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Madoff geeks charged for writing book-cooking code

'House 17' and the secret algorithm

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A federal grand jury has indicted two computer programmers on fraud and conspiracy charges for developing programs used by Bernard Madoff to cook the books in his billion-dollar ponzi scheme.

Jerome O'Hara and George Perez knowingly created the programs that removed or altered key data contained in reports submitted to regulators in the United States and Europe, according to the indictment filed Wednesday in US District Court in Manhattan. Among other things, their code contained algorithms to randomly generate times for purported orders that in fact were never made.

The reports were generated on "House 17," an IBM AS/400 server kept on the 17th floor of Madoff's offices that had no link to the outside world, prosecutors allege. To ensure the reports appeared genuine, the server pulled partial information from a separate AS/400 that was linked to the Depository Trust Company and other third parties.

"The books and records generated by the House 17 programs for [Madoff's] business were entirely false and fraudulent because, among other things, they purported to reflect securities transactions that, in fact, had never been executed," prosecutors allege in the indictment.

The document goes on to claim that the programmers knew their programs were being used to falsify information being provided to the Securities and Exchange Commission and the European Accounting Firm, and sought to profit from their expertise. In 2006, O'Hara and Perez cashed Madoff checks worth $976,000 and $289,000 respectively.

That same year, the pair threatened to leave their jobs unless they received raises of 20 per cent. Madoff not only met their demands, he also gave them raises of $64,812 and $60,165.

They were charged with one count each of conspiracy, falsifying records of a broker-dealer and falsifying records of an investment adviser. If convicted on all counts, the programmers each face 30 years in federal prison and fines of more than $5m. O'Hara's attorney told numerous news outlets that his client intends to plead not guilty.

O'Hara, 47, and Perez, 44, who worked at Madoff's firm since the early 1990s, were first charged in November for their alleged role in the multi-billion-dollar fraud that spanned decades. Wednesday's charges came after the indictment was returned by a federal grand jury.

Investors sunk about $36bn into Madoff's ponzi scheme, according to CBS News. Of that, about $18bn was liquidated before the house of cards collapsed and the other half is missing. Madoff is currently serving a 150-year prison sentence. ®

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