FBI takes Peter Madoff into custody in New York City

NEW YORK — The younger brother of disgraced financier Bernard Madoff — the loyal No. 2 at an investment firm that fronted a multibillion-dollar Ponzi scheme — pleaded guilty Friday to charges he doctored documents that helped conceal a fraud that wiped out thousands of investors.

Peter Madoff, 66, entered the plea Friday as part of a deal expected to result in a 10-year prison term. He had been taken into custody at his lawyer's midtown Manhattan office earlier in the morning.

The plea came in the same Manhattan courthouse where Bernard Madoff was led away in handcuffs in 2009 to serve a 150-year sentence.

Peter Madoff told the judge he was "deeply ashamed and terribly sorry" but that he didn't know about the scam until his brother revealed it in December 2008.

When he learned of the fraud, "I was in shock and my world was destroyed. I lost everything I worked for," he said.

The government has used the cooperation of six former employees and associates at Bernard L. Madoff Investment Securities LLC to learn what went on inside the secretive business. Close to $20 billion vanished in the scam, the largest Ponzi scheme ever prosecuted in the U.S. The scheme left behind only a few hundred million dollars, not the $65 billion claimed in bogus financial statements.

Peter Madoff revealed in court that he agreed to assist his brother in sending out the only money left to favored people, including friends and family.

"I was shocked and devastated but nevertheless I did as my brother had said, as I had consistently done for decades," he said. "I knew that the conduct was wrong and I am deeply ashamed." The checks never went out.

In his guilty plea, Bernard Madoff admitted his investment advisory business was a sham, but insisted that his brother and two sons who also worked for him were in the dark about his misdeeds. The FBI nevertheless had been suspicious from the start about the role of Peter Madoff, who had worked side by side with his scheming brother for more than 40 years.

Peter Madoff sometimes signed many weeks of compliance reports in one sitting, intentionally changing pens and ink colors to make it appear he had signed them at various times, Assistant U.S. Attorney Lisa A. Baroni told U.S. District Judge Laura Taylor Swain. She said he also arranged for his wife to have a no-show job at the company, allowing her to receive salary.

FBI Assistant Director Janice K. Fedarcyk said Peter Madoff played an "essential enabling role" in the scam by certifying fabricated investment results.

"The Madoff investment empire, built on a foundation of deceit, was a house of cards that grew to skyscraper proportions," she said. "As Peter Madoff has admitted today, he was one of the chief architects."

Peter Madoff was being released on $5 million bail, secured by $1 million in cash or property, pending his Oct. 4 sentencing. Prosecutor said Peter Madoff has agreed to give up all his assets.

"Peter Madoff enabled the largest fraud in human history. He will now be jailed well into old age, and he will forfeit virtually every penny he has," U.S. Attorney Preet Bharara said. "We are not yet finished calling to account everyone responsible for the epic fraud of Bernard Madoff and the epic pain of his many victims."

Friends and business associates had described the brothers as very close. Their offices in midtown Manhattan were a few feet apart. Their families vacationed together.

Peter Madoff was credited with creating a computer trading system for the firm in the late 1970s and early 1980s that was considered groundbreaking at the time. He ran the daily trading operation while his brother focused on the more secretive investment advisory arm.

Both brothers made a fortune. Peter Madoff owned a Palm Beach, Fla., vacation house that recently sold for $5.5 million.