US charges Madoff accountant, pretended to audit firm

NEW YORK, (Reuters) – An accountant for confessed  swindler Bernard Madoff’s firm was charged with fraud yesterday 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 yesterday 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.

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.

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