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Madoff's auditor charged with fraud

March 21, 2009 19:25 IST

Bernard Madoff's accountant for nearly two decades was on Wednesday charged with securities fraud as US prosecutors widened their investigation into one of the biggest investment frauds in history.

David Friehling, 49, was accused of securities fraud for failing to audit the financial statements and disclosures of Bernard L. Madoff Investment Securities, aiding and abetting investment adviser fraud, and filing false regulatory reports. He faces up to 105 years in prison if convicted of the charges.

"Friehling essentially sold his licence to Madoff for more than 17 years while Madoff's Ponzi scheme went undetected," alleged James Clarkson, acting director of the New York regional office of the Securities and Exchange Commission, which filed separate civil charges against him.

Mr Madoff last week pleaded guilty to 11 federal felony charges and is awaiting sentencing. Mr Friehling, a certified public accountant and the sole practitioner at Friehling & Horowitz, is the second person to be charged in the investigation into Mr Madoff's Ponzi scheme.

Mr Friehling "enabled" Mr Madoff's misconduct by falsely representing to investors that his firm was financially sound, the SEC claimed in its complaint.

Mr Friehling "merely pretended" to conduct minimal audit procedures and "even then failed to document his purported findings". The SEC complaint alleges Mr Friehling did not maintain independence from Mr Madoff's firm, which retained him from at least 1991.

As of November 30, 2008, he and his family had accounts with Mr Madoff reported to be worth more than $14m, and withdrawals from the largest of them totalled more than $5.5m since 2000, according to the SEC's complaint. The regulator also accused him of trying to hide his investment by replacing his own name on his account with his wife's name, and then later naming the account "Friehling Investment Fund".

Mr Friehling received $186,000 a year in fees from Mr Madoff's firm for his work, along with bookkeeping and tax services for Mr Madoff and various Madoff family members, the SEC claimed. According to the criminal complaint, Mr Madoff's firm paid Mr Friehling about $12,000 to $14,000 monthly for services between 2004 and 2007.

Lev Dassin, acting US attorney for the southern district of New York, said that, although Mr Friehling was not charged with knowing about Mr Madoff's Ponzi scheme, his "deception helped foster the illusion that Mr Madoff legitimately invested his clients' money".

Mr Friehling's attorney, Andrew Lankler, declined to comment.

Copyright The Financial Times Limited 2009


Joanna Chung in New York