Bernard Madoff added the son of a former “key” executive to his payroll even though he didn’t work there, a jury was told in the trial of five ex-employees accused of aiding the con man’s $17 billion Ponzi scheme.

Craig Kugel, who pleaded guilty in June 2012 to a tax scheme that gave salaries and benefits to people who weren’t Madoff employees, testified Tuesday in federal court in Manhattan that the son of Daniel Bonventre, the firm’s operations chief, was listed as an employee so he could keep receiving company health insurance after graduating from college.

At a meeting in 2007 between Kugel and Madoff’s brother Peter Madoff, another executive at the firm, “Bernie Madoff walked in and interrupted me and said Daniel Bonventre had asked him how his son could” stay on the plan and that the elder Bonventre was a “key employee,” Kugel said. “He said, ‘We need to help him out and do something for his son.’”

The trial is the first stemming from the world’s biggest Ponzi scheme, which collapsed after Madoff’s arrest on Dec. 11, 2008. Bonventre and four other former Madoff employees are accused of aiding the fraud for decades and getting rich in the process. Kugel is among six of their former colleagues who have pleaded guilty and are testifying against them.

Bonventre’s son, Daniel Bonventre Jr., was a dependent on his father’s account before he graduated. He hasn’t been accused of any wrongdoing and isn’t involved in the case.

False documents

The jury was shown copies of U.S. Labor Department filings that Kugel said were falsified to show people worked there who didn’t have roles at the company. Madoff’s housekeeper and the captain of his boat were also listed, Kugel said.

The other defendants are Joann Crupi, who managed large accounts; Annette Bongiorno, who ran the investment advisory unit; and computer programmers George Perez and Jerome O’Hara, who allegedly wrote code to print millions of fake account statements and trade confirmations. The defense lawyers have said Madoff duped their clients for decades.

Kugel’s father, David Kugel, hired by Madoff as a trader in the 1970s, pleaded guilty to fraud in 2011, admitting he helped create fake trades with Bongiorno and Crupi. The elder Kugel testified that he gave historical trading data to the women to help them create fake trade confirmations and false account statements.

Kugel, who joined Madoff’s firm four years before it collapsed, said his father opened an account for him with money he received for his bar mitzvah.

No knowledge

The son has said he didn’t know about the Ponzi scheme. His guilty plea applied only to nonemployees’ getting company pay and benefits, for which he faces as long as 19 years in prison when he’s sentenced.

In the months after Madoff’s arrest and before the company closed, Kugel said, he kept nonemployees on payroll and didn’t alert regulators or investigators to avoid “making waves” and getting caught.

“There’s no valid reason why I should have,” Kugel said.

During questioning about his views of Madoff’s company and the prestige it once had in the securities industry, Kugel said U.S. Sen. Chuck Schumer of New York visited Madoff’s offices in Midtown Manhattan to give a talk to employees about market conditions and the economy. Asked if such a visit impressed him, Kugel said he believed Schumer’s visit was related to campaign contributions.

When the jury was on a break Tuesday, Swain said she planned to strike Kugel’s reference to Schumer from the trial’s record.

Judge’s remarks

“There is no evidence defendants gave money to Schumer or were reimbursed for contributions,” Swain said.

In the eight years before his arrest, Madoff gave at least $100,000 to the Democratic Senatorial Campaign Committee and more than $23,000 to the party’s candidates, including Schumer and Senator Frank Lautenberg of New Jersey, who led a charitable foundation that invested with Madoff, according to the Center for Responsive Politics.

Craig Kugel testified Tuesday that Crupi gave him letters showing his personal firm investment account had as much as $885,000 for a mortgage and construction loan. Internal firm documents showed the amount was closer to $289,000. He said he didn’t know the numbers were inflated at the time.

Under questioning Tuesday by Crupi’s lawyer, Eric Breslin, Kugel said he drafted the bank letters himself and included the account balance he was given by his father, who managed the account. He said he didn’t know whether Crupi verified the figure before she signed it.

Defense stance

Lawyers for the ex-Madoff workers said in their Oct. 17 opening statements that Kugel and other ex-employees who pleaded guilty in the case are willing to lie and implicate their former colleagues to get less time behind bars when they’re sentenced.

The U.S. alleges the five defendants used fake trading confirmations and false account statements to trick customers into believing their money was being used to buy securities.

No trading took place in the investment business, which collapsed when Madoff ran out of money to pay customer withdrawals. Thousands of victims lost $17 billion in principal.

The trial, which started in October, is expected to last until at least February, U.S. District Judge Laura Taylor Swain told jurors. Swain said Tuesday’s session would end an hour early because of a snowstorm in New York.

Other government witnesses who have testified include Enrica Cotellessa-Pitz, Madoff’s ex-controller, and Frank DiPascali, his former finance chief. DiPascali, the highest- ranking former executive to testify, told the jury the fake trading was “obvious” in the late 1970s and gave detailed evidence against each defendant in 17 days on the witness stand.

Kugel’s plea

David Kugel, born in Cleveland and raised in Brooklyn, N.Y., agreed to cooperate with prosecutors as part of a November 2011 guilty plea.

He testified Tuesday that he was in Florida with his wife and parents when Madoff was arrested, and that his father didn’t tell him about the fraud or let on that he knew whey their boss had been arrested.

Kugel said his father told him to close his investment account at Madoff as soon as possible. The jury was shown a copy of a fax sent by the younger Kugel to Madoff on Dec. 12, 2008, the day after Madoff’s arrest, seeking to liquidate his accounts.

Madoff, 75, pleaded guilty to fraud in 2009 and is serving a 150-year sentence at a federal prison in North Carolina. At least seven others pleaded guilty, including Peter Madoff, who is serving a 10-year term.

Lawyer’s apology

At Tuesday’s session, Larry Krantz, the lawyer for Perez, one of the computer programmers, apologized to Swain and Assistant U.S. Attorney Matthew Schwartz for “personalizing” a complaint he made about unspecified motives behind the prosecutor’s tactics. In response, Schwartz accepted the apology in a way Swain called “backhanded.”

The judge said no one involved in the case was being “immoral or unethical,” and that everyone was dealing with a “high-stakes” case with “little sleep” and urged everyone to consider the matter settled.

The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).