Crooked financier Bernard Madoff's accountant was arrested on fraud charges today accused of aiding the man who cheated thousands of investors out of billions of dollars.
The charges against David Friehling (aged 49) come as federal authorities turn their attention to those who they believe helped Madoff fool 4,800 investors into thinking that their investments were growing comfortably each year.
Friehling is the first person to be arrested since the Madoff scandal broke three months ago.
Friehling ran an accounting office in a nondescript suburban building north of New York, and quickly drew scrutiny. Experts in accounting said it would be preposterous for such a tiny firm to audit properly an operation the size of Madoff's.
He had served as Madoff's auditor from 1991 to 2008 while he worked as the sole practitioner at Friehling & Horowitz. He was paid a significant sum by Madoff - prosecutors said up to US$174,000 (€185,367) a year.
Friehling faces up to 105 years in prison if he is convicted. He is charged with securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports with the US Securities and Exchange Commission.
Acting US Attorney Lev Dassin said Friehling is not charged with knowing about Madoff's pyramid scheme.
However he added: "Mr. Friehling's deception helped foster the illusion that Mr Madoff legitimately invested his clients' money."
In a pyramid scheme, early investors are paid with money raised from later investors.
The SEC said 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 SEC 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.
The agency said 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.
Madoff (aged 70) pleaded guilty to securities fraud, perjury and other charges on Thursday and was immediately sent to prison to await a June sentencing, when he faces up to 150 years.
During his plea, Madoff said he began a pyramid scheme in the 1990s in response to the pain of a recession, thinking it would be a short-lived solution. He said he never recovered, though, and knew prison awaited him.