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Madoff's accountant charged with fraud

David Friehling, free on $2.5 million bail, is also accused of filing false reports with the SEC in $65-billion Ponzi scheme.

March 19, 2009|Martin Zimmerman

Federal authorities arrested financier Bernard Madoff's accountant Wednesday on charges of securities fraud, the first person besides Madoff himself to be charged in the $65-billion investment scandal.

In a complaint filed by the U.S. attorney's office in New York, David G. Friehling, 49, was charged with securities fraud, aiding an investment advisor fraud and four counts of filing false audit reports with the Securities and Exchange Commission.

Friehling, who lives in Rockland County, outside New York, was released Wednesday afternoon on $2.5-million bail after a brief hearing.

If convicted on all charges, he faces a maximum sentence of 105 years in prison, according to the U.S. attorney's office.

"Mr. Friehling is charged with crimes that represent a serious breach of the investing public's trust," acting U.S. Atty. Lev. L. Dassin said.

In a related action, the SEC filed a civil lawsuit alleging that Friehling engaged in securities fraud.

The SEC is seeking financial penalties and a court order requiring the defendant and his accounting firm, Friehling & Horowitz, to disgorge ill-gotten profits.

Andrew M. Lankler, a New York attorney representing Friehling, could not immediately be reached for comment.

Madoff, 70, pleaded guilty last week to orchestrating a massive Ponzi scheme that defrauded as many as 4,800 participants. Madoff gave his clients statements indicating that their portfolios were growing steadily when in fact the assets were bogus.

Madoff, who faces a maximum sentence of 150 years in prison, remains in jail awaiting his June 16 sentencing. The judge in his case is scheduled to hear arguments today on whether Madoff should remain in jail until then.

Friehling was the accountant for Madoff's investment firm from 1991 to 2008, according to the government, and was paid $12,000 to $14,000 a month at least part of that time.

Experts said his arrest indicated that the government wasn't buying Madoff's assertion that his Ponzi scheme was a lone-wolf operation.

"The sheer scope of the crime belies Madoff's representations that he acted alone," said Washington attorney William Sullivan Jr., a former federal prosecutor.

"Federal investigators will also probe the activities of all who would have participated in, benefited from or had potential knowledge of the fraud," Sullivan said, including family members and other employees of Madoff's investment firm.

The U.S. attorney's complaint alleges that Friehling falsely certified that he prepared Madoff's financial statements in accordance with accepted accounting practices. The government alleged that Friehling also failed to independently verify the purchase and custody of securities by Madoff and that he failed to "examine a bank account through which billions of dollars of [Madoff] client funds flowed."

In addition, the government alleged that Friehling compromised his standing as an independent auditor by maintaining an account with Madoff for either himself or his wife that was valued at more than $500,000 -- the maximum amount an accountant can invest with a client and still maintain independence.

The SEC lawsuit alleges that Friehling and his family members withdrew more than $5.5 million from their Madoff accounts since 2000.

Dassin noted that Friehling was not being accused of having knowledge of Madoff's Ponzi scheme, but he added that the accountant's "deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money."

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martin.zimmerman@latimes.com

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