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Originally published Friday, December 19, 2008 at 12:00 AM

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Securities experts, investors don't buy Madoff was solo act

Bernard Madoff's contention that he pulled off one of the biggest financial frauds in history without help is being met with disbelief by his investors and experts in the securities industry.

The Associated Press

NEW YORK — Bernard Madoff's contention that he pulled off one of the biggest financial frauds in history without help is being met with disbelief by his investors and experts in the securities industry.

It normally takes a team of accountants, stockbrokers, lawyers and more to operate the kind of multibillion-dollar investment fund Madoff ran from the 17th floor of his Manhattan headquarters.

The firm had clients around the globe. Simply generating the detailed financial statements investors received every month would have been a monumental effort for one person, observers said, even if those reports were pure fantasy.

"Someone had to create them. Someone had to create the appearance that there were returns," said attorney Harry Susman, who represents several Madoff investors.

Federal investigators are still in the early stages of trying to answer those questions as they decipher Madoff's operation.

Already, they have discovered multiple sets of books and what appear to be fraudulent documents in his Manhattan offices, raising the question of who prepared them.

Investigators have started serving grand-jury subpoenas requiring witnesses to testify and seeking documents, according to an official familiar with the case.

The investigation is being led by the FBI and Securities and Exchange Commission, agencies already challenged with unearthing other financial scandals since the Wall Street meltdown.

One potential subject of the inquiry is the role played by Frank DiPascali, a top financial officer at Madoff's investment-advisory business.

Several investors, their lawyers and a former Madoff employee who spoke to The Associated Press described DiPascali as the man who appeared to be most responsible for the day-to-day operations of the business.

Authorities haven't publicly accused DiPascali of any wrongdoing.

His attorney, Marc Mukasey, on Thursday declined to discuss his client's role or say whether he became aware of the fraud before Madoff's arrest.

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Questions also loom about Madoff's auditor, Friehling & Horowitz, a relatively unknown accountant north of the city who appeared to operate from a one-room office with irregular business hours and a bare-bones staff.

Investigators were also expected to look at the potential involvement of several Madoff relatives who worked for his firm, including his brother, two sons and others who worked for his business entities. His wife, Ruth, has also come under scrutiny.

To date, they have not been formally accused of any wrongdoing.

The law firm representing Madoff's sons, Andrew and Marc, released a statement saying they first learned of the fraud just days ago, when their father tearfully confessed, and immediately turned him in.

Usually, a fund like Madoff's would use an outside brokerage firm to complete its stock trades. In his case, those duties, if they actually occurred, were apparently handled in-house.

Madoff appeared not to have hired outside firms to help calculate his investment performance or to produce electronic data for investors.

That lack of partners made it tough to verify that Madoff's business was really achieving good returns.

It may also reflect an effort to limit the number of possible accomplices.

Copyright © 2008 The Seattle Times Company

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