Madoff's accountant charged
LARRY NEUMEISTER
11:57 EST Wednesday, Mar 18, 2009
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NEW YORK — Bernard Madoff's long-time accountant was arrested on fraud charges Wednesday, accused of aiding the man who has admitted cheating thousands of investors out of billions of dollars in the past two decades.
The charges against David Friehling, 49, come as U.S. federal authorities turn their attention to those who they believe helped Mr. Madoff fool 4,800 investors into thinking that their long-time investments were growing comfortably each year. Mr. Friehling is the first person to be arrested since the Mr. Madoff scandal broke three months ago.
Mr. Friehling ran an accounting office in a non-descript suburban building north of New York City, and quickly drew scrutiny. Experts in accounting said it would be preposterous for such a tiny firm to audit properly an operation the size of Mr. Madoff's.
He had served as Mr. Madoff's auditor from 1991 through 2008 while he worked at the sole practitioner at Friehling & Horowitz. He was paid a tidy sum by Mr. Madoff: Prosecutors said he made between $12,000 and $14,500 a month from 2004 to 2007, coming out to $144,000 to $174,000 a year.
Mr. Friehling faces up to 105 years in prison if he is convicted. He is charged with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports with the U.S. Securities and Exchange Commission.
Mr. Friehling's lawyer, Andrew Lankler, did not immediately return a phone call Wednesday. The accountant had a court appearance Wednesday afternoon in federal court.
Acting U.S. Attorney Lev L. Dassin said in a release that Friehling is not charged with knowing about Mr. Madoff's Ponzi scheme.
However, Mr. Dassin said: “Mr. Friehling's deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money.”
The SEC said Mr. Friehling did not meaningfully audit Mr. Madoff's business or confirm that securities purportedly held by Mr. Madoff's company on behalf of its customers even existed.
The SEC said Mr. Friehling instead pretended to conduct minimal audit procedures of certain accounts to make it seem he was conducting an audit and then failed to document his purported findings and conclusions as he was required to do.
The agency said if Mr. Friehling had done his job, Mr. Madoff's financial statements would have shown his company owed tens of billions of dollars to his customers and was insolvent.
The SEC accused Mr. Friehling of lying to the American Institute of Certified Public Accountants for years, denying he conducted any audit work, because he was afraid that his work for Mr. Madoff would be subject to peer review.
Prosecutors said Friehling as far back as 1995 failed to maintain professional independence from Mr. Madoff. They said he or his wife had an account with Madoff that exceeded $500,000, the maximum amount under SEC rules that an auditor can invest with a client and still maintain independence.
The strain of the Mr. Madoff scandal on Mr. Friehling began to show in recent months as he put his luxury home in Rockland County on the market.
A listing posted on the Web site of Prudential Rand Real Estate said the family is seeking $995,000 for the five-bedroom Colonial. The home was built in 1990 and has a swimming pool and 4,437 square feet of space.
Mr. Madoff, 70, pleaded guilty to securities fraud, perjury and other charges on Thursday and was immediately sent to prison to await a June sentencing, when he faces up to 150 years in prison.
During his plea, Mr. Madoff said he began a Ponzi scheme in the 1990s in response to the pain of a recession, thinking it would be a short-lived solution. He said he never recovered, though, and knew prison awaited him.
As recently as November, Mr. Madoff notified investors that they had about $65-billion in their accounts. Investigators say they have recovered only about $1-billion.
Prosecutors have said they believe Mr. Madoff's fraud started in the 1980s.
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