Federal authorities arrested financier Bernard Madoff’s accountant Wednesday on charges of securities fraud, the first person besides Madoff 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 adviser fraud and four counts of filing false audit reports with the U.S. Securities and Exchange Commission. In a related action, the SEC filed a civil lawsuit alleging that Friehling engaged in securities fraud.
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.
Andrew M. Lankler, a New York attorney who is 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 of 150 years in prison, remains in jail awaiting a June sentencing hearing.
Friehling was the accountant for Madoff’s investment company from 1991 through 2008, according to the government, and was paid between $12,000 and $14,000 a month during at least part of that time.
The 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.
“Mr. Friehling is charged with crimes that represent a serious breach of the investing public’s trust,” acting U.S. Attorney Lev. L. Dassin said.
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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