ms. Fein) At the end of the report if4 you look at the page ending in 69, do you see where5 security positions is listed?6 A. Uh-huh.7 Q. And then there are a number of positions8 that follow from that?9 A. Correct.10 Q. A couple of pages later, it's the last page11 of the document, it says end of positions?12 A. Right.13 Q. And there's a long and a short and a14 difference?15 A. Uh-huh.16 Q. Would this list of security positions be17 the securities that were listed in this account at18 the time?19 MS. CHAIRMAN: Objection to form.20 THE WITNESS: I'm not sure I understand.21 Q. (By Ms. Fein) Well, my question is --22 A. Yeah. I see this.23 Q. -- typically at the bottom of your customer24 statements and similar statements you would have25 security positions and then you would have the

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1 securities or other bonds that would be --2 A. Right.3 Q. -- listed in your account. Does that4 appear to be true here as well?5 A. I'm not sure whether this represents market6 value of the securities or whether it represents a7 customer statement. Our customer statements8 reflected balances from the buying and the selling9 and then there's a market value of the securities in10 the account if you looked on the statement. I don't11 know what -- I don't know what this represents.12 Q. Okay. Because there's like -- there are13 two different balances listed, so I was trying to14 figure out why they were different. If you look at15 new balance, which is at the end of this activity,16 you see $78,544,284.62?17 A. Uh-huh.18 Q. And then --19 MS. CHAITMAN: I'm sorry. Which page is20 that?21 MS. FEIN: Oh, on page 869.22 MS. CHAITMAN: 869.23 Q. (By Ms. Fein) Right before you get to the24 security positions listed. And then at the end of25 the report, the end of positions, those figures are

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1 different, right, on the last page for the security2 positions?3 A. It would -- it would seem to me that this4 is -- one of them is representing, this typically5 would be representing what the market, the current6 market of these positions were.7 Q. Okay. That's your understanding of why8 they're different?9 A. I'm assuming. Typically on a customer10 statement you would have the opening balance, like11 you would have the opening balance and closing12 balance is for the actual money flows out of the13 account. And then at the end of -- the end of the14 statement it shows what the open and long and short15 positions are and what the current market value of16 those are on a mark-to-market basis.17 Q. Okay.18 A. I mean, you can figure it out by adding up19 what -- by just doing the math and adding up if it20 tells you, for example, if it's showing you --21 whether or not it's showing you, you know, prices of22 the securities.23 Q. Uh-huh.24 A. At least that's the way the customer25 statement normally occurs.

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1 Q. Okay.2 A. I'm not familiar with what -- necessarily3 how the clearing accounts are handled on our books4 and records.5 Q. Okay. But these security positions that6 are listed here, you see there are some long7 positions and some short positions listed starting8 on page 869 and then through the next couple of9 pages?10 A. Right.11 Q. Would that mean that National Bank of North12 America owned those -- owned -- the long positions13 would be securities owned by National Bank of North14 America?15 A. No, not owned. Being cleared through16 there.17 Q. So this document --18 A. It's not National Bank of North America.19 That's a client of ours. You know, we're not buying20 and selling the stock for National Bank of North21 America.22 Q. Okay.23 A. We're buying it for customers, transactions24 being cleared through that account.25 Q. Okay. So this is -- you're saying this

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1 document shows the clearing that --2 A. It's showing the activity that flowed3 through that account.4 Q. Okay. So they were not an IA customer of5 yours; right?6 A. No.7 MS. FEIN: Okay.8 MR. KRATENSTEIN: Thank you very much.9 (Trustee's Exhibit Number 16 was marked10 for identification.)11 Q. (By Ms. Fein) I'm marking as Exhibit 16 a12 document I'm about to hand to you that's being13 marked as Exhibit 16. Do you recognize what kind of14 document this is?15 A. It's a customer confirmation.16 Q. Do you see, can you read the trade date17 there?18 A. 1983, 11-11-83.19 Q. And the settlement date looks like20 11-18-83; is that right?21 A. Uh-huh, yes.22 Q. Under the security description would you23 agree that it's showing a preferred -- preferred24 convertible security?25 A. Right, yes.

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1 Q. And for the capacity code, do you see the2 number two?3 A. Yes.4 Q. And that -- those are trades where you're5 acting as principal; right?6 A. Correct, yes.7 MR. KRATENSTEIN: In other words, that's8 what the capacity code means, two equals principal?9 MS. FEIN: That's right.10 THE WITNESS: You have to look at the back11 of the confirmation to see that.12 Q. (By Ms. Fein) The customer listed is13 George Scheer Special. Do you see that information?14 A. Yes.15 Q. And where it says we sold, does it mean16 that your --17 A. Sold is from our principal account.18 Q. Okay. So where -- can you explain to me19 kind of how this trade would end up in your20 principal account before it got to the customer21 statement?22 A. We are selling the stock. Typically on an23 agency transaction it would say -- it would refer to24 what the customer bought and sold. This would have25 confused Dubinsky.

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1 Q. I'm not confused about that point. Let me2 back up.3 A. Okay.4 Q. My only question is would this -- where5 would this trade have originated on the market?6 A. Well, to begin --7 Q. Like who would have been the trader in your8 business or elsewhere?9 A. I don't know who the trader could have10 been. Typically it depends upon the transaction.11 The transaction could have been we a had bought the12 stock first, you know. We could have had it in13 inventory, which would have appeared in one of the14 firm's trading accounts or in our investment15 account. And then we would sell it from a trading16 account or investment account to the client as17 principal.18 Q. Okay.19 A. That's -- it could be any number of -- or20 we can go out and buy it into this -- buy it from21 the street, you know, and then it flows from Goldman22 Sachs, who's a market maker, you know, selling it to23 us. And I could originate the trade, according if24 Goldman Sachs's market making department, and buy25 the stock.

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1 So it goes from step one, from Goldman,2 who's selling it as principal to Madoff, who's3 buying it as principal, and Madoff in turn is4 selling it from my principal account to the customer5 account.6 (Trustee's Exhibit Number 17 was marked7 for identification.)8 Q. (By Ms. Fein) Okay. I'm going to mark or9 I'm going to show you what's been marked as10 Trustee's 17.11 MS. DASARO: I just want to make sure.12 MR. KRATENSTEIN: Thank you.13 MS. CHAITMAN: Thank you.14 Q. (By Ms. Fein) Is this another one of the15 stock record documents that your firm maintained?16 A. Yes.17 Q. And would this be for house 17, your IA18 customers?19 A. I can't read the --20 Q. Look at the --21 MS. CHAITMAN: Page 63, 11-30-63? Is that22 the date?23 MS. FEIN: No. If you look at the -- it's24 '83, yes.25 THE WITNESS: This is house 17. This is

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1 house 17, so --2 Q. (By Ms. Fein) Okay. Here, just to be3 clear, will you read the title of the document4 starting with the house 17?5 A. Stock record summary through 11-10-83.6 Q. Okay.7 A. Or 11-30-83. I can't read it.8 Q. Okay. Yeah. I think it's 11-30.9 A. Yeah, 11-30-83.10 Q. Okay. For your IA customers were these11 typically run at month end?12 A. Yes.13 Q. These type of reports?14 A. I'm assuming if it says through 11-30-83,15 that would be the month end.16 Q. For this report; right?17 A. For this report.18 Q. I'm asking you if you know more generally19 if for house 17 these reports were typically run at20 the end of the month?21 A. I assume so, but I can't be sure.22 Q. Okay. I'm going to show you a different23 page, page 750. And if you look toward the bottom24 of the page --25 A. Uh-huh.

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1 Q. -- do you see a transaction in -- I'm2 sorry -- in the middle of the page in International3 Harvester?4 A. Yes.5 Q. Okay. I'd like you to look again on this6 page.7 A. Uh-huh.8 Q. The International Harvester transaction.9 A. Right.10 MS. CHAITMAN: Is this 750?11 MS. FEIN: This is 750, yes.12 MS. CHAITMAN: Okay.13 Q. (By Ms. Fein) Preferred series A14 convertible, $3?15 A. Uh-huh.16 Q. Do you see that transaction?17 A. Right.18 Q. If you look about six lines up from the19 bottom, there is the customer that we looked at,20 George Scheer Special. Do you see that?21 A. Right.22 Q. Actually, look down here. I know it's23 listed a couple of different places, but I'm24 referring to the one right down at the bottom.25 A. I see. Okay.

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1 Q. Six lines up. Okay. Do you see the amount2 for this looks like 13,388 --3 A. Right.4 Q. -- long?5 A. Uh-huh.6 Q. And the trade date is 11-18-83?7 A. Uh-huh.8 Q. If you look at what's been marked as9 Exhibit 16, would you agree that this trade shown on10 the first page of Exhibit 16 is also 13,388 shares11 for George Scheer Special?12 A. Right.13 Q. The security description is the same;14 right?15 A. Uh-huh.16 Q. Okay. So do you think this is -- do you17 think that the amount shown on Exhibit 17, the18 transaction shown on Exhibit 17 for George Scheer is19 the same as the one shown on Exhibit 16?20 A. I want to make sure I can find it.21 Q. Sure.22 A. 13,388. The shares seems to be the same.23 Q. And this --24 A. And the monies.25 Q. -- date listed looks like November 18th,

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1 1983 --2 A. Right, okay.3 Q. -- is the settlement date. So does this4 transaction appear to match the -- the transaction5 in Exhibit 16 appear to march the report in6 Exhibit 17?7 A. The shares match. I don't see monies.8 Q. Right, no. I don't think that they put it9 on this report.10 A. Okay, right, right.11 Q. Okay. If you go to the next page of12 Exhibit 17, this is the end of that same13 transaction. Do you see who's on -- who's listed at14 the bottom of the page?15 A. Correct.16 Q. What entity is listed?17 A. National Westminster Bank. Is that what18 it's saying?19 Q. Yes. What's your understanding of how20 National Westminster Bank was related to this trade?21 A. I'm assuming the trade must have cleared22 through the bank.23 Q. Okay. Do you see the account number?24 There's two entries and two account numbers for25 National Westminster Bank that are listed at the

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1 bottom of the transaction?2 A. Right.3 Q. The account number for the first reads4 299000010 and the second, 6000020. Do you see that?5 A. Uh-huh.6 Q. Do you know why there would be two entries7 here for National Westminster Bank?8 A. I don't have a clue.9 Q. Okay.10 A. They must have two different types of trade11 clearing accounts that can handle it.12 Q. Okay. So we know how we had discussed13 whether this would be a month-end report. The14 transaction that we're looking at is dated15 November 18th and this report is dated16 November 30th.17 And there are many other transactions18 listed on here, but do you think that that would19 mean it would encompass at least more than just the20 day, November 30th? At least it has other days of21 the month that are also listed here?22 MS. CHAITMAN: Objection.23 Q. (By Ms. Chaitman) Other transactions?24 A. I'm not sure.25 Q. Okay. That's fine. I don't know if you

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1 thought it was most certainly a month-end report2 based on that, but the transactions listed on this3 stock record summary, if you look at other4 transactions on the page, they also have National5 Westminster Bank USA --6 A. Uh-huh.7 Q. -- listed underneath each security.8 A. Okay.9 Q. Would it be typical that all the10 transactions would have the same clearing bank for11 all the transactions that would be listed on a12 single for every customer account?13 A. Could be. It depends upon -- you know, the14 answer is I have no idea why we would choose one15 bank or the other. Again, it depends upon, you16 know, any number of things. I don't know. It's not17 something that I would be familiar with.18 Q. Right. We went over a number of banks19 earlier, though, and this report only lists one. So20 I was just trying to understand why it might be that21 there's only one listed?22 A. That could be -- I don't know. I mean, it23 could be typically, you know, why they use one24 particular bank or clearing agent or broker depends25 upon the fee structure, depends upon whether they

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1 were a market maker also in that, depends upon -- I2 don't know the answer to that question.3 Q. Okay. That's fine. The transaction we4 were looking at in Exhibit 16 was a transaction you5 did as principal; right?6 A. Mostly all of ours were principal, right.7 Q. So if National Westminster was shown as the8 clearing firm --9 A. Right.10 Q. -- would that mean National Westminster --11 it wouldn't mean National Westminster was the12 counterparty to the transaction; right?13 A. No.14 Q. Okay.15 A. I mean, it theoretically could be, but I16 don't know. Again, they may have been a market17 maker. They may have been a -- I don't know the18 answer to that.19 Q. You were a self-clearing firm; right?20 A. Correct.21 Q. So I guess I'm trying to understand why all22 the transactions that are shown on the report would23 have not cleared through you or wouldn't have24 gone --25 A. Because they're not going to -- because

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1 they're not going to -- we don't convert ourselves.2 In other words, we don't handle the conversion of3 the security. We don't handle the delivering the4 bond to the clearing agent to actually exchange it5 for stock. In other words, that -- we don't have an6 arrangement with -- with the conversion agent to7 actually do that.8 MS. FEIN: Okay, okay. We can move on.9 I'm going to show you two documents, Trustee's 18,10 Trustee's 19.11 (Trustee's Exhibit Numbers 18 and 19 were12 marked for identification.)13 MR. KRATENSTEIN: Just want to make sure I14 get these right. So which is 18? Ends in 393?15 MS. FEIN: That's correct, yes.16 MR. KRATENSTEIN: Eighteen is 393?17 MS. FEIN: That's right. Here, let me get18 this out of your way.19 Q. (By Ms. Fein) Do you recognize?20 A. Not really. It says -- it says cash and21 securities blotter. Is that what --22 Q. Uh-huh.23 A. Right.24 Q. Are you looking at Exhibit 18 then?25 A. Yes.

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1 Q. Okay. Both documents show roll number and2 then contents and then documents at the top of the3 page. Do you see that?4 A. Uh-huh.5 Q. Okay. If you look at Exhibit 19, do you6 see -- can you turn the -- look at the second page7 of it ending in 396. Can you read the note at the8 bottom of the page, the handwritten note?9 A. Do not microfilm trading blotters?10 Q. Yeah. And the line right above it.11 A. As per BLM.12 Q. Okay. Do you -- does BLM refer to you?13 A. I would assume so.14 Q. Do you know whose handwriting this is?15 A. No.16 Q. If you go back to Exhibit 18, other page --17 A. Uh-huh.18 Q. -- do you see at the bottom of the page19 where it says shred the Xs only --20 A. Okay.21 Q. -- the handwritten note? Do you know whose22 handwriting that is?23 A. No.24 Q. Do you know why you would shred cash and25 securities blotters during this time period?

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1 MR. KRATENSTEIN: Object to form.2 THE WITNESS: No.3 MS. FEIN: Okay.4 THE WITNESS: I don't even know what they5 were used for.6 Q. (By Ms. Fein) Okay. I'm going to ask a7 couple of questions about the Sage accounts. Paul8 Koenigsberg was an accountant; right?9 A. Yes.10 Q. And he -- we looked at some letters where11 it appeared that he did work for the Sages; right?12 A. I'm assuming he did. I said I don't know13 whether Paul --14 Q. Right.15 A. Was Paul Koenigsberg or could have been16 Paul somebody else.17 Q. Okay. Was Paul Koenigsberg an accountant18 for other BLMIS customers?19 A. Yes.20 Q. Was he an accountant for Carl Shapiro?21 A. Yes.22 Q. Was he an accountant for Norman Levy?23 A. At one -- he was an accountant for them,24 for Norman Levy in the later years.25 Q. Okay.

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1 A. And same thing with -- who's the other one2 you asked?3 Q. Carl Shapiro.4 A. Carl Shapiro, Norman Levy, yes. Their5 accountants had died, so they switched over. And6 then in -- Shapiro moved from Price Waterhouse to --7 because the partner that handled Price Waterhouse8 moved to London. So he took Paul Koenigsberg on as9 an accountant. And Levy's accountant died and he10 moved over to Paul Koenigsberg.11 Q. Did Carl Shapiro and Norman Levy have short12 against the box accounts with you?13 A. Yes.14 Q. Did Annette handle some of the15 correspondence and other activity related to those16 accounts?17 A. Yes.18 Q. Were Carl Shapiro and Norman Levy two of19 the customers you identified as having backdated20 transactions in their accounts before 1992?21 A. Well, let me make sure you understand22 backdating accounts because backdating accounts23 occur in a number of ways. One of them was -- well,24 there's a -- backdating accounts can refer to an as25 of transaction. As a market making firm, it's a

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1 very common occurrence to have to adjust both a2 price and a date on a confirmation based upon3 typically an error that is being made by the market4 making firm or the originating firm, meaning like5 Schwab. Schwab gives us an order to buy and sell6 stock from a particular customer.7 And either Schwab makes an error or his8 customer makes an error as to doing the trade on the9 wrong day or the wrong time or the price. And then10 there's usually a discussion that takes place11 between both parties. And then a decision is made12 to put the trade back to a certain date and that's13 what it refers to as an as of transaction.14 So you're adjusting it and the error might15 be -- might be the market maker or it might be the16 originating broker who gave us the order. That's17 one. Then there is the backdating trade where there18 is a dispute between the customer and myself.19 And then, of course, there's the totally20 illegal transaction of backdating a transaction,21 which is what -- what the -- I don't know whether it22 was Dubinsky or Picard that happened, but I had23 explained backdating trades to -- in the past. And24 I don't know. You'd have to -- it depends upon25 which transaction.

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1 Q. Okay.2 A. But a backdating trade in itself doesn't on3 the face of it because you are backdating a trade by4 adjusting a price or the date, but it doesn't5 necessarily on the face mean it's an illegal trade.6 Q. No, and I didn't ask that.7 A. Okay.8 Q. I was actually just asking about if Carl9 Shapiro and Norman Levy were two of the customers10 that had those transactions?11 A. Yes, yes.12 MS. FEIN: Okay. That was my question.13 MR. KRATENSTEIN: I'm going to object to14 the form of that question.15 Q. (By Ms. Fein) Okay. You testified about a16 meeting with members of the Sage family yesterday?17 A. Yes.18 Q. How many meetings do you remember with19 them?20 A. A number of meetings, you know. As to how21 many, I don't know. It depends upon -- you know, I22 remember, you know, the meeting where they wanted to23 change the strategy, where they wanted to make the24 decisions themselves. That happened. That was one25 meeting I remember because it was a meeting that

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1 there was a lot of discussions whether it was the2 right thing to do, but they wanted to do it --3 Q. Okay.4 A. -- because of tax break. And then there5 were other meetings that they came up just because6 they were in the area. And the family was -- I7 mean, I was friendly with the mother and the family,8 so they felt free to come up. And also they said9 that they came up to visit with Annette depending10 upon -- they were not necessarily unique. And then11 they would come and visit me to say hello.12 Q. Okay. And did you have a good sense of13 when that meeting took place, the one you testified14 about directed trading?15 A. I was trying to think of that, you know,16 myself. I don't remember. There was -- there were17 meetings and I know as recently as the 2000s.18 And then there certainly must have been19 meetings prior to that depending upon -- you can see20 yourself depending upon when it started,21 transactions changed when it went from a convertible22 bond arbitrage account to a split strike account and23 then to an account where they were just doing tax24 planning and changed the style of trade they wanted25 to do.

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1 Q. Okay. But I guess you're saying then2 before that meeting you wouldn't have taken trade3 direction from the Sages; right?4 MR. KRATENSTEIN: Object to form. Go5 ahead.6 THE WITNESS: Depends upon whether the7 father was alive and he was running the account with8 me or -- I mean, they were accountants, the family,9 for a very long period of time.10 Q. (By Ms. Chaitman) Okay. But it wasn't11 your typical practice to take trade direction;12 right?13 A. That's correct.14 Q. Okay. That was my -- what I was trying to15 get at. Okay. I'd like you to take a look at a16 document we reviewed yesterday, Exhibit 85.17 MR. KRATENSTEIN: Hang on a minute.18 MS. FEIN: Oh, sure.19 MR. KRATENSTEIN: Okay. Go ahead.20 Q. (By Ms. Fein) In the second paragraph we21 went over some language yesterday and I'd like to22 ask you about one sentence, but let's look a little23 earlier. Do you see this sentence says as of the24 last statements we received in March the accounts25 were a little off of the usual benchmark?

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1 A. Correct.2 Q. Can you read the next two sentences after3 that?4 A. I can't find them.5 Q. Oh, so the next one would be since then our6 main holding, eBay, has dropped significantly.7 A. Right, okay. I see it.8 Q. And then the next, as that holding is a9 long-term one, I was hoping you had shorted it10 against the box a while back. Do you see that?11 A. Yes, uh-huh.12 Q. That statement is in the past tense; right?13 A. I was hoping you had shorted it against the14 box, okay.15 Q. It's referring to something that would have16 happened before you got this letter; right?17 MR. KRATENSTEIN: Objection to the form of18 the question.19 THE WITNESS: Yes. I think what they're20 referring to is sometimes even if I had felt that21 they should have been sold regardless of what they22 had -- they were doing tax planning, obviously,23 shorting against the box to adjust whether they were24 going to get long-term gain, short-term gains and so25 on and depending upon when you closed out the

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1 transaction, in other words, covered the short, that2 would trigger a tax event. So if, in fact -- again,3 I'm assuming because this -- you know, if, in fact,4 they originally wanted to keep the trade open but5 then there was a market event that happened, you6 know, then I felt that it wasn't -- it didn't make7 any sense to worry about the tax treatment because8 if they -- if I didn't go short against the box, the9 stock was going to go down, I would pay no attention10 to it.11 Q. Right.12 A. Technically a client could call me up and13 say to me, which did happen at the time, well, you14 shouldn't have -- you should have followed my15 instructions even though you would have lost money16 for me to do that. That's not an unusual situation.17 So I don't remember what happened here, but that's18 probably what happened.19 Q. Okay. All right. So we can look at20 Exhibit 69.21 A. Uh-huh.22 Q. This is another of the letters we reviewed23 yesterday; right?24 A. Right.25 Q. Do you see -- it's a long sentence, but the

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1 last sentence of the first paragraph, with respect2 to other positions in these accounts please note3 that Pharmacia will become long-term this January.4 Do you see that sentence?5 A. Yes.6 Q. And then do you see just under that unless7 you deem that these stocks must be shorted prior to8 these dates due to various considerations, it would9 be to our tax benefit that these positions not be10 shorted?11 A. Right.12 Q. That's not a direction to you about what to13 do with the trade; right?14 MR. KRATENSTEIN: Object to form.15 Q. (By Ms. Fein) In other words, this is left16 in your discretion; correct?17 MR. KRATENSTEIN: Object to the form.18 THE WITNESS: I assume that's what they're19 saying, right.20 Q. (By Ms. Fein) Okay. I just want to look21 at two of the documents we went through. These22 exhibits, Exhibits 70 and 72, were looked at in23 connection with this same letter. And on Exhibit 7024 do you see an R. J. Reynolds Tobacco HLDS?25 A. Right.

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1 Q. Okay. And what date is that transaction?2 A. January 13th.3 Q. And it's 9,000 shares purchased?4 A. Yes.5 MR. KRATENSTEIN: What year was that?6 THE WITNESS: '03.7 Q. (By Ms. Fein) Okay. And do you see the8 account number listed, 1S004-7?9 A. Yes.10 Q. Okay. And you were shown the trade11 confirmation in Exhibit 72 in connection with this12 customer statement?13 A. Right, uh-huh.14 Q. What's the date of the trade indicated on15 this confirmation on the first page?16 A. 12-12-03.17 Q. And what's the date indicated on the second18 page of the confirmation?19 A. 8-28-03.20 Q. Okay. Can you see either of those trades21 on the customer statement that we reviewed in22 Exhibit 70, any of the -- either of those trade23 dates?24 A. I see that Reynolds has a trade date of25 January 13th.

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1 Q. Okay. So no?2 A. And what's the other one? Broadcom?3 Q. Yeah. No. We're just looking at the RJR4 Reynolds trade.5 A. Okay.6 Q. If you look on the trade confirmation,7 Exhibit 72, do you see the account number is8 1S0004-3?9 A. On this, yes.10 Q. So this is a different account?11 A. Uh-huh.12 Q. These confirmations pertain to a different13 account and a different time frame; right?14 A. Right.15 Q. They're not the ones that are shown on the16 statement in Exhibit 70; right? And take your time.17 A. Okay.18 Q. Do you agree?19 A. The statement is -- it says -- I'm not --20 you lost me.21 Q. So the statement is for accounts ending in22 dash seven; right?23 A. Right.24 Q. But the confirmations are for an account25 ending in dash three; right?

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1 A. Correct.2 Q. And the trade date shown on Exhibit 72 is3 December 12th, 2003?4 A. Uh-huh.5 Q. And August 28th, 2003?6 A. Uh-huh.7 Q. But the customer statement that was shown8 is for January 2003; right?9 A. Right.10 Q. Okay. So these transactions don't match11 the statement in the confirm; right?12 A. You know, to tell you the truth, you've13 sort of lost me on this whole thing.14 Q. Okay.15 A. I'm assuming if you told me they don't16 match, they don't match.17 Q. Well, the dates are different and the trade18 -- the number of the trade is different and the19 accounts are different right?20 A. Okay. All right.21 Q. Okay. Well, I'm asking you.22 A. Ask me what?23 Q. I'm asking you do you agree that the trade24 dates are different?25 A. Yes, yes.

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1 Q. The amounts are different?2 A. Yes.3 Q. And the accounts are different?4 A. Yes.5 Q. Okay. You mentioned earlier today meeting,6 a proffer meeting with the United States Attorney's7 Office. Do you remember that reference?8 A. Yes.9 Q. Okay. Do you recall when that meeting took10 place?11 A. There were two meetings with the U.S.12 Attorney. One was the proffer agreement, which was,13 I think, I believe the first meeting. That took14 place down at the U.S. Attorney's office, which was15 made shortly after my arrest. Then there was a16 second meeting that took place in my apartment where17 the U.S. Attorney was not present.18 He was on a speakerphone. And that19 included a whole length of proffer agreement20 meeting. There were all sorts of people there in my21 apartment.22 Q. Do you remember did the meeting take place23 in a conference room in the United States Attorney's24 office, the December meeting?25 A. Yes, yes.

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1 Q. Do you remember how long it was?2 A. A long time. Started in the morning and3 went through lunch.4 Q. Okay. I'm going to mark -- I'm going to5 show you what's been marked as Exhibit --6 MR. KRATENSTEIN: What number?7 MS. FEIN: 20.8 MS. CHAITMAN: Do you have a copy for9 Peter?10 MS. FEIN: Yeah.11 (Trustee's Exhibit Number 20 was marked12 for identification.)13 Q. (By Ms. Chaitman) If you look at the14 bottom of the first page there's a date listed,15 investigation on 12-16-2008, the bottom of the first16 page?17 A. Yes.18 Q. Does that sound about right when the19 meeting took place that you remember?20 A. Yes.21 Q. Okay. So this would be the same week, a22 few days after you confessed; right?23 A. Correct.24 Q. We're just going to take a look at a couple25 of individual statements here.

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1 MS. CHAITMAN: I just want to put on the2 record that I object to any questioning about this3 document because, number one, it's obviously4 inadmissible for good reasons. Number two, it's5 redacted more than it's not redacted and it's6 impossible to know what -- obviously, we have no7 idea what's said in the redacted sections.8 And I think for you to ask Mr. Madoff9 about something that hasn't been redacted, assuming10 this is even a legitimate document -- for example,11 I'm sure that you're going to ask him about what12 hasn't been redacted on page three, but it may be13 that in the blacked out part underneath it, it14 contradicts what's said and what's there.15 MS. FEIN: Understood. If we had the16 full, unredacted document, that would be our17 preference as well.18 MS. CHAITMAN: Right, but I think any19 questioning about this document is a waste of time20 because it's --21 MS. FEIN: I understand your objection.22 MS. CHAITMAN: Okay.23 Q. (By Ms. Fein) If you turn to page seven of24 the document, the pages are marked at the top.25 A. Okay.

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1 Q. Do you see the first sentence?2 A. When Madoff began a retail business in 193 -- yes.4 Q. Uh-huh. Do you agree with that statement?5 A. Yes.6 MS. FEIN: Okay.7 MR. GOLDMAN: Read that question back?8 Q. (By Ms. Fein) Sure. The first statement,9 Madoff began a retail business in about 1960. He10 had about a dozen clients, all of whom were family11 and friends. Do you agree with the statement?12 MR. GOLDMAN: Well, I'm going to object to13 it. It says it morphed into a fraud.14 MS. FEIN: I didn't -- I didn't ask about15 that sentence.16 MR. KRATENSTEIN: First sentence, just17 first sentence.18 MR. GOLDMAN: Oh, I'm sorry.19 MS. FEIN: I only asked about the first20 sentence. Sorry.21 MR. KRATENSTEIN: Do you want to reask the22 question if he agrees with that sentence, the first23 sentence?24 Q. (By Ms. Fein) Sure. Mr. Madoff, do you25 agree to the first sentence on page seven, that that

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1 is an accurate reflection of your business?2 A. Madoff began a retail business in about3 1960.4 Q. Yes.5 A. He had about a dozen clients, all of whom6 were family and friends, yes.7 Q. Do you recall making that statement at your8 proffer meeting?9 A. Yes.10 Q. The next sentence after that, can you read11 that?12 MR. GOLDMAN: That's what I'm going to13 object to. You know, this is a memorialization of14 what someone thinks they heard. We don't know who15 wrote it; okay? There are certain characterizations16 in here such as that which are his conclusions or17 her conclusions, whoever wrote it. And I think it's18 unfair to ask him.19 If there's something in here that you want20 to ask him whether he actually said something, I21 don't have an objection to that. And if you could22 point to where he said it in the report, that's23 fine; but I'm going to object to these24 characterizations and then asking him whether those25 are correct or not.

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1 MS. FEIN: I understand.2 MR. GOLDMAN: Okay.3 MS. FEIN: I understand. I'm going to ask4 about the statements that are here.5 MR. GOLDMAN: Okay.6 Q. (By Ms. Fein) And I just want to really7 know if you recall making the statements at the8 meeting?9 MR. GOLDMAN: I want to make sure, though,10 when you ask him did he make the statement and if11 he -- I don't want -- what I object to is the12 characterization that he's made the statement. I13 haven't seen quotation marks anywhere in here that14 Mr. Madoff said this.15 MS. FEIN: Right.16 MR. GOLDMAN: If you can point to that and17 ask him, that's fine, but the other -- asking him18 about someone else's conclusions I just think is19 inappropriate.20 MS. FEIN: Okay. Well, if I -- I don't21 plan to ask --22 MR. GOLDMAN: And he'll answer23 accordingly. Okay.24 MS. FEIN: -- much more about that. It's25 about whether he recalls making the statements that

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1 are here.2 MR. GOLDMAN: Okay.3 Q. (By Ms. Fein) So if you want to read the4 text on page seven. You don't have to read it out5 loud. You can read it to yourself, but I did want6 to ask. So the statement the retail business7 morphed into a fraud as time went by, do you recall8 making that statement at the proffer meeting?9 A. You're asking if I said in 1962 all the10 clients lost virtually their entire investment?11 Q. No. The sentence before that, the retail12 business morphed into a fraud as time went by.13 MR. GOLDMAN: Do you recall saying that?14 THE WITNESS: I don't remember saying15 that.16 MR. FEIN: Okay.17 MR. GOLDMAN: Okay. Let's go on.18 Q. (By Ms. Fein) Do you -- if you look down a19 bit on the page, so it refers to in 1962 Madoff's20 retail business was wiped out in the new issue21 collapse. And the following sentence, all his22 clients lost virtually their entire investment,23 which amounted to a total of $30,000. Madoff felt24 he had to pay them back, so he borrowed $30,000 from25 his father-in-law to do so. Do you recall making

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1 that statement?2 A. Yes.3 Q. His father-in-law was not pleased by this4 development. Madoff was able to pay all these5 clients back and start the market making business.6 Do you recall making that statement?7 A. Yes.8 Q. At about this time he took in new retail9 clients. These clients were also family and10 friends. Do you recall making that statement?11 A. Yes.12 Q. He began to falsely report returns of13 30 percent, 40 percent annual to these customers.14 Do you recall making that statement?15 A. Wait a minute. After this time he took in16 new retail clients. He had to falsely -- no. I did17 not say he had to falsely report returns of 30 to18 40 percent. Definitely didn't ever say that.19 Q. Okay. If you look at page four of the20 document, go back a couple of pages, my next21 questions are on page four.22 A. Okay. I'm still looking at that last23 question --24 Q. Sure.25 A. -- because I can't imagine having said

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1 that.2 Q. Okay.3 A. Where are we now?4 Q. Page four.5 A. So I have to go back?6 Q. Yes.7 A. Okay.8 Q. I think it's one more back. It's on the9 back, yep. There. The first sentence that is10 unredacted, the fraud entailed Madoff taking in11 funds from investors, holding those funds and paying12 them out to investors seeking redemptions. Do you13 recall making that statement?14 MS. CHAITMAN: I would suggest that you15 read through the whole unredacted portion, Bernie,16 before you respond.17 THE WITNESS: The fraud entailed Madoff18 taking in funds from investors, holding those funds19 and paying them out to investors seeking20 redemptions, essentially a Ponzi scheme.21 MR. GOLDMAN: See, the other part of the22 problem with that is that we don't have any dates.23 THE WITNESS: Yeah.24 MR. GOLDMAN: I don't know when the dates25 are.

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1 MS. FEIN: I'm just asking if he remembers2 making the statements. I can't make any. I was not3 involved in -- I was not -- yeah.4 MR. GOLDMAN: So I just think it's unfair5 ask him that question.6 MS. FEIN: I'm asking if he recalls the7 statements that are here and that's really it.8 MR. GOLDMAN: Okay, all right.9 THE WITNESS: Let's put it this way.10 Depending upon what period of time they were talking11 about, I could have made that statement because I'd12 made that statement a number of times since then;13 but I certainly was not talking about it, you know,14 in the early periods of time because I was very15 clear and forthright in everything I said at the16 proffer agreement and at the other meeting.17 And nothing has changed in my story. So I18 -- just the same reason I would not have mentioned19 anything about the 30 or 40 percent, I certainly20 could have said that, for example, in 1980s my21 clients were making 30 or 40 percent because that22 was what was common at that time when interest rates23 were 12 percent at that period of time.24 So I can tell you that referring to this25 proffer agreement, it was an absurdity. The

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1 questions that were asked by me, by people who I2 knew knew the answer, you know, and, you know, it3 was obvious that that they were trying to paint a4 picture that was not the case. And I'm still pissed5 off by it, quite frankly.6 Q. I'm going to ask you about a couple more7 questions.8 MR. GOLDMAN: Okay. Ask the question.9 Q. (By Ms. Fein) So the next sentence, you10 just read the first two sentences. The next11 sentence, customers received both monthly account12 statements and trade confirmations reflecting trades13 that never took place. Do you recall making that14 statement at the proffer meeting?15 A. No.16 Q. Madoff began engaging in fraud in earnest17 in the 1970s. The 1980s saw a large expansion in18 the retail, i.e., fraudulent portion of the19 business. Do you recall making that statement at20 the meeting?21 A. Let me go back and read it. I certainly22 never said that fraud took place in the '70s because23 it did not. In the 1980s there was a large24 expansion in the retail business and in the, i.e.,25 parentheses, fraudulent. I assume that's not my

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1 statement. That's the interpretation statement2 because why would they -- the fact that if I3 understand English properly, when someone says with4 parentheses, i.e., fraudulent, that's someone's5 interpretation of what he claims I said was6 fraudulent.7 Q. Okay.8 A. Which -- so I never said it was fraudulent.9 Q. I'm just asking about your recollection.10 Okay.11 A. My recollection was I explained what was12 happening in the business, but as far as the dates13 are concerned, you know, I do not recall ever saying14 that.15 Q. Okay. The next sentence, as there was no16 actual trading, nothing cleared through DTCC or any17 clearing firm and the only records of the purported18 trades are the paper confirmations. Do you recall19 saying that at the proffer meeting?20 A. No. I do not.21 Q. If you turn back one page to page three,22 the second paragraph on page three begins when23 Madoff first began the retail business. Do you see24 that sentence?25 A. Uh-huh.

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1 Q. Okay. The statement when Madoff first2 began the retail business he did initially engage in3 some actual trades. Soon, however, he began to4 engage in fraud as to the entire retail business.5 Do you recall making that statement?6 A. No. Again, I assume if I'm reading this7 correctly, this is somebody interpreting what I8 said.9 Q. Understood. Do you recall saying this at10 the proffer meeting, though? I'm not saying that11 it's verbatim. I'm asking if you recall discussing12 this?13 A. I remember discussing the fact the business14 was small and also that I started -- I started a15 retail business, discussing trade position, yes.16 Was paying ridiculously high returns, no. I never17 said that because they were not --18 Q. I'm only talking about the second19 paragraph. I'm not asking about the first20 paragraph.21 A. Okay. When Madoff first began the retail22 business, he initially engaged in some actual23 trades. Again, that's someone interpreting what I24 said. Began to engage in the fraud, no. Virtually25 the entire life of the retail business was simply

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1 not trade. No, I don't recall saying this.2 Q. Okay. And you were just reading the last3 sentence on page three that's unredacted, for4 virtually the entire life of the retail business?5 Is that what you were referring to?6 A. Not during -- not during an earlier period.7 I was referring -- if I was saying that, I was8 referring to post-'92 period.9 Q. When you say if I was saying that, you mean10 if you said --11 A. What I'm saying is that I never would have12 said, you know, anything other than what I always13 had said, that the fraud began in, you know, in the14 post-'90 period. So I don't know -- and I have a15 pretty good memory, so I do not remember saying16 anything like that.17 MR. GOLDMAN: Amanda, this is a18 memorialization of the proffer on the 16th? Is that19 what it is?20 MS. FEIN: Yes.21 MR. GOLDMAN: Okay.22 Q. (By Ms. Fein) You mentioned that it made23 you angry to think about this meeting somewhat;24 right?25 A. Excuse me?

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1 Q. You mentioned that it made you kind of2 angry to think about this meeting; right?3 MR. KRATENSTEIN: Object to form.4 THE WITNESS: I'm angry because there were5 interpretations here of what I said that were --6 were not true. I was very clear about what I said7 and I was very forthright what I said. I would have8 no reason to change that after the fact.9 And the -- the way this -- what happened10 at this meeting was a lot of the -- a lot of this11 was someone asking me questions like saying so this12 is what happened? And I had to go -- had to answer13 back and say no, this is -- that is not what14 happened. And they were asking me questions which15 to me sounded totally ridiculous.16 And as a matter of fact, I do remember17 specifically turning to the two SEC people were18 there who were very well aware of me and my business19 and I looked at them and said help me out here. I20 mean, do you really expect me to answer these21 questions, explain what is a short sale, what does a22 market maker do?23 And it was like, you know, a smoking gun24 type of thing. And yeah, I was pissed off at it25 because I knew, you know, that it made no sense.

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1 And they were embarrassed when I turned and asked2 them. I mean, for someone who was a senior person3 at the SEC to sit there, you know, looking very4 quiet and sheepish when Marc Litt, who knows nothing5 at all, who is the prosecutor, about the securities6 business or at least claimed not to know, you know,7 asked me what is a short sale, what does a market8 maker do? You know, so you sold stock to a customer9 that you didn't own?10 Q. (By Ms. Fein) So the SEC -- you're saying11 and the SEC people in the room knew you. They knew12 of your reputation?13 A. Of course. There was no one in the14 industry that didn't know me, you know, at that15 time. You know, so --16 Q. Yeah. Well, you had a very good reputation17 in the industry; right?18 A. Before I -- before this fiasco, yes, but it19 was in every aspect of the industry. So it was --20 it just -- it infuriated me when David went through21 this theater the other day. So did the SEC lie?22 Did the FBI lie he said? I said I didn't say that23 they lied. I said they misinterpreted, you know,24 what I said or maybe they just don't understand25 anything.

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1 Q. Well, the statements, I won't represent2 everything that we looked at, but you'll agree that3 some of the statements we looked at didn't say4 anything about market making certainly or short5 sales; right?6 MR. GOLDMAN: We don't know that because7 so much is redacted.8 MS. FEIN: I'm saying just the statements9 that we looked at.10 MS. CHAITMAN: But it's a meaningless11 question due to the fact that 90 percent of it is12 redacted.13 MS. FEIN: If you want to object to the14 question, you can object to the question.15 MR. KRATENSTEIN: Objection.16 THE WITNESS: Yes. I mean, to me this17 document is nothing. You know, it's just -- look,18 I've always felt that this -- you know, this whole19 thing, the GAO report -- not the GAO report. I had20 no problem with the GAO report. I had a problem21 with Dubinsky's report and Picard.22 Picard has made a whole series of23 statements which the GAO report, his own report24 proved totally, you know, false, like the firm used25 it as a piggy bank, that I never made any money, the

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1 firm was never profitable, you know. And he totally2 ignored his own expert witness, you know, Lubbe and3 Lozard. You know, I read -- talk about getting4 pissed off, that's how you get pissed off, making5 statements, you know, that were totally untrue6 that -- but look, I don't want to abuse you for7 that, but this -- there are things here that make no8 sense at all.9 And I have no reason -- I have no -- you10 know, I have no ax to grind. It's not like, you11 know, I'm not admitted of a fraud. I admitted to a12 fraud. I said that. So, you know, there's no13 reason for me to say things that were not the case14 because I've already been sentenced, totally15 unfairly because they're trying to make me the16 poster boy of Wall Street, which everyone is aware17 of; but the -- you know, there are certain -- well,18 it's not important.19 So yes, I am pissed off because they did20 enough -- I admitted to doing enough things that21 were totally embarrassing and wrong that I regret,22 obviously, but there gets to be a point where enough23 is enough because it's an insult to my intelligence,24 you know, for someone who's supposed to be an expert25 witness, you know, to not -- you know, to make

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1 statements that it looked -- on the face of it look2 ridiculous. And there were other expert witnesses3 of reports I've read who said that themselves that4 the Dubinsky report is preposterous or that the --5 Picard has made statements that are totally6 ridiculous.7 I can't believe that he has -- that he had8 the nerve to even say these things and then hold9 himself out as, you know, being a legitimate and10 honest, you know, person. I mean, for this whole11 idea with the short sale fiasco I've spoken to12 numerous attorneys that -- you know, SEC attorneys13 that have said what?14 Is he saying that a short sale is a15 fictitious transaction? It's not an honest16 transaction? You know, I'm considering starting a17 class action. And there are people that can turn18 around and say look, you know what?19 Anybody that lost money in a short sale in20 the market, had nothing to do with me, if they lost21 money in a short sale based upon his expert, you22 know, witnesses and himself say, well, that's not a23 legitimate transaction. So, therefore, I'll sue24 Charles Schwab because, you know, it's so -- I've25 had people tell me, well known attorneys much major

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1 and much bigger than your firm who've said now,2 Bernie, nobody could say, he couldn't possibly say3 that. He couldn't possibly be basing his case that4 a fraud -- you know, that a short sale is a5 fictitious transaction and a fraud.6 He may get a bankruptcy judge who probably7 knows less than him make that statement, you know,8 or not do anything about it; but the people that say9 they don't understand how anybody could do that10 because it makes them look like a fool. And I know11 he's not, so I don't understand why he would, you12 know, try and ruin his reputation, which is what13 he's doing, by submitting a report like that. Well,14 anyway, I've said my peace.15 MS. FEIN: Okay.16 MR. GOLDMAN: Do you have another question17 for him?18 MS. FEIN: I do.19 THE WITNESS: Peter, can you get me a20 water or soda? I'm losing my voice here.21 MR. GOLDMAN: Yeah, yeah. I'd get you a22 scotch, but I don't think --23 THE WITNESS: I don't drink, so we'll go24 with -- I'm considering it.25 (Trustee's Exhibit Number 21 was marked

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1 for identification.)2 MR. KRATENSTEIN: 21?3 Q. (By Ms. Fein) Yeah. This has been marked4 as Exhibit 21. You can look through the document,5 but I have a couple of questions on this first page6 before -- this first page that you're looking at7 now, so you just tell me when you're ready.8 A. Okay.9 Q. So this appears to be -- the first page10 appears to be a form with handwritten notes and the11 date appears to be 12-8-08. Do you see that?12 A. Thank you. Yes.13 Q. Do you recognize this form?14 A. Yes.15 Q. What was it called?16 A. I don't know what it was -- I don't know17 that it had any name.18 Q. You didn't have something that you would19 call it?20 A. No.21 Q. Okay. Who worked on it?22 A. This looks like Jodi Crupi.23 Q. And when you say -- are you referring to24 the handwriting?25 A. Yes. I know she kept this kind of report.

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1 Q. Okay. Was this report kept regularly by2 Jodi?3 A. Yes.4 Q. Was it kept on a daily basis?5 A. I believe so.6 Q. Was it kept by your firm in the ordinary7 course of business?8 A. Not on the market making or proprietary9 side, no.10 Q. For the IA business was this kept, was11 this --12 A. Yes.13 Q. -- report kept in the ordinary course of14 your business?15 A. Yes.16 Q. What was the form used for?17 A. Adjusted for, you know, what was -- what18 was requested to be sent out in the way of checks19 that were requested by clients and what checks had20 come in. So she -- she or other people that worked21 in this or that department could keep track of22 monies in and monies out.23 Q. Does the first -- underneath the date24 there's a figure, 297,903, balance forward. Do you25 see that?

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1 A. Yes.2 Q. Does that refer to a positive cash amount?3 A. I assume it would refer to a cash balance4 in the 703 account, bank account.5 Q. Okay.6 A. Which was a Morgan -- JPMorgan account.7 Q. Okay. And next to wiring out at like the8 bottom half of the page it appears that there's a9 large amount of money that's being wired out on this10 date?11 A. By the way, I want to correct my statement12 about starting a class action because I --13 Q. You don't plan on doing that?14 A. I would love to, but it's a little bit15 preposterous. So let's say just so that I can get16 out of here early, not this meeting, although I17 wouldn't mind that either, but I don't want Picard18 to get nervous, which I'm sure he wouldn't anyhow.19 Q. Do you see that there are substantial sums20 in the wiring out --21 A. Correct.22 Q. -- category? Okay. Would you have seen23 this document at or around the time that it's dated,24 12-8-08?25 A. I typically saw this regularly.

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1 Q. Okay. And would this document give you2 information about customer withdrawals and deposits?3 A. Yes.4 Q. And would it give you information about the5 financial health of the firm with respect to the6 customer side?7 A. Would it give me --8 MS. CHAITMAN: Objection to form.9 THE WITNESS: It would give me a picture10 of what was about to happen with monies in and out11 of the firm, but it was never really a concern12 because the firm -- this side of the firm always13 had -- you know, it was liquid enough to handle14 whatever withdrawals were coming out.15 Q. (By Ms. Fein) But at this time, so16 December 8th, 2008, that wouldn't be the case;17 right?18 A. No.19 Q. Okay. So would this document be an20 indication for you that you knew that perhaps you21 wouldn't have a lot of funds left in the 70322 account?23 A. At this period of time there was no one on24 Wall Street that didn't know what was going to25 happen to Wall Street unless they weren't breathing.

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1 Probably Dubinsky had no clue.2 Q. I'm talking with respect to your firm,3 though, not with respect to Wall Street but just4 with respect to your firm at that time?5 A. Yes. It was very obvious to us there was a6 crisis coming.7 Q. Okay. So there are handwritten notes on8 the pages that follow this first page of the9 document. If you just look at that first -- the10 page ending in 589, do you recognize that11 handwriting?12 A. No. This actually looks like my13 handwriting.14 Q. Okay.15 A. That right there?16 Q. Yeah, yeah.17 A. Yeah.18 Q. Okay. And then if you go forward another19 page there's also handwriting. It appears the20 handwriting on this document in general, so you can21 look at it.22 A. I want to look at these notes for a second.23 Q. Sure.24 A. Okay.25 Q. Okay. On the page ending in 591, is that

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1 also your handwriting, 591?2 A. Oh, yes.3 Q. And if you flip ahead to page 593, it looks4 like every other page is blank. So I'm only5 referring to the ones that have handwriting on them.6 Does that also look like your handwriting?7 A. Yes.8 Q. Okay. Would you agree your handwriting is9 also on page 595?10 A. Yes.11 Q. Would you agree your handwriting is on 597?12 A. Uh-huh, yes.13 Q. And would you agree your handwriting is on14 599?15 A. Yes.16 Q. Okay. And if you'd just look through the17 remaining pages, if you can just confirm that's your18 handwriting, too? If you see any that's not yours,19 let me know.20 A. You know, I have a question.21 Q. Uh-huh.22 A. Oh, these are not -- I don't understand how23 -- it looks like there's two -- two pages made to24 look just like one. For example, on the first25 page --

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1 Q. Oh, that's just the copying. That's just2 the copying, yeah.3 A. Okay. So in other words -- okay. It has4 nothing to do with the --5 Q. The original.6 A. -- the original, the first page.7 Q. That's right.8 A. All right.9 Q. Oh, this is a single document in terms of10 this was found in one place, but I --11 A. But this is -- this report --12 Q. Right.13 A. -- would normally not have this on the14 other side.15 Q. Understood, right. That's just an issue of16 the copying. That's just an issue of --17 A. Oh, okay. All right, okay.18 MS. FEIN: Right, right. I can't speak to19 that process.20 MR. KRATENSTEIN: Just for the record, you21 took a single-sided document and made it22 double-sided? That's what happened? In other23 words, the documents were found single-sided in a24 row and then for the purposes of this deposition25 you've double-sided them?

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1 MS. FEIN: That's my understanding. I2 would say that the Bates are consecutive.3 MR. KRATENSTEIN: Okay.4 MS. FEIN: So when we printed it, it was5 printed double-sided. I can't make representations6 about what the original looked like because we're7 looking at the copy from the files.8 MR. KRATENSTEIN: Okay.9 THE WITNESS: In other words, they're not10 -- the dates are not related to each other11 because --12 Q. (By Ms. Fein) You don't believe that the13 dates are related to one another?14 A. This in itself was --15 MR. GOLDMAN: Say page one of the16 document.17 THE WITNESS: This page of the copy,18 Jodi's handwriting, had nothing to do with the19 other. In other words, what Andrew is saying is20 true. They probably took -- it would probably be21 like taking this document and putting it, you know,22 on the other side of this document and making it23 appear as if they're the same document and they're24 not.25 Q. (By Ms. Fein) I know we certainly didn't

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1 doctor the document. This was -- my understanding2 is this was found together. The fact that it's3 double-sided as opposed to single-sided is, you4 know, an oversight; but -- and I apologize that it's5 double-sided, but I'm saying that this was found as6 a single document.7 A. Yeah, but they could have been ten days8 apart or two weeks apart.9 Q. Well, I wanted to ask you. That was my10 question for you.11 A. I'm assuming because Jodi would not -- none12 of this has anything to do -- stuff that's in my13 handwriting has nothing to do with Jodi with what14 was on this page. She would keep this page. All15 right. And there would be another one for another16 day for that page. This here looks like you can17 tell from the lines this was on a legal pad.18 It was my notes for myself, all right, as19 to any number of things, but it's not related to20 this document. They may have found this document in21 Jodi's office and this could have been in my22 briefcase.23 Q. This document was found together. I don't24 want to quibble with you about that. I do -- you25 should look at the last page of the document. On

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1 the last page of the document also is another --2 it's a printout. It's not handwritten notes. So I3 understand not all the pages are handwritten that4 you're seeing here. I wanted to ask you about the5 notes and if they were your handwriting?6 A. I will acknowledge that the notes are in my7 handwriting --8 Q. Okay.9 A. -- but there's nothing in my handwriting10 has nothing to do with that original Jodi's document11 because, in other words --12 Q. You don't think they were close in time.13 Is that what you're saying?14 A. No. This would -- they were probably not15 close in time. They may be a couple of dates in16 time. Obviously, it would -- it would have nothing17 to do with Jodi, you know.18 Q. I understand that, I understand that.19 A. Okay.20 Q. The handwritten notes you're saying are not21 -- you don't -- it wouldn't have involved Jodi's22 process at all --23 A. That's correct.24 Q. -- because it's your notes. I understand25 that, yes.

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1 MR. KRATENSTEIN: Just so we're all clear,2 Jodi's notes on the first page and then on the pages3 thereafter, it's Mr. Madoff's handwritten notes.4 THE WITNESS: Right.5 Q. (By Ms. Fein) Do you have a recollection6 of making any of the notes that are here?7 A. Yes. It's my handwriting, so --8 Q. Do you recall -- do you recall making these9 notes? Do you recall going through the exercise of10 making these notes in 2008?11 A. Yes, yes.12 Q. What do you recall about it?13 A. These are notes -- well, that at the end I14 was considering sending out monies, paying bonuses15 to people, sending out checks to -- I was planning16 to send out checks because I knew the firm was -- we17 were going out of business. And I had written the18 checks and, as a matter of fact, I put them in my19 drawer.20 It was actually, I think, I wrote these21 notes, you know, prior to me making the decision22 that the firm was -- well, it was in conjunction was23 going out of business. I wanted to sort of -- I24 owed traders money for what was due to them, so on25 and so forth. So I wrote out checks, put them in my

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1 drawer and called my lawyer because I was planning2 at that time to turn myself in. And he said don't3 send the checks out. So I left them in the drawer4 and then they never did go out. That's what I5 recall.6 Q. So do you think you could have looked at7 the amounts listed on the first page of the document8 in 588 so that you knew how much money you had for9 writing the checks?10 A. Yes. That's certainly possible.11 Q. So the handwritten notes were made around12 the same time, you wouldn't say necessarily on the13 same day, but around the same time as December 8th,14 2008?15 A. Right, yes, uh-huh. Or sometime16 afterwards, you know.17 Q. After you would have seen the report --18 A. Yes.19 Q. -- from Jodi?20 A. Well, no. It could have been made prior.21 I just don't know. I mean, my head was sort of up22 my wherever at that time, but I don't -- obviously,23 I can see from the notes here that it was what I had24 planned to do was paying out traders and so on; but25 then there were things on here, on notes that would

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1 have nothing to do that would have had to be done.2 It was things to myself trying to figure out where I3 stood afterwards.4 Q. Okay.5 A. If you look at -- see, it says I can't make6 -- I wrote can't make traders 100 percent whole. I7 was referring to the fact that I didn't have enough8 money to cover, you know, what I owed the traders in9 their compensation.10 Q. Is that employees or traders?11 A. Employees, and employees also had accounts12 with me. So I was -- you know, I couldn't --13 couldn't cover everything that was in their account.14 Q. And you're referring to page Bates ending15 in 599; right?16 A. Yes, correct.17 Q. Okay. On page ending 597, one page before18 the one you're looking at, I think, can you find the19 one ending in 597 for me?20 A. Which one?21 Q. 597. I think it's the other way.22 A. Yes.23 Q. The first line looks like 1960, dash,24 present. And then I can't -- I'm not sure. Average25 or --

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1 A. Looks like average, 39 million.2 Q. Okay. Do you know what that would be3 referring to?4 A. I think it refers to what the profit of the5 firm was over a certain period of time from 1960 to6 present.7 Q. Okay. And do you see down -- there are8 calculations on the right side. One says equal 399 mill per year and then to the left of that, 190910 divided by 49 years?11 A. Yeah. I'm trying to figure out what12 they're referring to.13 Q. But you agree that the calculation, it does14 say 49 years; right?15 A. Doesn't it say 39 years? It says 1960 to16 present average equals 39 million.17 Q. Uh-huh. And then look at underneath where18 you have 691, 1218 over 1909. Do you see that?19 A. Right.20 Q. Divided, and that looks like 49 equals 3921 mill per year. Do you see that?22 A. Right.23 Q. Okay. And below that it looks like it says24 without draw. Do you see that, without draw?25 A. I think it refers to the profit of the

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1 firm.2 Q. Okay. But does draw refer to amounts taken3 out by your employees?4 A. Draw was money that -- no. It was either I5 had a draw account, which is typical that I drew6 money out. I didn't have a -- it was like a salary7 that I would draw out of the firm. And I'm not real8 sure what this is referring to, my draw or the9 traders' draw or a combination thereof.10 Q. Okay. Do you see where the line under11 draw, it looks like it says draw five mill per -- do12 you see that? It looks like the last line next to13 the calculation ending in 2154?14 A. Right.15 Q. Was the 5 million draw something that you16 received?17 A. I don't know. It could be. It could have18 been my draw. I know I didn't draw 5 million a19 year, so it could have been my draw. It could have20 been mine plus other people's draw. I'm not sure.21 Q. Okay. 1962 to December 2008 is about -- is22 49 years; right?23 A. Uh-huh, right, yeah. The 1909 divided by24 49 is -- it looks -- to me it would look like how25 much the firm, you know, grew over a 49-year period,

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1 39-year period, something like that.2 Q. Okay. Forty-nine years is about how long3 your business was going on; right?4 A. Correct.5 Q. Okay. And there were references to your6 firm starting in 1960 in the proffer agreement that7 we looked at or the proffer statement?8 A. Yeah. It looked to me like I was trying to9 calculate how much the firm made or how much they10 showed on their focus reports. I don't recall.11 Q. Okay. But the calculations taking place12 over 49 years; right?13 A. Right, which was the life of the firm.14 Q. Uh-huh. So these notes were written in15 December 2008; right?16 A. I can't -- I can't be sure. I can't say17 for certain what period. There's so many different18 notes and --19 Q. Okay.20 A. -- some of them are related, some of them21 are not related to each other.22 Q. Okay. But would this have been part of the23 same exercise we were talking about, thinking about24 writing out checks and what you were going to do25 about the end of the firm?

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1 MS. CHAITMAN: Objection to form.2 THE WITNESS: Well, I certainly know -- I3 certainly know that there are notes here that refer4 to how much employees would do from their trading5 profits, their draws, things of that sort.6 MS. FEIN: Uh-huh.7 THE WITNESS: That -- you know, there were8 certain things that I was trying to analyze how much9 the firm had made, how much -- things of that sort.10 Q. (By Ms. Fein) Okay. So you think the firm11 -- so you think the firm on average made 39 million12 a year for the 49 years it was in business?13 A. Again, I don't know whether that was14 including money that was taken out in compensation15 by my -- you know, by me alone, by my family or by16 the employees. I can't really -- I can't really17 tell from looking at it just like this. It was --18 I'm just analyzing various things.19 And most of it deals with monies with the20 checks that I was planning to send out, which I21 would have determined by looking at how much money22 people had in their accounts.23 Q. Okay. And it looks like it refers to what24 -- so these would have been notes -- let me ask.25 Were these notes you made to yourself?

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1 A. Notes I was writing to myself, yeah.2 Q. Yes, okay. Was anyone else present when3 you were making them that you recall?4 A. No.5 Q. Okay. Do you recall where you were when6 you made them?7 A. No. It could have been in my office. It8 could have been when I was home. I don't know.9 Q. But did you share them with anyone else10 after you made them?11 A. No. I would have had to get the12 information from Annette as to how much money people13 had in their accounts because I had to get them from14 because that's not something that I ever had off the15 top of my head.16 Q. Okay. Mr. Madoff, did you have any17 meetings to prepare for this deposition?18 A. Meetings?19 Q. Uh-huh.20 A. No. You mean --21 Q. Did you meet with Mr. Goldman to prepare22 for your deposition today?23 A. No. Oh, today he came -- I met with him24 the day before yesterday, but it wasn't necessarily25 in relation to that. He came down here earlier.

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1 Q. So you've not had any -- you're saying you2 have not had meetings to prepare for your3 deposition?4 A. Peter Goldman came down. We discussed this5 -- you know, my situation in general, I mean, from6 how I was feeling.7 MS. CHAITMAN: You don't have to talk8 about anything confidential that you --9 THE WITNESS: No, no.10 MR. GOLDMAN: Yeah. We had a meeting.11 THE WITNESS: Well, you can find out who12 was here to visit me. That's all.13 Q. (By Ms. Fein) Okay. Did you meet with Ms.14 Chaitman or Mr. Kratenstein to prepare for your15 deposition?16 A. Mister who?17 Q. Mr. Kratenstein.18 A. They were down here yesterday. Not19 yesterday, the day before yesterday. Is this the20 second day or the third day? Yesterday.21 Q. How long did you meet with them?22 A. An hour or two.23 Q. What did you guys discuss?24 MR. KRATENSTEIN: I'm going to object.25 Hang on. I'm going to object. What we discussed

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1 with Mr. Madoff is our work product because we're2 allowed to talk to people. So I consider that our3 work product. So my view is any discussions we had4 with Mr. Madoff are work product that go to our5 mental impressions. So I object to that question.6 I'll leave it to Mr. Goldman as to whether he's7 going to instruct not to answer.8 I'll allow you to talk about the -- I9 don't have an objection to subject matter or asking10 him of any documents we used to refresh recollection11 or anything like that, but I do have an objection to12 discussions, substance of discussions.13 MS. FEIN: So are you directing him not to14 answer on the basis of your work product?15 MR. KRATENSTEIN: It's our work product,16 our mental impressions and our discussions with him17 that reveal as mental impressions our work product.18 And I would ask that an instruction be given that he19 should not disclose that information.20 MS. FEIN: Any information related to your21 work product; right?22 MR. KRATENSTEIN: Yes, yes.23 MS. FEIN: Understood.24 MR. GOLDMAN: Ask the question and then25 we'll -- if I have an objection, then we'll -- I'll

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1 decide which direction I'll go.2 Q. (By Ms. Fein) I think I asked how long you3 met with Ms. Chaitman and Mr. Kratenstein, if you4 recall.5 A. I guess it would be probably a couple of6 hours.7 Q. Were you shown any documents during the8 meeting?9 A. I asked what the meeting was going to be10 about.11 MR. GOLDMAN: Bernie, just try and answer12 the question. She asked you if you saw any13 documents. So it's either --14 THE WITNESS: I guess I saw documents,15 yes.16 Q. (By Ms. Fein) Do you -- were they any of17 the documents that we reviewed today or yesterday?18 A. To tell you the truth, I don't even know19 what I saw. I saw documents. I don't know whether20 they were the same as the ones that you had or not.21 I don't know.22 MS. FEIN: Okay. We would ask to see any23 documents that you showed Mr. Madoff during the24 course of your meeting with him.25 Q. (By Ms. Fein) Did you have any -- any

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1 other preparation for your deposition with Ms.2 Chaitman or Mr. Kratenstein before this week?3 A. I'd never met Mr. Kratenstein until that4 original meeting.5 Q. Okay. Did you discuss the Sages at your6 meeting?7 A. Did I discuss the Sages? I discussed what8 my relationship -- he asked what my relationship was9 with the Sages and who I met with, so I told him.10 Q. And were you shown any documents to refresh11 your recollection about the Sages or any meetings12 you had with them?13 A. I was familiar with -- with the Sages.14 They knew I was familiar with the Sages. I'm not15 sure I understand what you're asking me.16 Q. The question was have you looked at any17 documents?18 A. Yes. I looked at documents. I saw -- you19 know, I saw confirmations, you know, and statements20 of trades, not all, certainly not as much as I've21 seen today.22 MS. FEIN: Understood. All right. I23 think we're all set. Thank you, Mr. Madoff.24 THE WITNESS: Okay.25 MS. CHAITMAN: I just have a few questions

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1 and then --2 MR. KRATENSTEIN: And I have a couple.3 FURTHER EXAMINATION4 BY MS. CHAITMAN:5 Q. Okay. Mr. Madoff, how were the traders6 compensated at your firm?7 A. They got -- they basically got a percentage8 of their market making profits, proprietary trading9 profits.10 Q. What was the percentage? Did it vary per11 person?12 A. Typically it was 20 percent of their net13 trading profits. That was after commissions and14 expenses related to their trading.15 Q. The commissions would have been payable to16 whom?17 A. To their -- which --18 Q. When you say after, typically 20 percent of19 their net?20 A. Oh, depends upon where the transaction was21 executed. If it was -- if the transaction was22 cleared, there would be -- that would be deducted.23 If there was interest, it would be charged to their24 account depending upon whether we had bank loans25 out, things like that. They were -- if the -- if it

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1 was a transaction that was laid off on the floor of2 an exchange, there would be commissions -- there3 would be commissions paid on that so they would --4 that would be deducted. Their 20 percent was a net5 net.6 Q. So it was 20 percent of the profits they7 generated. Is that a fair --8 A. That's correct.9 Q. Okay. If you could just take a look? You10 can look at my copy of Trustee's Exhibit 19. This11 is -- just take a look at this. It's 19 and --12 MS. FEIN: Marked copy.13 Q. (By Ms. Chaitman) 19 and 18, yeah. Do you14 recognize the handwriting on Exhibit 18 where it15 says hold?16 A. It looks like it's the same as -- like it's17 Annette or it could be Jodi. You know, I can't18 really tell from that.19 Q. Okay.20 A. Yeah. Looks like two different21 handwriting. One is printed and one is like script.22 Q. Right. And one is asking you -- one is23 asking you about documents in 1979 to '81 and the24 other is asking you about documents in 1982. Do you25 see that?

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1 A. Yes.2 Q. Okay. Do you remember what your desires3 were with respect to what documents would be4 shredded and what documents would be held?5 A. Not really.6 Q. Were you trying to conceal evidence of a7 crime?8 A. Well, let's put it this way. There was no9 crime prior to '90 -- to the '90s. So that's easy10 for me to answer.11 Q. Okay. So what -- do you remember why you12 would have said to hold certain documents and shred13 others?14 A. You know, we had no general policy with15 retaining -- as I've said numerous times, the16 retention period for documents on Wall Street is six17 years. That's an industry requirement. So you're18 not required to hold documents more than six years19 and most firms shred immediately after that because20 they just don't want to store the documents.21 As far as the -- but as I've said numerous22 times, we held customer-related documents relating23 to cost basis for customers, tax basis for customers24 because that -- we would constantly be asked to --25 for information from the clients' accountants, you

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1 know, or a tax lawyer, which could happen at any2 given time.3 MS. CHAITMAN: Do you have to stop?4 THE VIDEOGRAPHER: Yes. I do.5 MS. CHAITMAN: Okay.6 THE VIDEOGRAPHER: This marks the end of7 disc number two in the deposition of Bernard L.8 Madoff. Going off the record. The time is 13:08.9 (A recess was taken.)10 THE VIDEOGRAPHER: Back on the record.11 This begins disc number three in the deposition of12 Bernard L. Madoff in Butner, North Carolina on13 November 9th, 2017. The time is 13:12.14 Q. (By Ms. Chaitman) So Mr. Madoff, if you15 look at Exhibit 19 --16 A. Yes.17 Q. Okay. You apparently gave instructions to18 shred the C&S statements. Do you see that?19 A. Number one, I don't know that I gave that20 -- I don't believe that I gave anybody instructions21 as to what to shred, what not to shred. I mean,22 it's not -- I would have no interaction with these23 people. So somebody in Annette's office like either24 Annette or some other employee, some of the other25 people would tell people what to shred, what not to

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1 shred. My instructions were to shred anything that2 we did not need to have in the future, so --3 Q. Right. Okay. So consistent with that4 where it says hold at the second half of the first5 page of Trustee's Exhibit 19, there are several6 items which are hold and they're all EOM customer7 ledgers.8 A. Yes.9 Q. Is that consistent with the strategy you've10 described?11 A. It would -- holding a customer ledger would12 be because a customer ledger would typically have13 all the pricing information, the information we14 would need to supply to their accountants.15 Q. Okay.16 A. So there was no reason to hold.17 Q. Okay.18 A. The other things here are -- involve19 brokerage firms that we bought and sold stock to.20 So there's no reason for that because once the trade21 settles, there's no reason to have anything related22 to the counterparties.23 Q. Okay. Similarly, if you look at Trustee's24 Exhibit 18, are the documents that you -- that have25 the X next to them, which the handwriting which is

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1 unidentified says shred the Xs only, were those2 specific to customers or were they general?3 A. They would need -- we wouldn't have any4 reason to have them because once the trade settles,5 it settles. So there's no reason to hold anything.6 Q. Okay, okay. Now --7 MR. KRATENSTEIN: Go ahead.8 Q. (By Ms. Chaitman) Now, Amanda asked you9 several questions about the T-bills that you held?10 A. Right.11 Q. And you had previously testified that you12 maintained a portfolio of about $6 billion of13 T-bills?14 A. Correct.15 Q. And did you buy those with money invested16 through the investment advisory business?17 A. Correct.18 Q. So it was -- those T-bills were purchased19 with house 17 customer money?20 A. Yes.21 Q. Okay. And you've previously described how22 those were maintained at --23 A. Morgan Stanley, Fidelity.24 Q. -- Bear Stearns, Morgan Stanley, Fidelity,25 Lehman and JPMorgan Chase --

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1 A. Correct.2 Q. -- right? Okay. And was it your intention3 to keep that money for the benefit of the investment4 advisory customers?5 A. That was the only reason. It was money6 that, you know, we would have needed to settle with7 clients if they asked us for money from their8 account.9 Q. Okay. And, in fact, do you recall10 testifying that you kept those T-bills to maturity?11 A. I don't remember, you know. They were12 basically short-term instruments, so we would13 normally keep them until we needed the money to pay14 out or whether they expired.15 Q. Okay, okay. Now, so is it fair to say that16 if an investment advisory customer wanted to close17 out his or her account and you had to come up with18 $5 million in cash, that if you didn't have19 $5 million sitting in a bank account, you would have20 liquidated one of the T-bills to pay it?21 MS. FEIN: Objection.22 Q. (By Ms. Chaitman) Pardon?23 A. Yes.24 MS. CHAITMAN: Okay. What's your25 objection?

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1 MS. FEIN: That was -- it was testifying.2 It was your testimony, not Mr. Madoff's.3 Q. (By Ms. Chaitman) Mr. Madoff, would you be4 good enough to cure Amanda's objection and could you5 say that in your own words? I don't want to put6 words in your mouth.7 A. My plan was that if I needed money to8 settle a customer's account, I would typically9 either take the money out of the 703 bank account,10 which is typically where we kept all clients'11 monies, or if there wasn't immediate cash available,12 which there was most of the time, I would then13 liquidate T-bills.14 Q. Okay. And, again, those T-bills were15 purchased with money --16 A. It was always purchased with money from the17 703 account.18 Q. Okay. And that was the investment advisory19 customers' money?20 A. Correct.21 Q. Now, you were talking about the ledgers.22 Amanda was showing you some ledgers and I believe23 you testified that there was subsidiary ledgers for24 each institution that you did business with?25 A. There were -- there were either ledgers or

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1 documents. You know, there were statements. So2 that's what -- I'm not -- I don't recall what -- and3 it changed all the time, you know, how -- what the4 practice was of firms sending out statements5 because, again, it depended upon what stage the6 clearing cycles were in, in other words, whether --7 how the DTC worked, how NSCC worked and whether we8 had automated interfaces with firms.9 We had 500 interfaces with -- not 500. We10 had over 100 interfaces with 500 different brokerage11 firms. Everything was done, you know, on computer.12 So there was no -- there was no exchanging of13 confirmations. There was no cash in settlement,14 things of that sort.15 And the firm themselves, the operations16 department had their own policies of how they --17 what records they have, which I, quite frankly, am18 not even familiar with. I have no idea with some of19 these C&S, cash and securities settlements. I don't20 know what they relate to.21 Q. Okay. But with the 10 or 11 banks that22 you've named that you had custodial relationships23 with, is it fair to say that you would have had24 records showing what securities were held at each25 institution?

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1 A. As a general rule, yes, but I don't know.2 Again, it depends upon the time frame involved3 because all of that changed over the years depending4 upon what the various interfaces of automation was5 available to firms.6 Q. Right, right. So if you could do it7 through the internet, you wouldn't need to have the8 paper copies; is that right?9 A. Correct.10 Q. Okay. I understand that.11 A. You know, I want to go on the record of12 stating, by the way, relating to that, when this13 thing -- when I first got arrested I requested, you14 know, all the records that were available to the15 firm. I requested it to my attorneys, who then16 requested the Trustee send me all the documents that17 they had.18 And my purpose was that I was -- if I19 wanted -- I would need to go to trial to demonstrate20 when the crime started and what was involved and21 what was -- how much was made and lost. And the22 only thing that they -- and they never produced23 anything. I shouldn't say never. All they produced24 was a box exactly this size that was delivered up to25 me while I was in -- you know, in jail. And I

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1 complained.2 I said how am I going to -- how am I going3 to piece everything together? How am I going to4 demonstrate what really -- what really occurred5 financially and so on? I said, well, that's all6 that they were able to produce to me.7 Q. Ike Sorkin?8 A. Ike Sorkin. And they produced records that9 went back no longer than 1998. And that was even --10 you know, they said we don't have any bank records.11 We don't have this and that. They complained. They12 complained to the judge, I guess, prior to my13 sentencing. It was one of my court appearances.14 And Chin insisted, got agitated and insisted to the15 prosecutor, said instruct -- you know, give them the16 records.17 And they said, well, we can't find any.18 The records were very sloppy. You know, you would19 have the impression that we didn't have any records20 and that the records were scraps of paper. And this21 -- you know, so when I was sentenced, you know, I22 couldn't -- as a matter of fact, I was asked do you23 want to appeal when I had this 150-year sentence.24 I said how am I going to appeal? I said I25 don't have any records. I said where in the hell

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1 are the records? And I said I've got warehouses2 full of records. I said, you know, how can they not3 produce the records? He said Bernie, what do you4 want me to tell you? So you can imagine my anger5 when I was notified by you that there were 326 million pages of goddamn documents. I'm looking at7 these documents now and all of a sudden miraculously8 these documents appear.9 Now, you can't possibly tell me that you10 didn't know, not you individually, that the Trustee,11 you know, did not know that these documents existed12 because I have -- I was paying rent on something13 like eight warehouses to say nothing of the whole14 basement of the Lipstick Building where I knew there15 were records, you know.16 And I'm not talking about necessarily, you17 know, what I'm seeing here. So how does that18 happen? I mean, you know, I don't understand it.19 MS. CHAITMAN: You know what, Bernie? I20 asked the same question. Okay. I have no further21 questions and I'm going to turn to Andrew.22 MR. KRATENSTEIN: I will be, I hope,23 brief.24 FURTHER EXAMINATION25 BY MR. KRATENSTEIN:

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1 Q. So Ms. Fein showed you a document, Mr.2 Madoff, that she marked as Exhibit Number 11, which3 was a house number five daily stock record activity4 for July 16th, 1987. And she asked you some5 questions about a County of Nassau, it's third from6 the bottom, a County of Nassau bond. Is that a7 municipal bond, the County of Nassau bond?8 A. Yes.9 Q. Okay. And did your firm do -- trade in10 municipal bonds?11 A. No.12 Q. Did you have municipal bonds in your13 custody, your firm's custody?14 A. Yes.15 Q. Okay. So what was your -- what did your16 firm do with respect to municipal bonds? Can you17 describe?18 A. The clients used them as either margin or19 with instructions to sell them to go into -- rather20 than sending in cash to a strategy, they sent them21 bonds to either be liquidated or to use as22 collateral for a margin account.23 Q. I'm going to show you Exhibit 38, which we24 showed you yesterday. And just take a look at that25 page. I've opened it to page MF 00964437, which you

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1 might recall yesterday towards the bottom of that2 page I showed you the RCA Corp convertible3 debenture. And there are a whole bunch of positions4 around that. Do you see that?5 A. Where am I looking? Here?6 Q. So bottom, if you look -- we talked about7 this yesterday, but there are -- fourth up from the8 bottom do you see the RCA Corp bond?9 A. Yes.10 Q. And then all around that do you see11 municipal bonds like for Puerto Rico, Pennsylvania,12 Oregon?13 A. Right, uh-huh.14 Q. Do you see that?15 A. Yes.16 Q. And they all have different maturities,17 different yield dates --18 A. Right.19 Q. -- right? So what are these?20 A. They're municipal bonds.21 Q. And are these the types of bonds you were22 just describing?23 A. Yes.24 Q. And are these all real securities that were25 held at the National Bank of North America for your

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1 firm?2 A. Yes.3 MR. KRATENSTEIN: Thank you very much.4 That's all I have.5 MS. CHAITMAN: Okay. I'd just like to put6 on the record the discussion that I had with Amanda7 that we will be continuing your deposition so long8 as your health continues once we get further9 documents from the Trustee. We're negotiating to10 get additional documents that we now know the11 Trustee has.12 MS. FEIN: We just want to put on the13 record that we would reserve a right to14 cross-examine on any documents that Ms. Chaitman15 asks about.16 MS. CHAITMAN: Of course, of course.17 Okay. Thank you so much. Andrew and I are going to18 run.19 THE VIDEOGRAPHER: We are off the record20 in the November 9th, 2017 deposition of Bernard L.21 Madoff, Volume IV. The number of discs used was22 three. The time is 13:26.23 (Reading and signing of the deposition by24 the witness was reserved and the deposition was25 concluded at 1:26 p.m.)

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1 C E R T I F I C A T E2 NORTH CAROLINA:3 GUILFORD COUNTY:4 I hereby certify that the foregoing5 deposition was reported, as stated in the caption,6 and the questions and answers thereto were reduced7 to the written page under my direction; that the8 foregoing pages 493 through 682 represent a true and9 correct transcript of the evidence given. I further10 certify that I am not in any way financially11 interested in the result of said case.12 I have no written contract to provide13 reporting services with any party to the case, any14 counsel in the case, or any reporter or reporting15 agency from whom a referral might have been made to16 cover this deposition. I will charge my usual and17 customary rates to all parties in the case.18 This, the 21st day of November, 2017.1920

<%Signature%>2122 K. Denise Neal, RPR


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1 E R R A T A S H E E T23 Pursuant to Rule 30(7)(e) of the Federal Rules4 of Civil Procedure, any changes in form or substance5 which you desire to make to your deposition6 testimony shall be entered upon the deposition with7 a statement of the reasons given for making them.89 To assist you in making any such corrections,10 please use the form below. If supplemental or11 additional pages are necessary, please furnish same12 and attach them to this errata sheet.13 * * * * *14 I, the undersigned, BERNARD L. MADOFF, do hereby15 certify that I have read the foregoing deposition16 and that to the best of my knowledge said deposition17 is true and accurate (with the exception of the18 following corrections listed below).19202122232425

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1 Page Line should read:2 Reason for change:34 Page Line should read:5 Reason for change:67 Page Line should read:8 Reason for change:910 Page Line should read:11 Reason for change:1213 Page Line should read:14 Reason for change:1516 Page Line should read:17 Reason for change:1819 Page Line should read:20 Reason for change:21 Signature:22 Sworn to and Subscribed before me23 , Notary Public.24 This day of , 2017.25 My Commission Expires:

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&

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11-11-83 498:11600:18

11-18-83 600:20606:6

11-30 604:811-30-63 603:2111-30-83 604:7,9

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498:4 558:2012-5-86 497:15

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645:11 647:241218 658:1812th 624:313 498:5 566:9,1013,388 606:2,10,2213:08 670:813:12 670:1313:26 681:2213th 622:2,2514 498:7 569:13,1615 498:9 571:4

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17 498:3,7,9,12,12520:11 558:19559:17,20 569:19571:14 578:9,10578:24,24,25603:6,10,17,25604:1,4,19 606:17606:18 607:6,12672:19

18 498:14 611:9,11611:14,24 612:16668:13,14 671:24

18th 606:25608:15

19 498:16 611:10611:11 612:5628:2 668:10,11668:13 670:15671:5

1909 658:9,18659:23

1960 628:9 629:3657:23 658:5,15660:6

1962 631:9,19659:21

1970s 635:171979 668:231980s 508:20

509:13,23 590:5634:20 635:17,23

1982 668:241983 500:18

501:13 502:12600:18 607:1

1986 506:3,22507:24 530:22

1987 535:23 536:9539:6 540:3545:19 553:19554:2 562:3 574:2

575:4,5,23 577:9577:14 679:4

1990 512:7199066 560:231992 517:6 522:25

523:6 614:201994 570:121998 677:91:26 681:251s0004-3 623:81s004-7 622:8

2

2 504:3,32,307 538:3,5

539:12,12,13,16539:18

20 498:18 626:7,11667:12,18 668:4,6

2000s 563:21617:17

2001 568:142003 624:3,5,8200517500101

682:232007 525:1 527:8

527:13,14,18,20527:22 528:3558:16 559:2561:5,6,22 562:3,3565:16

2008 516:20 517:7559:2 648:16655:10 656:14659:21 660:15

2017 494:22 499:7582:6,21 584:11670:13 681:20682:18 684:24

21 498:20 644:25645:2,4

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212 495:17 496:92154 659:1321st 682:1826 582:20 584:1128th 624:529,000 578:14290,000 577:2429000030 560:18

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400 559:20,23560:8

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958 552:1959 555:10960 525:599 509:139993115 557:249th 494:21 499:7

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accountant 613:8613:17,20,22,23614:9,9

accountants 614:5618:8 669:25671:14

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619:23adjusted 646:17adjusting 615:14

616:4admitted 642:11

642:11,20adt 570:16advisory 520:12

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682:15

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aggregate 527:25562:20

aggregated 527:9agitated 677:14ago 515:3agree 499:5

520:11,19 521:8524:23 538:9539:15 548:15552:16 557:2560:17 569:8600:23 606:9623:18 624:23628:4,11,25 641:2650:8,11,13658:13

agreement 523:20592:13 625:12,19634:16,25 660:6

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551:25 572:6,7592:23 618:5,19650:3 672:7

airlines 542:9akratenstein

495:18alert 574:19alive 618:7allied 545:6allow 664:8allowed 518:2

664:2alter 522:12aluminum 542:24amanda 496:4

500:4 566:20

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amanda's 674:4amc 578:12america 501:1,3,5

501:8 502:13,17542:8 582:25588:15 599:12,14599:18,21 680:25

american 544:16amount 504:7,8

526:3,9,21 527:1538:3 560:22606:1,17 647:2,9

amounted 631:23amounts 522:20

522:21 528:1561:1 625:1 656:7659:2

amr 537:23538:18 540:5542:20 549:2572:22 573:3,10575:19,22,22577:8,13

analyze 661:8analyzing 661:18andrew 495:13

499:24 652:19678:21 681:17

anger 678:4angry 638:23

639:2,4ann 495:12annette 568:10,10

568:13 575:17614:14 617:9662:12 668:17670:24

annette's 560:11670:23

annual 632:13answer 500:23

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answered 588:20answers 579:7

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anyway 644:14apart 653:8,8apartment 625:16

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asking 546:19577:18 585:9,18593:25 604:18616:8 624:21,23629:24 630:17631:9 634:1,6636:9 637:11,19639:11,14 664:9666:15 668:22,23

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b

b 495:13bach 538:19bache 538:22

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backdated 614:19backdating 614:22

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background 512:2baker 496:6 500:2

500:4bakerlaw.com

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balances 597:8,13balancing 563:5,8

574:14bank 500:20,25

501:3,5,8 502:13502:17 531:18532:8,15 533:20560:22 563:1,17582:24,25,25583:2,3,3,4 585:23588:4,14 589:10589:16 591:9,11593:14,14,18595:10 599:11,13599:18,20 607:17607:20,22,25608:7 609:5,10,15609:24 641:25647:4 667:24673:19 674:9677:10 680:25

bank's 502:2570:15 589:25

bankers 583:1bankruptcy 494:1

499:17 644:6banks 501:14

532:9 548:25560:15,21 563:16563:18,24 564:9565:5,16 569:2

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barney 557:8based 539:7

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bearing 500:19beats 554:3began 628:2,9

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bell 588:16benchmark

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bit 522:18 528:11540:6 554:4631:19 647:14

blacked 627:13blank 650:4blm 612:11,12blmis 528:12,15

531:21,23 613:18blotter 497:19

498:15,17 505:19611:21

blotters 497:14502:21 510:3612:9,25

board 518:17bob 496:20 499:6bond 508:12,21

509:12,17 518:7,8531:16 542:6,7,10542:11 552:4,8591:24 592:6,12592:19,24,25593:1,7,10,17,18593:22,25 611:4617:22 679:6,7,7680:8

bonds 509:17,18509:18 552:15593:9,13 597:1679:10,12,16,21680:11,20,21

bongiorno 568:11bonuses 655:14books 575:3,7

599:3bore 591:21borrow 518:11borrowed 631:24bottom 565:4

568:20 569:1572:23 573:1,10

578:12 596:23604:23 605:19,24607:14 608:1612:8,18 626:14626:15 647:8679:6 680:1,6,8

bought 504:7505:4 526:20533:6 549:4,4551:11 574:18,25575:11 589:7601:24 602:11671:19

box 614:12 619:10619:14,23 620:8676:24

boy 642:16brain 584:3break 519:19

564:14 574:16579:3 581:23584:5 617:4

breathing 648:25brief 678:23briefcase 653:22broadcom 623:2broken 563:11broker 503:12,12

509:10,10 521:18522:10 548:23581:17 589:9592:4 609:24615:16

brokerage 506:6,9506:17,20 521:16522:3,4 523:7,10526:22 529:10,13531:18 532:5,13533:7,16 538:23549:7,13 588:22590:1 591:12

671:19 675:10brokers 504:2,4

581:14brook 496:15brother 542:23brother's 547:17

547:18brothers 550:23

551:8,8brought 504:3brown 587:10building 678:14bunch 680:3business 503:7

512:18 516:19517:14 520:11,13520:19 523:23,23532:19 536:1,4542:14 553:24590:11 602:8628:2,9 629:1,2631:6,12,20 632:5635:19,24 636:12636:23 637:2,4,13637:15,22,25638:4 639:18640:6 646:7,10,14655:17,23 660:3661:12 672:16674:24

businesses 552:12butner 494:21

499:9,11 582:5670:12

buy 514:6 516:13516:14 518:1,2,15533:15 562:12589:13,17 591:17591:19 592:18602:20,20,24615:5 672:15

buying 514:21597:8 599:19,23603:3

buys 504:2

c

c 682:1,1c&s 580:2 670:18

675:19calculate 660:9calculation 658:13

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called 509:8645:15 656:1

capability 528:13528:19 529:4

capacity 547:20601:1,8

capital 516:7caption 499:12

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case 499:13,16,18524:10 635:4642:13 644:3648:16 682:11,13682:14,17

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certainly 524:9563:22 567:8609:1 617:18634:13,19 635:21641:4 652:25656:10 661:2,3666:20

certify 682:4,10683:15

chairman 534:10596:19

chaitman 495:4,5497:3,7 499:22,22500:15 501:2502:24 504:12,24505:16 507:1,4,9508:15 509:16512:1,4 513:4514:2 515:6,17,20516:8 517:2,5519:1,15 520:2524:21 525:22526:12,16 528:22529:17,22 530:22531:13 532:1,3536:12,15 544:9544:20 549:24550:10 558:10561:10,15,20,25

562:5,9,12,17,24566:8,19 567:5,12567:19,24 569:15569:18 571:5,8572:16,19 577:17577:21 578:2,7,10579:8,12 585:3586:12 587:7595:1,5 597:19,22603:13,21 605:10605:12 608:22,23618:10 626:8,13627:1,18,22633:14 641:10648:8 661:1 663:7663:14 665:3666:2,25 667:4668:13 670:3,5,14672:8 673:22,24674:3 678:19681:5,14,16


change 530:3,5551:23 595:10616:23 639:8684:2,5,8,11,14,17684:20

changed 515:3617:21,24 634:17675:3 676:3

changes 683:4changing 550:7characterization

630:12characterizations

629:15,24charge 682:16charged 667:23charles 503:2

643:24

chase 583:2588:11,12,13672:25

checks 646:18,19655:15,16,18,25656:3,9 660:24661:20

chemical 583:2chicago 533:19,21chin 677:14choose 609:14chrysler 568:17civil 683:4claimed 640:6claims 636:5clarification

520:23clarified 524:15

528:7clarify 507:2

512:9 523:9 567:9class 643:17

647:12clear 515:7 528:20

532:9,9 533:2576:15 578:11588:25 593:11,15604:3 634:15639:6 655:1

cleared 529:18531:8 534:15549:5,6 591:7593:9 599:15,24607:21 610:23636:16 667:22

clearer 561:21clearing 503:17,21

504:10,14 505:20505:22 528:11,16528:20 529:6,10529:19 530:15,19

530:23,25 531:5531:17,19,20,23531:25 532:7533:19 534:8,11534:12 539:3548:25 560:15,21560:22 562:25563:16,18,24564:9 565:5,16569:2 570:15572:1,25 573:9574:10 576:9,10576:13,14,18577:4,15 578:13580:13,16 582:11585:25 588:21,24589:2 599:3 600:1608:11 609:10,24610:8,19 611:4636:17 675:6

clerk 548:14client 508:7 513:1

554:21 581:9592:19 594:17599:19 602:16620:12

client's 526:19clients 580:24,24

581:3,4 584:5586:3 628:10629:5 631:10,22632:5,9,9,16634:21 646:19669:25 673:7674:10 679:18

close 654:12,15673:16

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clue 534:19 608:8649:1

clvs 496:20code 507:18 601:1

601:8collapse 516:19

517:15 631:21collateral 679:22collier 496:20

499:6column 506:15,20

507:12 535:17536:16,19 537:2538:2 539:11,20543:25 544:23569:25 573:7

columns 536:11537:9 559:5

combination659:9

come 530:19540:19 617:8,11646:20 673:17

coming 590:14648:14 649:6

commencing494:22

commercial582:24

commission684:25

commissions667:13,15 668:2,3

common 513:6592:19 593:17615:1 634:22

communications552:4

company 503:2505:25 515:9542:25 582:25

compensated667:6

compensation657:9 661:14

competitors591:13

complained 677:1677:11,12

complete 506:19507:5 540:9549:18 571:6

complicated518:10

comprehensive556:7

computer 559:19675:11

computers 571:18conceal 669:6concept 513:14

548:12concern 648:11concerned 636:13concluded 681:25conclusions

629:16,17 630:18conducted 501:9

503:4conference 625:23confessed 626:22confidential

494:15 663:8confirm 624:11

650:17confirmation

498:11 580:12600:15 601:11615:2 622:11,15622:18 623:6

confirmations503:12,12,15,16

560:1,6 579:9,13579:13,14 623:12623:24 635:12636:18 666:19675:13

confused 540:6601:25 602:1

confusing 523:14532:20 534:14

confusion 510:17conjunction

655:22connection 621:23

622:11consecutive 652:2consider 664:2consideration

516:5considerations

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554:5,19considering

643:16 644:24655:14

consistent 671:3,9consistently

521:24constantly 669:24contacted 592:11contents 497:1

612:2context 565:7continental 550:15

583:3continue 499:4

514:7 562:11continued 498:1continues 681:8continuing 681:7

continuous 514:5contra 533:6

534:4contract 682:12contracted 579:23contradicts 627:14conv 571:18conversation

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592:2,11,22 611:2611:6

convert 552:17591:24 592:21593:17,21 611:1

convertible 508:12508:21 509:12,18509:18 542:6,7,11571:20 590:24591:23 592:7,16600:24 605:14617:21 680:2

copies 549:25676:8

copy 505:1 558:9572:11,11 626:8652:7,17 668:10668:12

copying 651:1,2651:16

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corporate 581:21corporation 494:5

499:14 503:17,21504:11,15 505:20505:22 530:19,25531:6,19 534:11534:12 580:16

correct 502:8,9,18505:10,23 507:19512:12,15 513:25516:12,17 517:9522:23,24 523:3525:21 527:4528:2,17 529:8,12529:16 530:8531:25 532:2,23535:3,4,6,7,11536:8 537:1,8,16537:18 538:1,6,20538:25 539:8542:15 543:9,11543:19 544:5547:24 550:24552:13,18 555:8555:15,24 557:19559:5,18,21560:16,24 561:3,9562:2 564:12565:6,14,18568:19 569:7570:14 571:19573:8,12 575:25577:5,10 578:21579:19 582:12584:14 591:5596:9 601:6607:15 610:20611:15 618:13619:1 621:16624:1 626:23629:25 647:11,21

654:23 657:16660:4 668:8672:14,17 673:1674:20 676:9682:9

correction 499:10correctional

494:20corrections 683:9

683:18correctly 637:7correspondence

614:15cost 669:23counsel 495:1

496:1 499:12682:14

counter 509:14,19509:21,25 513:8

counterparties551:17 556:4557:5,23 671:22

counterparty551:13,14 553:1,2557:1,20 563:2565:10 569:5,5570:23 572:4573:15,17 589:9610:12

county 555:10679:5,6,7 682:3

couple 520:8528:12 537:9565:20 596:10599:8 605:23613:7 626:24632:20 635:6645:5 654:15665:5 667:2

course 503:7514:15 517:22

524:1 536:1,3580:22 615:19640:13 646:7,13665:24 681:16,16

court 494:1499:17 500:8522:15 677:13

cover 657:8,13682:16

covered 515:14516:25 566:23620:1

covers 588:8credit 595:23credits 595:18crime 669:7,9

676:20crisis 649:6cross 566:25 567:3

567:23 681:14crupi 645:22cure 674:4current 537:17

598:5,15cusip 527:1custodial 583:10

583:13,18 584:7585:4,10,19675:22

custodied 563:19custody 679:13,13customary 682:17customer 497:22

506:7 509:5512:19,20 514:12514:13 515:2,7,12515:22 516:3,21517:8,12 518:1,22518:23 522:20523:1,4,11,25524:2,23 525:3,7

525:12 526:2527:8,11 533:12534:6 540:17,18540:19 554:9,11554:14 559:10,13560:1,5,6,14,18,19561:4,6,22 562:19562:21 568:20,23569:9 570:5,8,11581:9,14,15585:10,22 590:25594:16 596:23597:7,7 598:9,24600:4,15 601:12601:20,24 603:4605:19 609:12615:6,8,18 622:12622:21 624:7640:8 648:2,6669:22 671:6,11671:12 672:19673:16

customer's 508:24517:11 518:11674:8

customers 494:17495:3 497:13517:18,21 519:13521:4 533:25534:9 571:22573:3 580:24583:11,14,20,22584:1,8 585:5,14585:20 586:19,25599:23 603:18604:10 613:18614:19 616:9632:13 635:11669:23,23 672:2673:4 674:19

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cycles 675:6

d

daily 497:24504:14 508:21536:6 543:23544:25 646:4679:3

daimler 568:17dasaro 496:5

500:2,2 566:2581:24 603:11

dash 537:25 543:4543:8,10 555:13623:22,25 657:23

data 567:10,11,19date 499:7 506:3

509:23 519:10527:1,16 528:6530:23 531:5535:22 538:8539:5 540:3543:24 545:17,19545:24 558:12566:12 572:16577:13 578:18600:16,19 603:22606:6,25 607:3615:2,12 616:4622:1,14,17,24624:2 626:14645:11 646:23647:10

dated 524:25608:14,15 647:23

dates 621:8 622:23624:17,24 633:22633:24 636:12652:10,13 654:15680:17

david 543:8640:20

davis 495:4 499:22day 494:21 503:15

504:6 515:15,19516:23,25 531:23539:23 543:17544:4 548:4566:22,24 567:3567:13,15,25587:24 608:20615:9 640:21653:16 656:13662:24 663:19,20663:20 682:18684:24

days 528:12608:20 626:22653:7

deal 532:14dealing 532:18

533:7,9,18deals 661:19deb 571:18debenture 680:3debit 519:7 594:22

594:24 595:5,23debits 595:18debtor 494:13debts 517:21decades 529:25december 506:3

506:22 507:24524:25 525:8527:8,13 558:16561:5,6,12,18,22624:3 625:24648:16 656:13659:21 660:15

decide 665:1decision 510:25

511:1,2,3 615:11655:21

decisions 511:15616:24

deducted 667:22668:4

deem 621:7defendant 494:9

499:15defendants 499:23

500:1define 520:8

521:12defined 520:25

552:10definitely 632:18definition 518:22

523:16deliver 522:5

528:13 529:5,15534:7 589:9


deliveries 595:11delivering 530:3

611:3delivery 589:5demand 516:21

517:8demonstrate

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500:9 682:22department

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depended 675:5dependent 593:9depending 532:11

533:7 549:3554:18 580:13

589:14 590:17591:10 592:17593:15 595:16617:9,19,20619:25 634:10667:24 676:3

depends 503:10509:2,17 510:15518:6 521:11526:7 531:15,17532:4,18 533:5,8533:16,22 534:3575:11 580:17581:6 585:11589:10,23 590:12591:8 602:10609:13,15,24,25610:1 615:24616:21 618:6667:20 676:2

deponent 496:12deposition 494:16

499:9 516:23517:1 582:4584:11,12 651:24662:17,22 663:3663:15 666:1670:7,11 681:7,20681:23,24 682:5682:16 683:5,6,15683:16

depositions 567:14depositories 530:6

530:10depository 505:25

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deposits 648:2describe 679:17described 671:10

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difficult 534:22dipascali 575:13direct 589:25

590:2directed 617:14directing 664:13direction 618:3,11

621:12 665:1682:7

directly 536:19disc 670:7,11disclose 664:19disclosed 516:9discretion 621:16discs 681:21discuss 663:23

666:5,7discussed 528:11

608:12 663:4,25666:7

discussing 637:11637:13,15

discussion 571:2594:13 615:10681:6

discussions 617:1664:3,12,12,16

dispute 615:18distribution 568:9district 494:1

499:17divided 658:10,20

659:23dividend 581:20doctor 653:1document 498:19

500:17 502:25505:18 506:2,4,9506:18 509:25525:4 530:21535:2,19,21 547:4547:9,10 549:9,14549:20 558:1559:1 569:12,19572:17 577:18594:8 596:11599:17 600:1,12600:14 604:3618:16 627:3,10627:16,19,24

632:20 641:17645:4 647:23648:1,19 649:9,20651:9,21 652:16652:21,22,23653:1,6,20,20,23653:25 654:1,10656:7 679:1

documentation503:7

documents 511:10534:24 541:9,10549:11 567:6,10603:15 611:9612:1,2 621:21651:23 664:10665:7,13,14,17,19665:23 666:10,17666:18 668:23,24669:3,4,12,16,18669:20,22 671:24675:1 676:16678:6,7,8,11 681:9681:10,14

doing 508:12512:14 532:12553:17 554:2555:5,6,23 556:2,3556:17 573:24591:14,15,22592:7,16 598:19615:8 617:23619:22 642:20644:13 647:13

dollar 504:8 520:2dollars 515:9,12

527:10double 651:22,25

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dozen 628:10629:5

draw 658:24,24659:2,4,5,7,8,9,11659:11,15,18,18659:19,20

drawer 655:19656:1,3

draws 661:5drew 659:5drink 519:22

644:23dropped 619:6dtc 505:24 525:18

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dtcc 636:16dubinsky 521:23

534:18 592:9601:25 615:22643:4 649:1

dubinsky's 641:21due 527:1 565:1

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f

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513:10,17 514:19516:8 523:12,19524:4 525:24533:2 542:6562:21 566:23567:5 573:23,23588:25 592:23620:2,3 636:2637:13 639:8,16641:11 653:2655:18 657:7673:9 677:22

fair 511:6 513:22516:10 518:21668:7 673:15675:23

fairlawn 496:14fake 521:9,25

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familiar 534:13535:19 588:10599:2 609:17666:13,14 675:18

family 616:16617:6,7 618:8628:10 629:6632:9 661:15

far 548:12 557:7636:12 669:21

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fee 609:25feel 534:18feeling 663:6fein 496:4 497:4,6

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567:1,9,15,22568:1,2 569:11570:25 571:3,7,9571:11 572:14,20572:22 576:2577:19,22,25578:6,9,11 579:2582:8 584:18,20584:23,25 585:2587:12,16,18594:2,7,12,14595:3,6,9,20,25596:2,3,21 597:21597:23 600:7,11601:9,12 603:8,14603:23 604:2605:11,13 611:8611:15,17,19613:3,6 616:12,15618:18,20 621:15621:20 622:7626:7,10 627:15627:21,23 628:6,8628:14,19,24630:1,3,6,15,20,24631:3,16,18 634:1634:6 635:9638:20,22 640:10641:8,13 644:15644:18 645:3648:15 651:18652:1,4,12,25655:5 661:6,10663:13 664:13,20664:23 665:2,16665:22,25 666:22668:12 673:21674:1 679:1681:12

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firm's 508:25,25510:23 539:17545:6,15 547:22554:6 574:25602:14 679:13

firms 506:6,9507:17 528:11529:10 530:15531:20 532:5,6,7532:14 533:16582:17 583:6

588:22 590:1591:12 669:19671:19 675:4,8,11676:5

first 500:12506:15 515:15536:14,16 537:22568:14 570:2571:17 577:8587:8 595:3602:12 606:10608:3 621:1622:15 625:13626:14,15 628:1,8628:16,17,19,22628:25 633:9635:10 636:23637:1,19,21 645:5645:6,9 646:23649:8,9 650:24651:6 655:2 656:7657:23 671:4676:13

five 502:21 512:21520:16,18 536:6540:24 542:9,14548:1,5 552:11553:23 576:12578:3,8,20 590:11659:11 679:3

flip 650:3floor 668:1flowed 600:2flowing 595:17flows 598:12

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format 594:19forms 554:21forth 534:2 590:3

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594:21 646:24649:18

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675:17fraud 564:5

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goldman 496:13497:5 500:6,6,23519:22,25 520:3532:8,16 553:21553:25 557:18566:12,16 579:5581:22 584:17,19602:21,24 603:1628:7,12,18629:12 630:2,5,9630:16,22 631:2631:13,17 633:21633:24 634:4,8

635:8 638:17,21641:6 644:16,21652:15 662:21663:4,10 664:6,24665:11

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handling 524:10575:14 590:17

handwriting558:22 612:14,22

645:24 649:11,13649:19,20 650:1,5650:6,8,11,13,18652:18 653:13654:5,7,9 655:7668:14,21 671:25

handwritten612:8,21 645:10649:7 654:2,3,20655:3 656:11

hang 618:17663:25

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immediately669:19

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investors 633:11633:12,18,19

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511:13 515:5518:9 533:12595:18 634:3654:21 676:2,20

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566:23 631:20651:15,16

items 671:6

iv 494:17 681:21

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j 621:24jail 676:25january 500:18

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jodi 645:22 646:2653:11,13 654:17656:19 668:17

jodi's 652:18653:21 654:10,21655:2

joel 540:15 543:1544:14

john 585:25jones 585:25

587:10journal 554:16jp 588:13jpmorgan 583:3

589:16 647:6672:25

judge 644:6677:12

july 535:23 536:9539:6 540:3545:19 556:19577:9,14 679:4

k

k 494:18 682:22keep 510:8 538:7

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keeping 589:18kept 535:3 541:9

548:13 645:25646:1,4,6,10,13

673:10 674:10kind 507:25

600:13 601:19639:1 645:25

knew 554:24635:2,2 639:25640:11,11 648:20655:16 656:8666:14 678:14

know 501:12,12501:13,20 502:3503:14 504:16508:7 509:6511:18,22 513:12518:3,3,8 520:9521:12 522:17523:5,14,20 524:6524:10,15 529:23530:24 531:4532:20 533:25534:1,11 536:22537:4,5 538:21540:7,8,25 541:14544:12,17,19,19545:5,7,12 546:2,3546:3,9,9,10,13,20548:6,7 549:8,12549:14,15 550:2554:3,20,23,23555:3 556:13557:12,14 560:2,2560:9 563:17,19563:21 564:13,20565:23 566:17572:9 574:20575:1,10,10,15,15575:17 576:13,16576:23 579:7,10580:13 584:2585:20,20 586:12588:5,17 589:7

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legal 499:6 500:9521:19 523:15,17653:17

legitimate 507:20521:14 548:2627:10 643:9,23

lehman 550:23551:7,8,11,12672:25

length 625:19letter 619:16

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levy's 614:9liability 515:4lie 640:21,22lied 640:23life 637:25 638:4

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m

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month 501:9,15502:16 604:11,15604:20 608:13,21609:1

monthly 501:7580:25 581:4635:11

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564:7 638:8,14poster 642:16posting 518:12practice 503:19

504:9 513:6518:10 519:12529:24 530:2580:2 584:1618:11 675:4

precursor 505:24prefer 519:18preference 627:17preferred 600:23

600:23 605:13premises 510:21preparation 666:1prepare 662:17,21

663:2,14prepared 535:22

535:25 536:3559:1

preposterous643:4 647:15

presence 523:21present 499:20

549:16 625:17657:24 658:6,16662:2

pretty 588:8638:15

previous 537:15538:2 539:11543:20,25 544:23

previously 509:11511:23 525:11569:23 672:11,21

price 614:6,7615:2,9 616:4

prices 598:21pricing 671:13principal 508:8

509:3,4 523:12601:5,8,17,20602:17 603:2,3,4610:5,6

print 507:4 572:10printed 506:19

652:4,5 668:21printout 654:2prior 502:16 512:7

516:19 545:24579:22 617:19621:7 655:21656:20 669:9677:12

private 499:3probably 511:12

523:11,19 530:20530:24 547:14575:18 576:14620:18 644:6649:1 652:20,20654:14 665:5

problem 571:7572:14 633:22641:20,20

procedure 579:20580:20 683:4

proceed 500:10process 557:14

651:19 654:22produce 677:6

678:3produced 513:12

567:6 676:22,23677:8

product 664:1,3,4664:14,15,17,21

professional494:18 682:22

proffer 498:18523:20,21 625:6625:12,19 629:8631:8 634:16,25635:14 636:19637:10 638:18660:6,7

profit 658:4,25profitable 642:1profits 661:5

667:8,9,13 668:6promise 566:1properly 636:3proprietary 507:7

509:9 516:3520:16,19 523:8523:13 543:13547:23 552:12555:7 646:8 667:8

prosecutor 523:21524:8,9 640:5677:15

protection 494:5499:13

protocol 579:20580:20

proved 641:24provide 682:12

[plaintiff - provide] Page 25



CONFIDENTIAL

provided 582:13583:9 584:15

prudential 538:19538:22 544:17

public 494:19682:23 684:23

puerto 680:11purchase 512:22

518:4,12 525:7580:5,10

purchased 512:20514:14 521:5522:9,21 523:2526:4 561:8,18,24562:22 575:12622:3 672:18674:15,16

purchases 508:21purchasing 563:23purported 636:17purpose 676:18purposes 589:4

651:24pursuant 683:3put 510:19 515:18

558:1 570:12591:24 592:1607:8 615:12627:1 634:9655:18,25 669:8674:5 681:5,12

putting 652:21

q

quarterly 580:24581:3

question 520:10520:15 529:1553:3 556:11,15567:13 580:3,23583:15 584:6,6,15585:18 586:8,9,10

587:3,6,9 588:20596:21 602:4610:2 616:12,14619:18 628:7,22632:23 634:5635:8 641:11,14641:14 644:16650:20 653:10664:5,24 665:12666:16 678:20

questioned 567:7questioning

529:23 566:21567:17,21,23627:2,19

questions 579:6,7579:12 613:7632:21 635:1,7639:11,14,21645:5 666:25672:9 678:21679:5 682:6

quibble 653:24quick 579:6quickly 565:19,24quiet 640:4quite 635:5 675:17quotation 630:13quote 514:9

r

r 621:24 682:1683:1,1

rates 518:4 634:22682:17

rca 680:2,8read 566:18

572:10 578:2584:17 587:16600:16 603:19604:3,7 612:7619:2 628:7

629:10 631:3,4,5633:15 635:10,21642:3 643:3683:15 684:1,4,7684:10,13,16,19

reading 637:6638:2 681:23

reads 536:6 608:3ready 568:5 645:7real 518:23 520:24

521:15 522:16659:7 680:24

realized 549:22really 546:2 548:7

554:4 567:2611:20 630:6634:7 639:20648:11 661:16,16668:18 669:5677:4,4

realty 495:11reask 628:21reason 510:7

528:16 533:14634:18 639:8642:9,13 671:16671:20,21 672:4,5673:5 684:2,5,8,11684:14,17,20

reasons 533:13,15534:15 627:4683:7

recall 501:11508:19 509:16510:13 511:20519:1,3 530:13531:2 583:6 625:9629:7 630:7 631:7631:13,25 632:6632:10,14 633:13635:13,19 636:13

636:18 637:5,9,11638:1 655:8,8,9,12656:5 660:10662:3,5 665:4673:9 675:2 680:1

recalls 630:25634:6

receive 501:7,14503:21 528:13529:5,15

received 501:11503:6,14 504:14595:13 618:24635:11 659:16

receiving 530:2recess 582:2 670:9recognize 559:9

559:12 600:13611:19 645:13649:10 668:14

recollection582:17 636:9,11655:5 664:10666:11

record 497:25498:3,5,7,9,12499:2,5 509:22510:6 515:19517:3 521:15527:3 536:7 540:7540:9 542:1,3545:13 546:14,21558:19 559:4,6562:6,7 566:20568:3,7 569:19,23571:2,14 576:22578:20 581:25582:3 585:13,15585:16 586:3587:14 589:20590:20,21 594:13

[provided - record] Page 26



CONFIDENTIAL

603:15 604:5609:3 627:2651:20 670:8,10676:11 679:3681:6,13,19

recording 499:4records 501:25

502:2 510:3,10,14510:19,20 511:1513:11 535:3,5,9539:3,6 541:4,16546:10,13,22,23546:25 548:12,13549:17,18 556:14564:8 574:19575:3,7 580:7585:13 590:18,23599:4 636:17675:17,24 676:14677:8,10,16,18,19677:20,25 678:1,2678:3,15

redacted 627:5,5,7627:9,12 641:7,12

redemption 517:8redemptions

633:12,20reduced 682:6refer 506:17

520:18 521:6,24528:15 539:1601:23 612:12614:24 647:2,3659:2 661:3

reference 625:7references 660:5referral 682:15referred 505:22

521:22 554:12referring 520:10

520:12 541:18

547:1 550:6 560:5568:10 570:11573:18,19 605:24619:15,20 634:24638:5,7,8 645:23650:5 657:7,14658:3,12 659:8

refers 527:6536:23 538:21548:5 586:15615:13 631:19658:4,25 661:23

reflect 502:6 506:2506:7 507:25508:23 515:4,11515:22,23,23542:5 546:10556:14,17

reflected 508:5,9508:23,24 519:4539:18 545:8,13545:14 575:2,7597:8

reflecting 540:10543:23,24 635:12

reflection 502:15629:1

reflects 505:4506:3

refresh 582:17664:10 666:10

regardless 619:21registered 494:18

514:3,8 532:14682:22

regret 642:21regular 514:4regularly 646:1

647:25regulations 517:25

518:17

relate 675:20related 607:20

614:15 652:10,13653:19 660:20,21664:20 667:14669:22 671:21

relating 669:22676:12

relation 662:25relationship 666:8

666:8relationships

675:22rely 528:19 529:5

531:24relying 589:4remaining 650:17remember 526:5

526:11 582:9584:12 588:18616:18,22,25617:16 620:17625:7,22 626:1,19631:14 637:13638:15 639:16669:2,11 673:11

remembered588:9

remembers 634:1rent 678:12repaid 519:13rephrase 529:1report 497:17

498:20 505:8507:25 508:6,9,13508:16,18 515:11521:23 539:1,7542:16 543:16544:7 546:6 548:1548:15 551:3,16552:9,14 555:22

556:8 557:2 559:4559:16,22 560:10565:16 567:2568:3,6 569:8570:12 571:12572:4 575:24577:9 592:10594:25 596:3597:25 604:16,17607:5,9 608:13,15609:1,19 610:22629:22 632:12,17641:19,19,20,21641:23,23 643:4644:13 645:25646:1,13 651:11656:17

reported 514:24682:5

reporter 494:19500:8 682:14,22

reporting 497:18505:19 682:13,14

reports 508:20521:23 565:20,24567:1,10,16573:16,20 604:13604:19 643:3660:10

represent 499:21506:18 556:1560:25 641:1682:8

representations652:5

represented562:19,21 563:13

representing499:6 500:9557:13 598:4,5

[record - representing] Page 27



CONFIDENTIAL

represents 506:20557:13 595:17597:5,6,11

reputation 640:12640:16 644:12

request 520:23522:6,13

requested 581:6,7646:18,19 676:13676:15,16

required 514:4669:18

requirement669:17

research 553:11reserve 518:1,17

681:13reserved 681:24respect 509:12

514:19 525:14567:16 621:1648:5 649:2,3,4669:3 679:16

respond 633:16response 567:22

586:12responsible

511:17result 682:11retail 628:2,9

629:2 631:6,11,20632:8,16 635:18635:24 636:23637:2,4,15,21,25638:4

retaining 669:15retention 510:6

669:16returns 632:12,17

637:16

reveal 664:17reviewed 557:7

561:19 569:23575:24 583:16594:15 618:16620:22 622:21665:17

reviewing 560:9reynolds 621:24

622:24 623:4rico 680:11ridiculous 639:15

643:2,6ridiculously

637:16right 501:18 505:7

507:1,1 513:19,23521:17 526:8527:4,19 528:9,13529:11 534:25535:10 536:19,21539:7 540:20541:6 542:10,11542:12,14,18543:1,18 544:8,22544:25 545:4,18545:20 546:1547:19 548:16551:5 552:12553:12,25 558:7558:17,18,25559:3,13,17 560:1560:18,23 561:8561:24 563:3564:11 565:9,10565:13 567:5,12568:16,24,24569:10,25 570:1,9570:9 573:6,22575:24 576:7,9,10577:3,7 578:17,23

578:25 579:1,1582:19 583:7,17584:13 585:2586:17,20 587:1587:21,25 590:8590:11 591:1593:10,12 594:17594:18,23 595:10596:12 597:2,23598:1 599:10600:5,20,25 601:5601:9 604:16605:9,17,21,24606:3,12,14 607:2607:8,10,10 608:2609:18 610:5,6,9610:12,19 611:14611:17,23 612:10613:8,11,14 617:2618:3,12 619:7,12619:16 620:11,19620:23,24 621:11621:13,19,25622:13 623:13,14623:16,22,23,25624:8,9,11,19,20626:18,22 627:18630:15 634:8638:24 639:2640:17 641:5648:17 649:15651:7,8,12,15,17651:18,18 653:15653:18 655:4656:15 657:15658:8,14,19,22659:14,22,23660:3,12,13,15664:21 666:22668:22 671:3672:10 673:2

676:6,6,8 680:13680:18,19 681:13

rights 581:19ring 588:15rjr 623:3roads 591:13rockefeller 496:7roll 612:1room 499:20

567:10,11,20625:23 640:11

row 651:24rpr 682:22ruin 644:12rule 514:3,12

532:17 549:8676:1 683:3

rules 683:3run 558:23 604:11

604:19 681:18running 574:19

618:7rye 496:15

s

s 511:20 539:13683:1

sachs 532:8,16557:18 602:22

sachs's 602:24safekeeping

536:20,21,25sage 495:11,11,12

495:12,12 499:25613:7 616:16

sages 519:2 613:11618:3 666:5,7,9,11666:13,14

salary 659:6sale 508:21 522:3

523:15,16 580:5639:21 640:7

[represents - sale] Page 28



CONFIDENTIAL

643:11,14,19,21644:4

sales 521:25580:11 641:5

satisfy 516:20517:8 593:25

saw 575:23 635:17647:25 665:12,14665:19,19 666:18666:19

saying 526:24547:8,10 549:9555:4 556:6,13586:11 587:8588:23 591:2593:8 599:25607:18 618:1621:19 631:13,14636:13,19 637:9637:10 638:1,7,9638:11,15 639:11640:10 641:8643:14 652:19653:5 654:13,20663:1

says 500:25502:20,21 537:25538:18 548:18,18550:22 555:13,19557:17 560:15568:9 576:9 578:4578:13 594:21596:11 601:15604:14 611:20,20612:19 618:23623:19 628:13636:3 657:5 658:8658:15,23 659:11668:15 671:4672:1

scheer 601:13605:20 606:11,18

scheme 633:20schwab 497:14

502:20 503:2,8,20615:5,5,7 643:24

scope 516:23567:25

scotch 644:22scraps 677:20scratch 583:6script 668:21sec 514:10,12,24

515:11 516:9523:22 524:4538:19 639:17640:3,10,11,21643:12

second 557:16580:23 608:4612:6 618:20622:17 625:16636:22 637:18649:22 663:20671:4

sections 627:7securities 494:4,8

497:16 498:14,16499:13,15 501:9505:4,20,21512:18 513:15514:13,21 518:2,3518:7,12,19,23521:5 522:5,7523:2 524:10525:16,18 528:13529:5,15,21 530:3530:18,23,25531:5,11 532:22532:24 533:5,6,23533:24 534:1,2,7

535:6 537:10538:22 539:2543:18 544:11545:14 546:6,22546:24 551:1,4552:15 553:7554:17 556:5557:2 561:7,12,14561:16 563:2,23575:23 576:5,17576:25 577:1583:11,14,19584:8 585:5,14,24585:24 586:18,24589:5,9,13 593:9593:13 595:12596:17 597:1,6,9598:22 599:13611:21 612:25640:5 675:19,24680:24

security 503:25513:14 516:1531:16 533:1,3,3,8533:10,11 534:3537:23 539:17543:21 544:8545:4,21,24548:19,22 549:4,5560:13 568:18570:2,3,6,16 573:4578:12,23 591:10591:19 592:3,12593:10 596:5,16596:25 597:24598:1 599:5600:22,24 606:13609:7 611:3

see 507:12 519:7525:1,5,8 527:17528:10 536:15,16

537:10,19 538:2538:15,24 539:11539:21,25 540:16540:22 542:2,2,8543:7 544:13,15544:16 546:17550:18,23 552:3,5552:17 555:10557:5,8,10,16,22558:12,22 559:7560:13 564:25568:4,17,20 569:1570:3,5,15,19571:11,17,22,25572:2,8,22,25573:6,9,13 576:6,8582:16,23 583:7586:14 594:9,12594:16,21 595:5595:12,25 596:4596:22 597:16599:6 600:16601:1,11,13 605:1605:16,20,25606:1 607:7,13,23608:4 612:3,6,18617:19 618:23619:7,10 620:25621:4,6,24 622:7622:20,24 623:7628:1 633:21636:23 645:11646:25 647:19650:18 656:23657:5 658:7,18,21658:24 659:10,12665:22 668:25670:18 680:4,8,10680:14

seeing 654:4678:17

[sale - seeing] Page 29



CONFIDENTIAL

seek 511:10seeking 633:12,19seen 521:24

630:13 647:22656:17 666:21

segregated 586:21self 528:16 531:23

588:24 610:19sell 514:2,7 516:11

522:3 523:18524:14 533:15591:17 592:19602:15 615:5679:19

selling 509:4512:25 513:6,14513:18 521:13,18593:5 597:8599:20 601:22602:22 603:2,4

sells 504:2 521:17523:11

send 504:5 510:19512:19 580:24655:16 656:3661:20 676:16

sending 571:5592:22 655:14,15675:4 679:20

senior 640:2sense 512:25

617:12 620:7639:25 642:8

sensitive 499:3sent 515:7 646:18

679:20sentence 618:22

618:23 620:25621:1,4 628:1,15628:16,17,20,22628:23,25 629:10

631:11,21 633:9635:9,11 636:15636:24 638:3677:23

sentenced 642:14677:21

sentences 619:2635:10

sentencing 677:13series 555:11

605:13 641:22services 583:8

682:13session 523:21set 517:25 518:17

549:18 569:15571:6 572:1587:20 666:23

settle 673:6 674:8settlement 519:10

600:19 607:3675:13

settlements 675:19settles 671:21

672:4,5seven 623:22

627:23 628:25631:4

shapiro 613:20614:3,4,6,11,18616:9

share 558:9 662:9shares 504:4,5,7

512:21 540:5551:9 574:18576:3,4 577:14578:19,22 606:10606:22 607:7622:3

shearson 550:23

sheepish 640:4sheet 683:12shocked 524:7short 512:25,25

513:6,13,15,18515:2,5,22,24516:2,9 521:7,13521:17,24 522:3522:11 523:4,11523:15,16,18,25524:2,13,14525:24 535:10537:17 538:11539:13,18,25541:5,17 561:2563:13 577:12578:15,15 581:8581:10,16,17592:20 593:3,4,6596:13 598:14599:7 614:11619:24 620:1,8639:21 640:7641:4 643:11,14643:19,21 644:4673:12

shorted 619:9,13621:7,10

shorting 619:23shortly 625:15shorts 525:14show 502:19

504:24 505:1,16506:5 508:13514:25 515:1523:4 535:2,5,9539:13 540:4,11541:5,10,16542:16 546:24547:9 549:10,11549:14 550:18

551:3,16 555:22556:8 558:7565:16 572:13576:18,20,24577:2,6 582:14585:13,13 595:1595:15 603:9604:22 611:9612:1 626:5679:23

showed 508:20515:8 521:4,10523:1 527:9541:13 546:22561:6,12 564:3590:21 660:10665:23 679:1,24680:2

showing 501:8,24502:11 542:1543:22 544:2545:24 551:8555:18 578:16598:20,21 600:2600:23 674:22675:24

shown 514:21525:12,17 526:1527:24 561:2,16561:17,23,23577:9,12 578:19590:24 606:9,17606:18,19 610:7610:22 622:10623:15 624:2,7665:7 666:10

shows 500:22506:4 525:7 542:3542:17,20 543:16543:17,20 546:6547:7 548:15,17

[seek - shows] Page 30



CONFIDENTIAL

548:17 551:4552:9,14 556:4,4,8557:1,2 559:5569:8 576:22578:22 598:14600:1

shred 612:19,24669:12,19 670:18670:21,21,25671:1,1 672:1

shredded 669:4siac 538:24 552:19

552:21,25 553:6557:10,12

side 506:10 507:7509:8,9 533:6544:18 550:21551:12 552:22559:13,20 563:12564:10 569:2570:9 573:21577:3 578:25580:19 592:8646:9 648:6,12651:14 652:22658:8

sided 514:5 651:21651:22,23,25652:5 653:3,3,5

signature 682:20684:21

significant 513:7significantly 619:6signing 681:23similar 518:14

569:22 596:24similarly 671:23simply 637:25single 542:17

563:17 609:12651:9,21,23 653:3

653:6sit 640:3sitting 673:19situation 620:16

663:5six 510:6 584:25

605:18 606:1669:16,18

size 565:20 676:24sloppy 677:18small 637:14smb 494:7 499:18smith 557:8smoking 639:23soda 644:20sold 504:2,4,7

522:10 523:25524:2,13 533:6549:4 561:17601:15,17,24619:21 640:8671:19

solutions 499:6500:9

somebody 511:14613:16 637:7670:23

someone's 636:4somewhat 520:17

527:18 539:21638:23

soon 637:3sorkin 677:7,8sorry 536:12

549:21 550:12560:5 564:22568:5,24 571:9572:7 573:2577:19 595:1597:19 605:2628:18,20

sort 524:7 554:3557:14 566:13624:13 655:23656:21 661:5,9675:14

sorts 532:7 625:20sound 626:18sounded 639:15sounds 555:7

587:3southern 494:1

499:17speak 562:6,7

575:14 651:18speakerphone

625:18special 601:13

605:20 606:11specific 509:23,24

672:2specifically 639:17specify 512:14speed 566:1spent 558:6split 511:24 512:7

512:10 514:19517:7 561:11581:21 617:22

spoke 522:18548:9

spoken 643:11stacy 496:5 500:2staff 511:7 559:17stage 589:24 675:5stands 526:13stanley 526:23

548:24 575:1672:23,24

start 537:2,4 589:7632:5

started 512:10513:16 517:6519:17 617:20626:2 637:14,14676:20

starting 599:7604:4 643:16647:12 660:6

starts 544:25stated 563:20

564:7 682:5statement 497:22

500:19 501:17502:12 512:19514:12 515:7519:6 523:5524:23 525:3,7527:3,13,18 561:4561:18 566:20581:10 594:16595:15,16 597:7597:10 598:10,14598:25 601:21619:12 622:12,21623:16,19,21624:7,11 628:4,8628:11 629:7630:10,12 631:6,8632:1,6,10,14633:13 634:11,12635:14,19 636:1,1637:1,5 644:7647:11 660:7683:7

statements 501:8501:14,22,23514:21,25 519:5521:4,9,9 522:20523:1 525:12,17526:2 527:8,11,25529:20,20 560:1,6

[shows - statements] Page 31



CONFIDENTIAL

561:6,11,22562:19,21 580:25581:2 590:25592:11 596:24,24597:7 618:24626:25 630:4,7,25634:2,7 635:12641:1,3,8,23 642:5643:1,5 666:19670:18 675:1,4

states 494:1499:17 625:6,23

stating 676:12stearns 529:7,14

530:15 532:8591:12 672:24

step 603:1stock 497:24 498:3

498:5,7,9,12 513:7516:12,13,14521:18 522:10523:11,18,25524:2 535:3,5,9536:6 541:4545:13 546:14,21546:22,23,25551:11 558:19559:4,6 568:3,6569:19,22 571:14576:22 578:20581:21 585:12,13585:15 589:8590:21,23 591:25592:6,19 593:2,2,5593:6,17,22,23,24599:20 601:22602:12,25 603:15604:5 609:3 611:5615:6 620:9 640:8671:19 679:3

stocks 515:9,10,13621:7

stone 510:20stood 657:3stop 670:3stopped 503:11

512:14 514:20store 669:20story 634:17strategy 590:17

592:18 616:23671:9 679:20

street 506:6 509:8537:5 544:18591:19 602:21642:16 648:24,25649:3 669:16

strictly 592:18strike 511:24

512:7,10 514:20517:7 531:22561:11 617:22

strt 536:22 537:2structure 609:25stuff 653:12style 617:24sub 552:17 571:18subject 664:9subjects 566:22submitting 644:13subscribed 684:22subsidiary 576:19

576:24 674:23substance 664:12

683:4substantial 519:2

647:19sudden 678:7sue 643:23suggest 633:14

summaries 569:23summary 498:4,5

498:8,10,13558:19 568:3,7569:19 571:14578:20 604:5609:3

sums 647:19supplemental

683:10supply 671:14supposed 642:24sure 517:5 521:16

523:14 534:25541:18 546:2547:3 551:10553:4 554:5,23556:12 566:14575:8,9 578:1580:2 584:18,23585:8 586:8596:20 597:5603:11 604:21606:20,21 608:24611:13 614:21618:18 627:11628:8,24 630:9632:24 647:18649:23 657:24659:8,20 660:16666:15

swap 591:20 592:5592:5 593:2

swear 500:10switched 614:5sworn 500:12

684:22system 504:12,19

539:4,6 559:19,23559:25 560:3

systems 511:14

t

t 566:23 672:9,13672:18 673:10,20674:13,14 682:1,1683:1,1

take 503:23 516:4517:10 518:14519:18 533:25535:8 564:14579:3 581:23593:25 618:11,15623:16 625:22626:24 668:9,11674:9 679:24

taken 494:17499:11 582:2618:2 659:2661:14 670:9

takes 615:10talk 520:9 522:19

541:10 642:3663:7 664:2,8

talked 561:5562:20 680:6

talking 501:12510:4 518:5522:17 530:17554:13,15 556:23562:18 574:2,24579:11 585:12593:3 634:10,13637:18 649:2660:23 674:21678:16

tape 582:4taught 528:5tax 617:4,23

619:22 620:2,7621:9 669:23670:1

[statements - tax] Page 32



CONFIDENTIAL

technically 620:12tell 502:24 504:16

505:2,17 506:4517:23 532:3549:17 551:6553:16 584:21585:23 591:2624:12 634:24643:25 645:7653:17 661:17665:18 668:18670:25 678:4,9

tells 598:20ten 582:23 653:7tense 619:12term 520:25 521:1

521:5 533:11554:19 562:25563:16 564:9565:5 572:1 619:9619:24,24 621:3673:12

terminology 522:2584:3

terms 520:8,17,20651:9

testified 500:13502:5 509:11511:22 512:4525:11 529:24562:1 616:15617:13 672:11674:23

testify 526:13testifying 673:10

674:1testimony 515:15

515:19 522:25526:13 527:17540:19 576:2,3582:20 583:7

587:15,18,24588:3 590:7 674:2683:6

text 631:4thank 501:3

502:22,23 519:16520:24 524:21528:25 529:3534:20,23 536:9550:12 558:3564:22 566:7572:15,21 585:1594:10,15 596:2600:8 603:12,13645:12 666:23681:3,17

thanks 581:22,24584:19

theater 640:21theoretically

610:15thereof 659:9thereto 682:6thing 523:17

539:21 564:2,21586:3 591:15614:1 617:2624:13 639:24641:19 676:13,22

things 516:25592:9 609:16642:7,13,20 643:8653:19 656:25657:2 661:5,8,9,18667:25 671:18675:14

think 511:16521:11 526:12534:24 537:3,14538:5 539:21544:20 564:20

567:24 568:12570:25 572:7577:25 586:11587:7,8 604:8606:16,17 607:8608:18 617:15619:19 625:13627:8,18 629:17630:18 633:8634:4 638:23639:2 644:22654:12 655:20656:6 657:18,21658:4,25 661:10661:11 665:2666:23

thinking 660:23thinks 629:14third 525:4,21

526:21 527:2528:20 529:6,9,19531:24 663:20679:5

thought 527:16546:23 587:9588:14 609:1

thousands 504:1three 542:9 549:3

572:10 578:14623:25 627:12636:21,22 638:3670:11 681:22

time 499:7,19503:11,13 505:7510:16 512:6,10514:20 515:10517:6,14 518:5521:3 523:5,24524:2 526:7,8,17527:5,12,20529:23,25 530:3,9

530:13,17 531:3533:22 541:6548:4 551:1553:17 554:6555:5 558:6 561:5562:22 574:9575:4 579:2,17582:1,6 588:5590:4 593:6,7596:18 612:25615:9 618:9620:13 623:13,16626:2 627:19631:7,12 632:8,15634:10,14,22,23640:15 647:23648:15,23 649:4654:12,15,16656:2,12,13,22658:5 670:2,8,13674:12 675:3676:2 681:22

timely 567:6times 524:14

563:23 589:13634:12 669:15,22

title 536:6 558:19569:18 571:12,18604:3

tobacco 621:24today 516:24

521:1 522:19548:9 585:7 587:3587:19 594:3625:5 662:22,23665:17 666:21

today's 499:7told 526:2 541:4

546:21 624:15666:9

[technically - told] Page 33



CONFIDENTIAL

top 536:14 550:5558:12 559:7568:4 578:4 612:2627:24 662:15

topics 566:24567:4,16,18

total 515:5 539:22631:23

totally 592:10615:19 639:15641:24 642:1,5,14642:21 643:5

track 552:25589:19 590:20646:21

trade 497:18503:15,25 504:10505:19 506:3509:21 520:24521:14,14 538:17543:12,14 549:1,5552:4,8,19 553:3553:14 555:16,17560:1,3,6 563:12565:10,12 569:6571:17,20 574:6574:10 575:19577:13 591:23592:17 600:16601:19 602:5,23606:6,9 607:20,21608:10 615:8,12615:17 616:2,3,5617:24 618:2,11620:4 621:13622:10,14,22,24623:4,6 624:2,17624:18,23 635:12637:15 638:1671:20 672:4679:9

traded 509:18,19509:20 513:9545:6,21,23,25547:21,21 554:6,9554:11

trader 537:25542:17 543:2,5,17544:1,3,4,4,7,8545:3,21,25547:11 602:7,9

trader's 545:1,10traders 542:13,18

542:20 543:12544:11 545:14,23555:23 556:3557:13 655:24656:24 657:6,8,10659:9 667:5

trades 503:17,18509:4,10 512:7,11512:14 521:4529:18 540:11,12545:9 552:25553:1 554:14555:22 556:1,2,3556:17,18 565:17573:20 590:24591:3,7 601:4615:23 622:20635:12 636:18637:3,23 666:20

trading 507:7508:1,7,12,25509:1,9,12 510:2511:23,24 513:16520:16,19 523:8523:13 537:25538:18 540:15541:11,14,25542:5,6,14 543:5,8543:10,17 544:12

544:16 545:1546:16 547:14,23548:21 552:12,24553:16 554:1,21554:22 555:6,7,14557:17 590:16602:14,15 612:9617:14 636:16661:4 667:8,13,14

transaction497:16 503:19513:8,9 515:25516:3 518:13519:11 521:21522:9,12,16,16523:17 525:9526:18,19,20532:11,13 533:12534:15 537:22542:7,25 544:18548:20 549:2550:14,22 551:7,8554:20 555:11,21564:11,25 568:15572:8,23 573:1,10573:22,24,25574:17 575:16576:15 577:8578:13 579:24580:1,8,19 581:11581:16,16 589:11589:17 590:14591:23 592:8593:4,15 601:23602:10,11 605:1,8605:16 606:18607:4,4,13 608:1608:14 610:3,4,12614:25 615:13,20615:20,25 620:1622:1 643:15,16

643:23 644:5667:20,21 668:1

transactions 501:9501:24 502:3,6,13502:16 503:4,8,23503:24 505:11,12506:5,7,10,21507:6,17,20 509:8509:24 521:10,25523:1 525:12528:21 531:8,24534:6 540:17,18540:19 541:2,3545:12 552:14,15563:18 574:3576:17 579:9,18579:21 581:2,8588:25 589:2590:7 591:17595:19 599:23608:17,23 609:2,4609:10,11 610:22614:20 616:10617:21 624:10

transcript 682:9transfer 537:2,6treasuries 525:8

525:20,23,24526:1,4,10 527:9527:22,24 532:14533:4 561:14,17561:23 562:22574:24,25 575:10

treasury 525:15526:18,25 532:13565:1 589:15

treated 516:6treatment 620:7trial 676:19trigger 620:2

[top - trigger] Page 34



CONFIDENTIAL

true 562:3,4565:15,17 597:4639:6 652:20682:8 683:17

trust 505:25582:25 583:1

trustee 496:3497:21 498:2500:3,5 510:10523:22 535:16558:8 569:16578:3,7 676:16678:10 681:9,11

trustee's 521:23524:16,20 535:12558:4 566:10569:13 600:9603:6,10 611:9,10611:11 626:11644:25 668:10671:5,23

truth 624:12665:18

try 524:18,18565:19 644:12665:11

trying 512:1 534:1534:20,21 546:3,4546:5,11 554:24554:25 555:25556:7 565:23585:6 587:16597:13 609:20610:21 617:15618:14 635:3642:15 657:2658:11 660:8661:8 669:6

turn 525:3 549:19555:9 564:22,23572:6 603:3 612:6

627:23 636:21643:17 656:2678:21

turned 524:4640:1

turning 639:17two 507:11 514:5

516:23 526:5,9542:9 550:2551:25 566:22567:3,15,25 572:7579:6 582:4597:13 601:2,8607:24,24 608:6608:10 611:9614:18 616:9619:2 621:21625:11 627:4635:10 639:17650:23,23 653:8663:22 668:20670:7

type 518:8 532:11533:8 535:21553:16 593:10604:13 639:24

types 608:10680:21

typical 609:9618:11 659:5

typically 501:13531:22 540:8548:5 560:19563:1,9,12 580:11589:16 596:23598:4,9 601:22602:10 604:11,19609:23 615:3647:25 667:12,18671:12 674:8,10

u

u.s. 525:8 625:11625:14,17

uh 500:21 527:7535:18 537:13,24538:12 539:24543:3 552:2,23555:12 557:11,25558:14 559:11565:3,11 568:8569:24 570:18571:24 572:24575:21 577:11582:15,22 590:6594:20 596:6,15597:17 598:23600:21 604:25605:7,15 606:5,7606:15 608:5609:6 611:22612:4,17 619:11620:21 622:13623:11 624:4,6628:4 636:25650:12,21 656:15658:17 659:23660:14 661:6662:19 680:13

unable 516:20517:7

unaware 592:10underlying 521:5

523:2 529:21561:7

underneath538:18 557:18560:13 570:6571:23 573:3609:7 627:13646:23 658:17

undersigned683:14

understand521:16 522:2,18524:3,8 525:13534:22 546:7547:3 548:10,11553:6 555:25556:6,9,12 567:4574:23 580:3585:6 586:5,7587:17 596:20609:20 610:21614:21 627:21630:1,3 636:3640:24 644:9,11650:22 654:3,18654:18,24 666:15676:10 678:18

understanding512:17 524:9545:16 598:7607:19 652:1653:1

understood 507:3526:15 528:4530:1 531:7,21553:8 567:1 568:1588:19 627:15637:9 651:15664:23 666:22

unfair 629:18634:4

unfairly 642:15unidentified 672:1unique 617:10united 494:1

499:16 625:6,23unredacted

627:16 633:10,15638:3

[true - unredacted] Page 35



CONFIDENTIAL

untrue 642:5unusual 620:16usa 609:5use 518:16 520:16

520:17,20,25529:13 531:20,22532:15 533:19560:21 563:16609:23 679:21683:10

uses 529:9usual 618:25

682:16usually 583:23

590:22 615:10

v

v 499:14valid 521:20value 597:6,9

598:15vanguard 505:5varied 511:18

518:4 529:24varies 532:21variety 543:18various 515:9

554:21 593:8621:8 661:18676:4

vary 667:10verbatim 637:11verify 504:13

511:10veritext 499:6

500:9versus 516:1videographer

496:19 499:1500:8 581:25582:3 670:4,6,10681:19

videotaped 494:16view 517:20 664:3violation 514:9,11virtually 631:10

631:22 637:24638:4

visit 617:9,11663:12

voice 644:20volume 494:17

509:23 681:21vs 494:7

w

wait 632:15wall 642:16

648:24,25 649:3669:16

want 512:16515:18 518:16519:22,25 520:8534:7,23,25535:16 564:15,21566:13 582:16591:21 592:25593:1,16 594:11603:11 606:20611:13 621:20627:1 628:21629:19 630:6,9,11631:3,5 641:13642:6 647:11,17649:22 653:24669:20 674:5676:11 677:23678:4 681:12

wanted 507:2509:22 528:10533:25 594:8616:22,23 617:2617:24 620:4653:9 654:4

655:23 673:16676:19

wants 518:1,2593:21,21

warehouses 678:1678:13

warrants 553:13waste 627:19water 519:23,25

644:20waterhouse 614:6

614:7way 524:19 529:11

587:8,8 588:11590:1 591:22592:14 598:24611:18 634:9639:9 646:18647:11 657:21669:8 676:12682:10

ways 591:16614:23

we've 528:10557:6 558:6564:13

week 626:21 666:2weeks 653:8wells 505:5went 503:17

522:15 525:14,16525:24,25 580:12583:12 587:20609:18 617:21618:21 621:21626:3 631:7,12640:20 677:9

west 542:8westminster

500:19 607:17,20607:25 608:7

609:5 610:7,10,11whispering 499:3who've 644:1whoops 571:10willing 514:6,6

564:6 593:1,20wiped 631:20wired 647:9wiring 647:7,20withdrawal

516:21withdrawals

648:2,14witness 497:2

499:19 500:7,10500:25 503:10507:6 512:3 513:3514:23 515:21517:4 518:25519:20,23 520:1521:22 525:23526:17 528:23529:2 531:15532:2 544:10550:13 556:12563:5 577:24595:7 596:20601:10 603:25613:2,4 618:6619:19 621:18622:6 631:14633:17,23 634:9639:4 641:16642:2,25 644:19644:23 648:9652:9,17 655:4661:2,7 663:9,11665:14 666:24681:24

witnesses 643:2,22

[untrue - witnesses] Page 36



CONFIDENTIAL

worded 587:9words 521:13,15

521:20 532:4533:10,24 544:10546:11 549:1563:9,10 564:5575:8 581:19584:2 591:11,14592:5 593:5 601:7611:2,5 620:1621:15 651:3,23652:9,19 654:11674:5,6 675:6

work 540:8 613:11664:1,3,4,14,15,17664:21

worked 524:6645:21 646:20675:7,7

working 548:12584:3

worry 620:7worth 515:8,12writing 656:9

660:24 662:1written 655:17

660:14 682:7,12wrong 552:6 615:9

615:9 642:21wrote 629:15,17

655:20,25 657:6wtsx 553:13

x

x 671:25xs 612:19 672:1

y

yeah 507:4 540:21549:11 556:22,24557:16 558:8,16560:7 561:15,15

579:10 580:22583:5 584:20587:7 590:9594:12 595:4,6596:22 604:8,9612:10 623:3626:10 633:23634:3 639:24640:16 644:21,21645:3 649:16,16649:17 651:2653:7 658:11659:23 660:8662:1 663:10668:13,20

year 622:5 658:9658:21 659:19,25660:1 661:12677:23

years 510:6511:18 515:3516:18 613:24658:10,14,15659:22 660:2,12661:12 669:17,18676:3

yep 538:16 540:2633:9

yesterday 500:16502:5 512:5520:22 522:18582:9 594:3,9,15616:16 618:16,21620:23 662:24663:18,19,19,20665:17 679:24680:1,7

yield 680:17york 494:1 495:7

495:7,16,16 496:8496:8,15 499:18

532:16 583:1589:16

z

zero 578:14

[worded - zero] Page 37




Rule 30






















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