Madoff's auditor pleads guilty to fraud

Bernard Madoff’s auditor pleaded guilty to fraud charges today, admitting failing to verify the disgraced money manager’s financial records.

Bernard Madoff’s auditor pleaded guilty to fraud charges today, admitting failing to verify the disgraced money manager’s financial records.

David Friehling, 49, entered the plea in US District Court in Manhattan, apologising to the thousands of victims who lost billions of dollars while he audited Madoff’s financial records between 1991 and 2008. The plea was part of a co-operation deal with prosecutors.

But Friehling told the court he did not know Madoff was running history’s biggest Ponzi scheme.

“In what was the biggest mistake of my life, I put my trust with Bernard Madoff,” Friehling told Judge Alvin Hellerstein.

Before he explained his crimes to the judge, he said he wanted to make clear: “At no time was I ever aware Bernard Madoff was engaged in a Ponzi scheme.”

He said if he had known that investor money was not properly invested, he would not have poured his family’s savings, including the college funds for three children ages 17, 20 and 24, into Madoff’s investment business.

But he admitted he took the financial records handed him by Madoff “at face value,” failing to independently verify the assets of Madoff’s investment company or ensure his bank account records or charts listing the purchase of securities were accurate.

He said he also prepared personal tax returns for Madoff that he knew were not accurate.

As part of his statement supporting his guilty plea, he apologised to Madoff’s investors for his role in the fraud. Hellerstein provided an opportunity for investors to speak at the proceeding but no one asked to do so in a courtroom crowded mostly with reporters.

Friehling’s statement was made to support his guilty plea to charges of securities fraud, investment adviser fraud, making false filings with the Securities and Exchange Commission, and obstructing or impeding the administration of the Internal Revenue laws.

The charges carry a potential prison term of up to 114 years in prison, though substantial co-operation with prosecutors can result in significant leniency.

Friehling has agreed to forfeit $3.1m, which represents what he was paid by Madoff for his accounting and tax services, along with what his family withdrew from their Madoff accounts. He also agreed to give up any properties that were paid for with money from the fraud.

A tentative sentencing date was set for February 26, but it was unlikely that Friehling will be sentenced until he completes his co-operation with prosecutors, which will include divulging any crimes by others he knows about and testifying before grand juries investigating the fraud. He also faces the possibility of unspecified restitution and fines.

Friehling remains free on $2.5m bail. His lawyer, Andrew Lankler, declined to comment after the plea.

In a statement, US Attorney Preet Bharara called Friehling “one of the key enablers of Bernard Madoff’s historic fraud.”

He said Friehling “will now assist us in holding others accountable for their involvement in Madoff’s epic fraud against so many victims.”

The SEC said in a release after the plea Friehling has agreed not to contest SEC civil charges that he enabled Madoff’s fraud by falsely stating he had properly audited Madoff’s financial statements. He faces discharge, prejudgment interest and a civil penalty in the action.

Friehling was Madoff’s auditor from 1991 to 2008, a job he inherited from his father-in-law, who was originally hired by the father of Madoff’s wife Ruth in 1963, shortly after Madoff began his investment career.

The 71-year-old Madoff, who pleaded guilty to fraud charges in March, is serving a 150-year sentence at a prison in North Carolina.

Authorities say if Friehling had done his job, they would have known years earlier that Madoff was carrying out history’s greatest pyramid, or Ponzi, scheme by paying money to some investors with the proceeds he received from other investors.

When Madoff revealed his fraud last December in a confession to his sons and later to the FBI, it was discovered that only a few hundred million dollars was left of the more than $170bn that prosecutors say went through his accounts over the years. Prosecutors say investors originally entrusted Madoff with more than $13bn and he greatly exaggerated bogus gains.

It’s the third plea in the case. Frank DiPascali, Madoff’s former finance chief, also is co-operating after pleading guilty in August to helping Madoff carry out his fraud.

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