Frank Avellino allegedly was running a Ponzi scheme of his own, and was caught in 1992. He had been guaranteeing returns of 13.5% to 20.0%. When asked how this was possible, he replied that the money was managed by Madoff, and if their was any shortfall his firm was obligated to make it up.
His firm was ordered liquidated, money returned to investors, and an audit was required. Price Waterhouse had some trouble doing the audit, due to the absence of ordinary financial records. Responded Avellino:
My experience has taught me to not commit any figures to scrutiny when, as in this case, it can be construed as ‘bible’ and subject to criticism. In this present instance, quite severely. I explained how the profit and loss can be computed from the records you now hold in your possession that Bernard L. Madoff and I supplied.Despite this gross irregularity, the investigation essentially petered out and a settlement was reached. Avellino went back to funneling money to Madoff, according the Times. Interesting conincidence: Avellino's lawyer in 1992 was Ira Sorkin, Madoff's lawyer today.
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Feeding client funds to Madoff seems to have been a profitable business. The NY Times says Avellino did not respond to calls or visits to his homes in Nantucket, Mass.; Palm Beach, Fla. or New York….
Avellino's Palm Beach house is less than five blocks from Madoff's.
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