NEW YORK -- In December 2008, two of Bernard Madoff's most loyal employees met on a Manhattan street corner and fretted over a closely held secret that the rest of the world would learn about eight days later: that their boss was a con man for the ages.
Frank DiPascali told JoAnn Crupi that Madoff had just confided that his investment firm was out of money and that client accounts -- worth billions on paper -- actually had no more value than Monopoly money, authorities say.
The pair then is alleged to have cooked up a cover story that quickly collapsed under the weight of the largest Ponzi scheme in history -- one authorities say cost investors an estimated $17.3 billion.
The exchange was recounted for the first time in a newly rewritten indictment this week expanding the case and charges against five defendants headed for a trial next year.
The indictment brings into sharper focus the final few years of a fraud the government says dated to at least the early 1970s, two decades before Madoff claimed it began and well before 1992, when the government said in its original case against the defendants that the conspiracy began.
It portrays a private investment business in Manhattan whereas many as a dozen officers grew a fraud so sophisticated that repeated probes by the Securities and Exchange Commission and queries from banks and investors could draw no blood. All the while, it says, they rewarded themselves with millions of dollars, sometimes tax-free or with taxes greatly reduced by fake losses generated by made-up securities trades.
Those facing a criminal trial next year are Annette Bongiorno, 64, Madoff's longtime secretary and a supervisor in his private investment business; Daniel Bonventre, 65, his director of operations for investments; Crupi, 51, who managed accounts; and two computer programmers, Jerome O'Hara, 49, and George Perez, 46. All have pleaded not guilty.
Besides the 74-year-old Madoff, who is serving a 150-year prison sentence, six others have pleaded guilty in the case, including a brother who served as his chief compliance officer; former finance chief DiPascali; a payroll manager; an accountant; a comptroller; and a securities trader.
The new account fills in information prosecutors learned as they built their case with help from several cooperators, including DiPascali.
U.S. Attorney Preet Bharara said when the new indictment was released earlier this week that with the new charges, "the architecture of Madoff's house of cards and each defendant's alleged role in it becomes clearer."
Mary Galligan, the head of the FBI's New York office, said the government has known for years that the Ponzi scheme was not the work only of Madoff, who pleaded guilty to fraud and insisted he acted alone.
"Each of the defendants in his or her way allegedly played a key role in designing, building or maintaining the house of cards. The habitual doctoring of books and records, the fictitious trades, the phantom accounts, were the core of the charade," she said.
Eric Breslin, a lawyer for Crupi, said his client's conversation with DiPascali was important evidence because it shows DiPascali didn't tell her about the fraud until days before Madoff revealed it his sons and he was arrested.
Attorney Gordon Mehler, who represents O'Hara, said: "Nearly four years have passed since Madoff confessed, and the indictment against the five Madoff employees has now expanded to more than 150 pages. But neither the passage of time nor the extreme length of the indictment has weakened Jerry O'Hara's resolve to fight the charges against him."
Larry H. Krantz, attorney for Perez, said: "We will be vigorously defending against the charges."
Other lawyers did not respond to messages seeking comment.
As the government tells it, the fraud appears to have started in a measured way in the 1970s as phony documents were regularly manufactured to make it appear investor funds were being invested. Lists of bogus trades of securities were based on data gleaned from published sources of market information.
By the 1990s, according to the indictment, Madoff leaned on his back-office workers to produce and mail thousands of pages of statements to customers of his "split-strike conversion strategy," an investing technique based on a model basket of S&P 100 stocks that he claimed was unique. Prosecutors say no trades occurred.
Meanwhile, he also had hired O'Hara and Perez, who created software programs that made it easier to churn out thousands of bogus securities trades that could be used in phony statements to investors, the government said.
All the while, Madoff was telling investors they were making up to 45 percent in annual gains.
The indictment said Madoff sometimes asked his workers to create bogus losses from phony trades to shield him from tax liabilities, the indictment said. Toward the end of the scheme, some were rewarded with hundreds of thousands of dollars that was wrongly listed as expenses so they would owe no taxes, it added.
Ken Springer, a former FBI agent who has conducted business-related investigations for more than 25 years, said large payouts to Madoff employees helped keep the secret secure.
"They were paid to keep their mouths shut, and they did," he said. "No one wanted to admit to what was going on. They just played dumb."
In the final months of Bernard L. Madoff Investment Securities LLC, the chief architects of the fraud rewarded themselves and their friends with millions of dollars as thousands of investors were told their accounts had a composite value that had grown from about $20 billion to $65 billion, prosecutors say.
By Dec. 4, 2008, a daily report prepared by Crupi showed only $295 million of the investors' money remained, with requests for redemptions from investors totaling $1.45 billion.
In the days following their Manhattan street corner meeting near Madoff's offices, Crupi told DiPascali she would tell law enforcement authorities once the scam collapsed that she thought the trades executed on behalf of Madoff's clients were being conducted overseas, the indictment said.
In a Dec. 7, 2008, meeting at a New Jersey restaurant, Crupi told DiPascali she was "sticking to my story," the indictment said, adding that the pair discussed sending the remaining funds to certain clients and employees.
It said they eventually prepared checks totaling about $300 million to be mailed to preferred employees, employee family members and certain favored clients.
Despite the approaching storm, the sham business on one level continued to thrive, the government said.
From approximately Dec. 3, 2008, to Dec. 10, 2008, Madoff and the defendants continued to take in more than $48 million of new deposits from investors.
Madoff was arrested on Dec. 11.