More Madoff fallout: Computer programmers arrested

The epicenter of the massive Bernard Madoff Ponzi Scheme was an aging IBM AS/400 computer known internally as House 17. It was strictly off limits to all but a few. Overseen by Madoff's close associate Frank DiPascali, it was used to create the fictitious trade and account statements that kept customers happy and regulators at bay. But neither DiPascali nor Madoff was a programmer. To make it all work required programmers who were willing to play along.

And now they've been arrested and charged. 

The FBI arrested Jerome O'Hara and George Perez--former computer programmers for Madoff--at their homes. They were charged criminally with conspiracy, falsifying books and records of a broker-dealer and an investment adviser. Each faces up to 30 years. They had been working for Madoff since 1990 and 1991. They allegedly created the programs that generated false trades, false accounting statements, false customer statements, commission reports, really anything necessary to keep the scheme going.

In April 2006, one of the two tried to delete 218 of 225 special programs from House 17 and also closed their own Madoff accounts. But they forgot about the back-up tapes, apparently. Each withdrew hundreds of thousands of dollars; they later they met with Madoff "and told him, in substance, that they would no longer lie for him," according to the FBI. "Handwritten notes found by the FBI in O'Hara's desk stated, among other things: 'I won't lie any longer. Next time, I say 'ask Frank.'' After Madoff directed DiPascali to pay O'Hara and Perez whatever they wanted in order to keep them happy, O'Hara and Perez each received pay increases of about 25 percent and net bonuses of approximately $60,000." You would think they would ask for more, but they apparently thought it might look suspicious.

There are some who are incensed about this. If they knew they were taking part in a fraud--and the FBI thinks they did--they are just as guilty. Now programmers these days are considered of paramount importance. In this case, the two really had Madoff over a barrel. 

So this is an interesting twist on an old problem. Usually, companies are worried about IT employees either doing something to harm the company, making off with proprietary code after all. In this case, the programmers could have blown the whistle on the whole enterprise. I'm sure they wished they did. All in all, if this had been a legitimate enterprise, the programmers had clearly been allowed to amass too much power. There are times when some IT guys, especially at small firms, start thinking that it all revolves around them, that the company wouldn't function were it not for them. You really have to guard against that because it can be dangerous.  

In this case, the two programmers weren't dangerous enough to the enterprise. And they might have to pay with time served.