Madoff’s Storefront Accountant Is Charged with Securities Fraud

The storefront accountant who audited Bernard Madoff’s investment advisory business has been arrested and charged with securities violations.

David Friehling was charged with securities fraud, aiding and abetting investment adviser fraud, and making false filings to the Securities and Exchange Commission, according to a press release (PDF). He is the first person besides Madoff to be charged, Bloomberg reports.

Acting U.S. Attorney Lev Dassin said in a statement that Friehling isn’t accused of knowing about Madoff's Ponzi scheme, Bloomberg says. Rather, he is accused of falsely certifying that he had audited the financial statements of Bernard L. Madoff Investment Securities.

Friehling “did little or no testing, no verification of the ‘facts’ he certified," said FBI assistant director-in-charge Joseph Demarest in the press release. "His job was not merely to rubber-stamp statements he didn’t verify.”

Sources told the New York Times that both Friehling and Horowitz had invested with Madoff, who pleaded guilty March 12 to running a Ponzi scheme that caused investors billions of dollars in losses.

The SEC filed a separate civil suit today against Friehling and his New City, N.Y., accounting firm that seeks unspecified fines and forfeiture, according to a press release. The SEC says that, as of Nov. 30, Friehling and his family members had accounts with reported balances of more than $14 million with Madoff's firm, the Bloomberg account says.

Friehling became Madoff’s primary auditor in the 1990s after the retirement of his business partner and father-in-law, Jeremy Horowitz, the Times says. Horowitz died from cancer on the same day that Madoff entered his guilty plea. Previously, family members withdrew more than $5.5 million from Madoff accounts, the SEC says.

On the day of the death, a person who identified himself as Horowitz’s son, Irwin, said in an Internet post his father never suspected any criminal wrongdoing, the Times reports. “These last three months, since the Madoff scheme became public, have been a living nightmare for my entire family,” the post said. “This has been especially true for my father, who had spent his entire life building up both a reputation for honesty and integrity as well as an investment nest egg that would provide for my parents’ retirement. This reputation has suffered mightily simply from the association with Mr. Madoff.”