Madoff Accountant Charged With Securities Fraud

The accountant and auditor for convicted Wall Street swindler Bernard Madoff have been charged with fraud by the Securities and Exchange Commission for lying and claiming for years that they had conducted legitimate audits of the failed financial firm.

Certified public accountant David G. Friehling and his accounting firm, Friehling & Horowitz, CPAs, P.C., falsely claimed to have conducted proper audits of Bernard L. Madoff Investment Securities LLC between 1991 and 2008, according to the SEC.

Madoff and his brokerage firm have been linked to a $65 billion Ponzi scheme in which funds from thousands of investors were directed to Madoff’s bank account and not used to purchase securities. Madoff pleaded guilty to the scheme last week and now faces up to 150 years in prison.

‘Egregious Misconduct’ Alleged

Friehling and his firm are accused of essentially selling his accountant’s license to Madoff for a period of more than 17 years and assisting in covering up Madoff’s scheme, according to the SEC. The actions of the accounting firm “deceived investors and regulators by declaring that Madoff’s enterprise had a clean audit record,” the commission said in a statement announcing the charges.

Friehling’s firm falsely stated that it had audited Madoff’s financial statements and had operated according to accepted accounting industry principles in monitoring the investment firm’s activities, according to the SEC. In reality, Friehling did not perform a single, meaningful audit of Madoff’s firm.

The SEC said Friehling conducted “minimal audit procedures of certain accounts” to give the appearance that the accountants were conducting a full audit of Madoff’s firms then filed false financial statements and other required disclosures to cover up the fact that a full audit had not been performed. As a result, tens of billions of dollars in client funds were left insolvent, according to the SEC.

Friehling also is accused of lying to the American Institute of Certified Public Accountants, the industry group which conducts peer review of accounting work, to hide the fact that he had not conducted any audit work of Madoff’s firm.

Money Friehling was paid by Madoff for his fraudulent accounting services were paid from accounts where Madoff stashed ill-gotten investor dollars, the SEC said.

Numerous Charges Filed

The SEC complaint, filed March 18, 2009, charges that Friehling and his accounting firm violated Section 17(a) of the Securities Act, violated and aided and abetted violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aided and abetted violations of Sections 206(1) and 206(2) of the Advisers Act, Section 15(c) of the Exchange Act and Rule 10b-3 thereunder, and Section 17 of the Exchange Act and Rule 17a-5 thereunder.

The SEC is seeking unspecified financial penalties and a court order requiring both Friehling and his accounting firm to return their ill-gotten gains.

No related posts.