UPDATE 1-Madoff employees were puppets of 'grand master,' defense says
(Adds details, quotes from defense lawyers)
NEW YORK, Oct 17 (Reuters) - Lawyers for five former employees of Bernard Madoff on Thursday cast their clients as mere puppets under the spell of an awesome, cult-like leader and "pathological liar."
The former staffers are on trial accused of creating false records and transactions at Bernard Madoff Securities LLC until its implosion in 2008. Investors lost about $19 billion in the scam, prosecutors have said.
"They thought he was almost a god," said Eric Breslin, a lawyer for former Madoff portfolio manager Joann Crupi. "They did not want to question anything he did."
Madoff, 75, is serving a 150-year prison sentence after pleading guilty in 2009 to running a Ponzi scheme.
"He was brilliant, you were not," Breslin said of Madoff, whose "shadow will be in this courtroom every single day."
Thursday was the second day of opening arguments in the trial of the former employees. The trial continues next week with prosecution witnesses.
On Wednesday, prosecutors appealed to the jurors' common sense, saying Madoff could not possibly have pulled off his scheme, valued as high as $65 billion, without help.
But Madoff's employees were spellbound by "the all-knowing, grand master of Wall Street," said Andrew Frisch, a lawyer for former Madoff operations director Daniel Bonventre.
Lawyers also described a purposely siloed firm that shielded the fraud from most employees.
Madoff discouraged workers on the 17th and 18th floors of his offices in Manhattan's so-called Lipstick Building, where legitimate business was conducted, from mingling with employees on the 19th floor, where Madoff executed the scheme, Breslin said.
"Everyone was in a box... and could only see what was in front of them, not the whole," Breslin said.
Each lawyer spent time attacking Madoff's long-time deputy, Frank DiPascali, who pleaded guilty and is expected to be a government witness, as a chronic liar.
The government built its case on a "corroded foundation," said Larry Krantz, a lawyer for computer programmer George Perez. "Their case is only as good as their witnesses," he said.
The lawyers said their clients' behavior did not support the prosecution's portrayal of them as criminals.
"Why would she keep her own money at Madoff?" asked Roland Riopelle, a lawyer for former portfolio manager Annette Bongiorno. "Why would she allow family and friends to keep money at Madoff?"
Computer programmers George Perez and Jerome O'Hara challenged Madoff in 2006, refusing to work on special programs he asked them to write as audits of the firm increased dramatically.
"This was an act of singular courage," said Krantz, Perez's lawyer.
Riopelle also contrasted Bongiorno, who kept records and stayed at the firm immediately after its implosion, with DiPascali and others who pleaded guilty and destroyed or stole documents.
"That was their reaction," Riopelle said. "Not to keep everything in a filing cabinet."
Bongiorno began working as Madoff's secretary at the age of 19, around 1968, and advanced to eventually manage customer accounts. She was a "young, naive high school graduate from Queens who felt she was working at a world-class organization," Riopelle said.
Bongiorno had no experience with the securities industry or its regulations, Riopelle said. She never controlled which securities would be bought, and only entered trades into account statements at Madoff's behest.
"All of those decisions were made by Madoff," whom Bongiorno saw as a hero, Riopelle said.
The jurors generally appeared engaged, except for three who dozed on Thursday morning, an ominous portent for a trial expected to tackle complex subjects over five months.
U.S. District Judge Laura Taylor Swain assured a juror whose daughter is marrying in March that she would "be walking your daughter down the aisle."
The case is USA v. O'Hara et al, U.S. District Court, Southern District of New York, No. 10-cr-0228.
(Reporting by Bernard Vaughan; Editing by Eddie Evan, Andrew Hay and Dan Grebler)