Why No Whistleblowing on Madoff?

Written by Jill Walsh
Edited by Sarah Mejia

UnknownOn March 12, 2009, in the heat of the financial crisis, Bernie Madoff confessed to committing the largest Ponzi scheme in history. Not only did Madoff cheat his investors out of billions of dollars, but he also deceived his auditors and the federal government for decades.  Now, four years later, while Madoff is serving his 150-years in the penitentiary, a few key former employees of Bernard L. Madoff Investment Securities LLC are being tried in court. One of the main persons of interest in this trial is Madoff’s key lieutenant Frank DiPascali, Jr., the former Chief Financial Officer of the firm. The 56-year-old Queens, N.Y. native is set to take the stand as a key government witness in its criminal case against five former employees of the convicted Ponzi scheme operator at the firm. Although Madoff claims that he carried out this fraud unaccompanied by any of his employees, prosecutors are trying to prove that there was, in fact, an inner circle of people who knew what was going on. According to DiPascali, who began working for Madoff in 1975, it was not until the late 1980s or early 1990s that he realized no trading was happening in the accounts held by Madoff’s investment-advisory clients. However, rather than blow the whistle on his boss, DiPascali admitted to helping keep the fraud alive. He began lying to clients and faking documents to maintain the illusion of profitable trades. The former CFO also lied to the SEC in a 2006 audit. For this loyalty to Madoff, he was awarded an annual salary of $2 million.  Though he plead guilty in 2009 to 10 criminal charges stemming from his role in the Ponzi scheme, and faces as much as 125 years in prison, DiPascali hopes his cooperation with federal prosecutors will lead to leniency.

Corporate whistle-blowers have traditionally been treated as malcontents, troublemakers, and misfits, and many have paid a steep price for their actions. While moves for the protection of corporate whistleblowing, like the False Claims Act, are helpful to the cause, they aren’t always enough of a persuasion for employees to take action. Frank DiPascali admitted that by the late 1980s-early 1990s, he knew exactly what his boss, Bernie Madoff, was carrying out—the largest Ponzi scheme in history. He knew of the fraud, participated in the lies, and kept the secrets quiet. But now, he faces up to 125 years in prison. So why didn’t DiPascali simply blow the whistle on Madoff? Maybe it’s because he had been working for the man since the budding age of 18. He had grown to know and trust his boss for 33 years, and the benefits of his position as CFO were paying off wonderfully.  Why would he pass up on an annual salary of $2 million with benefits? If he blew the whistle, the company would come crashing down. All of his co-workers would lose their jobs and benefits. For these reasons, DiPascali chose to keep quiet to keep the profits flowing. He was living the life—but now, he is paying the consequences.

As we watch this case continue to unfold, it calls to mind the survey of 85 whistleblowers performed by the Associated of Mental Health Specialties in College Park, Md., in the late 1980s that found that 82% of them experienced harassment after blowing the whistle, 60% got fired, 17% lost their homes, and 10% reported having attempted suicide. Just listen to Sherron Watkins’ story: Watkins was a competent professional accountant who had worked for Arthur Andersen for many years before joining the team at Enron. She complained that the aggressive accounting being practiced by Enron would implode, and it did. Watkins put her concerns for her own self-interest aside and came forward. However, she initially blew the whistle through an anonymous letter to Ken Lay, then-CEO of Enron. Notice that she didn’t go directly to the SEC. Rather, she blew the whistle internally, hoping that top executives would take action. They didn’t, and we know how the Enron story ends.

But what would have happened if, say, Frank DiPascali acted as Sherron Watkins had just a decade earlier? What if he refused to comply with Madoff’s scheme? Were the benefits that came along with participating in this fraud so great that they outweighed the cost of a potential 125-year stint in a state penitentiary? Probably not. Part of me wants to feel sympathy for Frank DiPascali. He wasn’t the ringleader in this operation. Nevertheless, when you think about the billions of dollars he helped to scam from trusting investors, it’s hard to feel any compassion. For this reason, I believe he needs to serve time in prison to atone for his injustices.


**Due to technical difficulties, we recently had to switch domains and transfer all of our website content.  Please keep in mind that while we have been publishing articles for two years, the published dates shown may not reflect the initial publish date.


Brooks, Leonard J., and Paul Dunn. Business & Professional Ethics for Directors, Executives Accountants. 6th ed. N.p.: South-Western Cengage Learning, 2012. Print.

Jones, Ashby. “Cooperator Frank DiPascali Tapped for Key Role in Trial of Madoff Employees.” Wall Street Journal 6 Oct. 2013: n. pag. Print.

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