Madoff Accountant Pleads Guilty To Massive Fraud

By Christine Caulfield

Law360, New York (November 03, 2009) -- Bernard L. Madoff's accountant pled guilty Tuesday to nine counts related to his role in the imprisoned investor's Ponzi scheme, becoming the third person connected with the multibillion-dollar fraud to cop to criminal charges.

David G. Friehling, 49, entered his plea at an arraignment in the U.S. District Court for the Southern District of New York.

The New York-based auditor — who has agreed to cooperate with the U.S. government in its ongoing investigation of Madoff's scam — pled guilty to securities fraud, investment adviser fraud, four counts of filing false audit reports with the U.S. Securities and Exchange Commission, and three counts of obstructing or impeding the administration of the Internal Revenue Service.

Friehling is scheduled to be sentenced on Feb. 26, 2010, and faces a statutory maximum term of 114 years behind bars, in addition to mandatory restitution and hefty criminal fines.

He has already agreed to forfeit the more than $3 million he earned as accountant for Bernard L. Madoff Investment Securities LLC and withdrew from his BLMIS account, in addition to any other property derived from the fraud, according to the U.S. Attorney's Office.

“David Friehling was one of the key enablers of Bernard Madoff's historic fraud,” U.S. Attorney Preet Bharara said. “With his guilty plea, Friehling has taken responsibility for his crimes and will now assist us in holding others accountable for their involvement in Madoff's epic fraud against so many victims.”

Friehling, who surrendered his passport on his arrest on March 18, was released on a $2.5 million bond but is restricted to travel within the Southern and Eastern districts of New York and will be subject to regular pretrial supervision, prosecutors said.

The court further ordered Friehling's wife to surrender her passport.

The sole practitioner at New York-based Friehling & Horowitz CPAs PC, Friehling is the third person after Madoff and Frank DiPascali Jr., the former chief financial officer of Madoff's investment firm, to plead guilty to criminal charges connected to the $65 billion fraud.

Friehling's attorney, Andrew Lankler of Lankler & Carragher LLP, did not immediately return a request for comment Tuesday.

The accountant initially pled not guilty to a six-count criminal information in July.

From 1991 to 2008, Friehling falsely certified that he had prepared and audited the financial statements of BLMIS, but failed to conduct the audits in accordance with generally accepted accounting standards and failed to test internal controls as required, according to prosecutors.

Friehling also allegedly failed to keep the requisite professional independence from Madoff, maintaining a $500,000 account with the Ponzi scheme operator.

He also faces civil fraud charges by the SEC, which claims that Friehling enabled Madoff to “avoid any real scrutiny.”

In the complaint, the SEC contends that Friehling “enabled Madoff's misconduct by falsely representing to investors that BMIS was financially sound and that Friehling and F&H were independent auditors that had conducted audits of BMIS each year.”

Madoff, 71, was sentenced on June 29 to 150 years in prison, the maximum penalty that could be imposed for his role in masterminding the Ponzi scheme.

DiPascali, 53, pled guilty Aug. 11 to charges of conspiracy, securities fraud, investment adviser fraud, falsifying records of a broker-dealer and investment adviser, mail fraud, wire fraud, international money laundering, perjury, and federal income tax evasion. He has yet to be sentenced.

Friehling is represented by Lankler & Carragher LLP.

The case is U.S. v. David G. Friehling, case number 09-cr-700, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Christopher Norton, Tina Peng and Julie Zeveloff