Friehling did not comment as he left the courthouse after being released on bail, and his lawyer, Andrew Lankler, also declined comment. -- PHOTO: REUTERS
NEW YORK - BERNARD Madoff's longtime accountant was arrested on fraud charges on Wednesday as authorities blamed him for failing to make the most basic auditing checks that would have exposed an epic fraud that cost investors billions of dollars.
David Friehling is the first person to be arrested in the scandal since Madoff turned himself in, and his prosecution signals that the government is intent on bringing Madoff's associates to justice as they try to figure out who helped him carry out the fraud.
Auditor 'rubber-stamps' accounts
The government says Friehling did not meaningfully audit Madoff's business or confirm that securities purportedly held by Madoff's company on behalf of its customers even existed.
The Securities and Exchange Commission said Friehling instead pretended to conduct minimal audit procedures of certain accounts to make it seem he was conducting an audit and then failed to document his purported findings and conclusions as he was required to do.
Prosecutors say the 49-year-old Friehling essentially rubber-stamped Madoff's books for 17 years, serving as Madoff's auditor from 1991 through 2008 while operating from a discreet building in suburban New York.
Authorities said that if Friehling had done his job, Madoff's financial statements would have shown his company owed tens of billions of dollars to his customers and was insolvent.
'Mr Friehling's deception helped foster the illusion that Mr Madoff legitimately invested his clients' money,' said acting US Attorney Lev L. Dassin.
The relationship between the accountant and Madoff was so cosy that Friehling and his family pulled US$5.5 million (S$8.3 million) from accounts with Madoff since 2000 and had a balance of more than US$14 million as recently as November. Prosecutors said it's a conflict for accountants to have such large sums invested with clients.
Friehling did not comment as he left the courthouse after being released on bail, and his lawyer, Andrew Lankler, also declined comment.
Madoff, 70, confessed to his sons in early December that his investment empire was actually a giant pyramid scheme in which he paid off old investors with money from new ones. Though he reported to 4,800 investors that they had US$65 billion in November, investigators have found only about US$1 billion.
He pleaded guilty last week and could spend the rest of his life in prison after he is sentenced in June.
Prosecutors now believe that Madoff received help from Friehling as he carried out his fraud, although Friehling is not charged with knowing about his pyramid scheme. -- AP
