MANHATTAN (CN) – The SEC today charged Bernard Madoff’s auditors with fraud. The agency said David G. Friehling and his firm, Friehling & Horowitz CPAs enabled Madoff’s $60 billion Ponzi scheme by “purport(ing) to audit financial statements and disclosures of Bernard L. Madoff Investments Securities … when in fact they had not.” The agency claims Friehling profited by withdrawing “millions of dollars” from Madoff accounts, but “did not perform anything remotely resembling an audit of BMIS and, critically, did not perform procedures to confirm that the securities BMIS purportedly held on behalf of its customers even existed.”
The 28-page federal complaint alleges: “From 1991 through 2008, while Madoff uses BMIS [Bernard L. Madoff Investments Securities] to conduct his massive Ponzi scheme, Friehling, a certified public accountant and the principal of F&H, enabled Madoff’s misconduct by falsely representing to investors that BMIS was financially sound and that Friehling and F&H were independent auditors that had conducted audits of BMIS each year. … (T)hese statements were materially false because that Friehling and F&H did not perform anything remotely resembling an audit of BMIS and, critically, did not perform procedures to confirm that the securities BMIS purportedly held on behalf of its customers even existed. Instead, Friehling merely pretended to conduct minimal audit procedures of certain accounts to make it seem like he was conducting an audit, and even then failed to document his purported findings and conclusions as required under GAAS. If properly stated, those financial statements, along with BMIS’ related disclosures regarding reserve requirements, would have shown that BMIS owed tens of billions of dollars in additional liabilities to its customers and thus was insolvent. Similarly, Friehling did not conduct any audit procedures with respect to BMIS’ internal controls, and he knew or recklessly disregarded that he had absolutely no basis to represent that BMIS had adequate internal controls.
“Friehling knowingly or recklessly made these false statements in an effort to help Madoff avoid any real scrutiny of BMIS’ investment operations.”
The SEC complaint adds: “Friehling and F&H obtained ill-gotten gains through compensation paid to them by Madoff and BMIS and also by withdrawing millions of dollars from accounts held at BMIS in the name of Friehling and his family members.”