As expected, longtime Madoff trader, David Kugel, was charged today with fraud for his role in creating fake trades to facilitate Bernie's massive Ponzi scheme - civil charges by the SEC;  parallel criminal charges by the U.S. Attorney's Office for the Southern District of New York. Late last week, we learned that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, said that Bernie's Ponzi scheme dated back to the 1970's - some 20 years prior to Bernie Madoff's own admission.  And that Mr. Kugel is expected to be a cooperating witness who can provide details like no one else, other than, Bernie and perhaps brother Peter - neither of whom have provided satisfactory answers. New Information on Kugel and the Trading Schemes. Today's SEC Complaint alleges that in the early 1970s, shortly after Kugel began working at Madoff - as an arbitrage trader in the firm’s proprietary trading business Bernie informed Kugel that BMIS managed money for outside clients.  He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements.  Some of these trades replicated successful trades that Kugel himself had made for the firm's own prop trading account.  Kugel selected other trades based on historical information that he took from old newspapers. Interestingly, Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years.  The information provided by Kugel, in turn, was used by other IA employees - Bongiorno, Crupi and others and posted to investor account statements. Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars.  After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount.  These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors.  Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well. The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008. The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Kugel, who has pled guilty and also agreed to settle the SEC’s civil charges. Subject to court approval, the civil case will result in a permanent injunction against Kugel, who must forfeit his ill-gotten monetary gains upon entry of a criminal forfeiture order in the criminal case. Alleged Violations. The SEC charges that Kugel's alleged conduct violated, and aided and abetted violations of, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder;  aided and abetted violations of Sections 204, 206(1) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2 thereunder, and Sections 15(c) and 17(a) of the Exchange Act and Rules 10b-3 and 17a-3 thereunder. SEC Staff Investigation.  Conducted by Kristine Zaleskas, Aaron Arnzen of NY Regional Office.  Assisted by U.S. Attorney’s Office for the Southern District of New York, and FBI.  The SEC’s investigation continues. For further details, go to:   [SEC PR 11-247, 11/21/11]   and   [SEC Complaint Against Kugel]