Madoff Accountant Friehling Could Be More Culpable Than Madoff


If You Want the Swindlers, Get Their Accountants

“If you want the Mafia, get their lawyers,” explains Mitchell McDeere, formerly of Bendini, Lambert and Locke.

I think we’re missing the real villains in the Bernard Madoff affair. Madoff, in case you’ve been under a rock for the last few months, is the 70-year old investment fund head who just pled guilty to bilking investors out of $65 billion. (In reality, Madoff only bilked them out of the $17 billion they invested with him, not the $48 billion in imaginary profits.)

Without rehashing all of the details, suffice it to say that Bernard Madoff will be spending the rest of his life in prison – right where he belongs.

Let’s Not Stop at People Named Madoff

The swindled investors, understandably, want to squeeze the life out of everyone remotely related to Madoff. Besides Bernard Madoff, they want Ruth Madoff (Bernie’s wife and former employee). They want Mark and Andrew Madoff (Bernie’s sons and former employees). They want their pound of flesh from anyone whose name rhymes with Madoff. Though they’re missing the real villains.

The criminals they should be most angry with include the Securities and Exchange Commission (SEC) and the SEC employees who failed to investigate reports of the fraud… and Madoff’s accountant. (We’ll save our contempt for the SEC’s handling of this mess for a later post; today we’re focused on the accountant.)

No one seemed to care this past week when David G. Friehling, Madoff’s 49-year old accountant, turned himself in to authorities to face criminal charges for his role in helping Madoff get away with the biggest investment fraud in history.

If the allegations against Friehling are true, in many ways his activity is even more vile and despicable than Madoff’s. If the charges are true, he is the most culpable of all in my opinion. Friehling, you see, was tasked with auditing Madoff’s business dealings and certifying the results. Specifically, Friehling has been charged with falsely certifying that he had prepared Madoff’s audit statements in accordance with generally accepted accounting principles. Those statements were sent to the SEC and to Madoff’s clients.

Friehling Could Be Twice the Criminal Madoff Is

We know Madoff is a criminal; and we hate him because he violated a fiduciary duty he had to his clients. He is a disgusting human being who should feel the full force of the law against him. However, if Friehling is found guilty, he deserves more punishment than Madoff for two reasons: 1) He violated not only a fiduciary duty to Madoff’s victims, but a regulatory duty as well; and 2) We need to do whatever we can to prevent another Madoff situation in the future.

Friehling’s firm was Madoff’s accountant and sole auditor for at least 17 years. In that time, Madoff made billions, while Friehling merely made millions. The kind of greed that drove Madoff will not be easily swayed by a few perp walks and 10 years in jail. (As I mentioned, Madoff is 70 years old, so he’s probably got ten years left.) Anyone wishing to follow in Madoff’s footsteps might be willing to trade billions today for a possible, though not probable, jail sentence down the road.

If You Want the Swindlers, Get Their Accountants

We’re back to the concept introduced by Mitch McDeere… Without a CPA to certify the fraud, you cannot defraud at the level of Bernard Madoff; although the government doesn’t seem to understand this. (Much like FBI Agent Wayne Tarrance had trouble understanding the concept when McDeere first introduced it to him.)

Friehling is the only person besides Madoff to be charged in the fraud so far; though he was released after his arraignment on bail of $2.5 million. At 49 years old, he poses a much greater flight risk than Madoff… Friehling, you see, has something to lose: The rest of his adult life. He faces a maximum sentence of 105 years in prison if convicted on all counts. Not enough, I say, if the charges are true.

Friehling has been charged with securities fraud, aiding and abetting investment adviser fraud, and four counts of filing false audit reports with the SEC. And while both Madoff and Friehling deserve to spend the rest of their lives in prison (if the allegations against Friehling are true), a greater example should be made of Friehling. His perp walks should be longer, his prison cell should be scarier and more bleak, and his name should become as well known as Madoff or Ponzi.

The same government that was asleep at the wheel during Madoff’s rise, should do everything in it’s power to prevent future Madoffs – and this means getting their accountants, and getting them good.