Two computer programmers were arrested Friday and charged with giving Bernie Madoff the technical help he needed to dupe clients and investigators for years.

Jerome O’Hara, 46, of Malverne, N.Y. and George Perez, 43, of East Brunswick, N.J. allegedly helped Madoff right-hand-man Frank DisPascali Jr. create fake trading records. They are charged in both civil and criminal complaints.      

The complaints add rich detail to how Madoff and his accomplices used aging but extensive computer technology to maintain the fraud. They also seem to confirm what common sense suggests about such a massive and enduring fraud: Madoff and DiPascali had to have technical help.     

"O’Hara and Perez wrote programs that generated many thousands of pages of fake trade blotters, stock records, Depository Trust Corp. reports and other phantom books and records to substantiate nonexistent trading. They assigned names to many of these programs that began with 'SPCL,' which is short for 'special,'" according to an SEC press announcement about the civil complaint.

Both complaints were filed in the U.S. District Court for the Southern District of New York, but had not been uploaded as of this writing to the Web page where legal documents in the Madoff have been aggregated. The criminal complaint was brought by the U.S. District Attorney for the Southern District of New York in concert with the FBI and was unsealed Friday. It is summarized in a press statement.
   
Last week, Securities Industry News (SIN) published the results of a two-month investigation into how the IBM AS/400 "House 17" was used to create the phony documents that fooled Bernard L. Madoff Investment Services (BLMIS) clients that their deposits were being invested instead of going into Madoff's personal piggy bank.  

The new complaints peel away more of the mystery about how phony documents for more than 4,900 clients could have been produced over decades without giving the fraud away. "House 17" ran 225 special programs, 218 of which the pair tried to delete in a "crisis of conscience" in 2006, according to the complaints.

The "special" programs were found on backup tapes, according to an official close to the investigation and who asked not to be identified. He added that the pair has not been cooperating with authorities. The evidence in the complaints is from BLMIS computers and documents, according to the source.  

Among 10 fraudulent functions detailed in the criminal complaint, the special programs altered trade details by using "algorithms that produced false and random results;" created "false and fraudulent execution reports;" and "generated false and fraudulent commission reports." The criminal complaint also charges the pair with helping Madoff and DiPascali create misleading reports between 2004-08 to throw off SEC investigators and a European accounting firm hired by a Madoff client.    

In 2006, O’Hara and Perez cashed out their BLMIS accounts worth "hundreds of thousands of dollars" and told Madoff they would no longer "generate any more fabricated books and records." O’Hara’s handwritten notes from the encounter allegedly say "I won’t lie any longer."

However, the "crisis of conscience" did not stop them from asking for a 25% bump in salary and a $60,000 bonus to keep quiet, the complaints allege.    

"DiPascali then managed to convince O’Hara and Perez to modify computer programs so he and other 17th floor employees could create the necessary reports," according to the SEC complaint. The reference to "other 17th floor employees" suggests that O’Hara and Perez will not be the last to be charged.

Bob McMahon, an IT project manager at BLMIS in 2007 who was interviewed extensively for the SIN investigation, said he rarely saw the pair in the office.

"These two were the managers of the AS/400 ('House 17') and had to do a lot of work with Frank [DiPascali, who has already pled guilty to 10 fraud charges]. You could never find these guys in the office. You’d leave them a voicemail and get an answer three days later," said McMahon. "I only saw them two to three times in [the year] I was there."  

From the criminal complaint, they each face up to 30 years in prison and more than $5 million in fines. The SEC complaint seeks to levy financial penalties and demands that the pair "disgorge their ill-gotten gains."