U.S. Charges Madoff Accountant with FraudPaul Radvany in Reuters, March 08, 2009
By Grant McCool and Martha Graybow
NEW YORK (Reuters) - An accountant for confessed swindler Bernard Madoff's firm was charged with fraud on Wednesday after authorities said he pretended to audit the company that cheated thousands in Wall Street's biggest investment scheme.
The accountant, David Friehling, 49, who ran a small storefront firm in a New York suburb, is the first person besides Madoff to be arrested on criminal charges in the fraud. The U.S. Securities and Exchange Commission (SEC) filed civil charges against Friehling.
Madoff, 70, pleaded guilty on March 12 in a dramatic courtroom admission to running a worldwide fraud that prosecutors said went back at least 20 years, drawing in as much as $65 billion from big and small investors and charities.
Madoff, a former Nasdaq stock market chairman, was jailed after pleading guilty to 11 criminal counts and could spend the rest of his life in prison when he is sentenced in June.
The FBI arrested Friehling on Wednesday as the government followed up on its promise to bilked investors to investigate Madoff's close associates.
"Friehling's arrest signals that the government is working hard on interviewing various people and looking at documents to find out who may have helped Madoff commit this massive fraud," said Paul Radvany, a professor at Fordham University School of Law in New York and a former federal prosecutor.
The SEC said in its complaint that Friehling and his firm "did not perform anything remotely resembling an audit" of Madoff's money management firm or try to confirm that stocks that Madoff had purportedly bought for customers even existed.
A U.S. magistrate ordered Friehling to be released on $2.5 million bail and to surrender his passport. Friehling, wearing a beige suit and yellow and green tie, sat slightly slumped in the courtroom during a brief proceeding.
Friehling's attorney Andrew Lankler declined comment after the hearing, and Friehling left the court without commenting.
AIDING AND ABETTING
Friehling faces a maximum of 105 years in prison on the criminal charges, including securities fraud, aiding and abetting investment adviser fraud and false audit reports.
The SEC said Friehling "merely pretended" to conduct minimal audit procedures to make it seem as if he was auditing. Even then, he failed to adequately document his purported findings.
Friehling and his firm were paid from Madoff's ill-gotten gains, and he and his family improperly held accounts at the Madoff firm in violation of accounting rules, the SEC said. Authorities said there were millions of dollars of withdrawals from the accounts over the years.
Lev Dassin, the acting U.S. Attorney for Manhattan, said Friehling is not charged with knowing about Madoff's Ponzi scheme, but his "deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money.
Friehling is the only certified public accountant at the firm and its sole shareholder. He formed the firm around 1988, when he partnered with his father-in-law, Jeremy Horowitz. Horowitz died of cancer at the age of 80 last Thursday, the same day that Madoff pleaded guilty.
Authorities said Friehling's fraud ran from 1991 to 2008, and according to the SEC, he "essentially sold his license to Madoff for more than 17 years while Madoff's Ponzi scheme went undetected." In a Ponzi scheme, early investors are paid with money from new clients.
Friehling and his firm received $186,000 a year in fees from Madoff's money management firm for the purported auditing work along with bookkeeping and tax services for the confessed swindler and various Madoff family members, the SEC said.
The SEC said Friehling and his family had accounts with Madoff with total balances of more than $14 million as of November 30, 2008. Withdrawals from the largest of the accounts totaled over $5.5 million since 2000, the SEC said.
The commission said Friehling took steps to hide his investment with Madoff, replacing his own name on his account with his wife's name and later renaming it the "Friehling Investment Fund" to try to conceal his conflict of interest.