David G. Friehling (born November 27, 1959) is an American accountant who was arrested and charged in March 2009 for his role in the

Madoff investment scandal The Madoff investment scandal was a major case of stock and securities fraud discovered in late 2008. In December of that year, Bernie Madoff, the former Nasdaq chairman and founder of the Wall Street firm Bernard L. Madoff Investment Securities ...

. He subsequently pleaded guilty to rubber-stamping Bernard Madoff's filings with regulators rather than fully reviewing them. His role in covering up Madoff's massive Ponzi scheme makes it the largest

accounting fraud Accounting scandals are business scandals that arise from intentional manipulation of financial statements with the disclosure of financial misdeeds by trusted executives of corporations or governments. Such misdeeds typically involve complex ...

in history.

Early life

Friehling was born in Sullivan County, north of

New York City New York, often called New York City (NYC), is the most populous city in the United States, located at the southern tip of New York State on one of the world's largest natural harbors. The city comprises five boroughs, each coextensive w ...

, and attended high school in

Liberty, New York Liberty is a Administrative divisions of New York#Town, town in Sullivan County, New York, Sullivan County, New York (state), New York, United States. The population was 10,159 at the 2020 census.US Census Bureau, 2020 Census Report QuickFacts, ...

. His family owned the Stevensville Hotel, a Borscht Belt resort in Swan Lake, New York. He is a 1981 graduate of

Cornell University Cornell University is a Private university, private Ivy League research university based in Ithaca, New York, United States. The university was co-founded by American philanthropist Ezra Cornell and historian and educator Andrew Dickson W ...

, and a past-president of the Rockland chapter of the NYS Society of CPAs (NYSSCPA).

Friehling & Horowitz as Madoff's auditors

From 1991 to 2008, Friehling & Horowitz, a little-known accounting firm in

New City, New York New City is a hamlet and census-designated place in the town of Clarkstown, Rockland County, New York, United States, part of the New York Metropolitan Area. A suburb of New York City, the hamlet is located north of the city at its closest p ...

, a small hamlet in the Rockland County suburbs north of New York City, signed off on audits on Bernard L. Madoff Investment Securities LLC's books. Friehling falsely represented to investors and the Securities and Exchange Commission that he and the firm had audited the Madoff firm and that it was financially sound. In the meantime, Friehling and his family withdrew millions of dollars from accounts at the Madoff firm, over $5.5 million since 2000. Madoff's fraud was the largest Ponzi scheme in history. Friehling's role in the scam also made it the largest accounting scandal ever uncovered, dwarfing the $11 billion accounting fraud masterminded by

Bernard Ebbers Bernard John Ebbers (August 27, 1941 – February 2, 2020) was a Canadian-American businessman and the co-founder and CEO of WorldCom. Under his management, WorldCom grew rapidly but collapsed in 2002 amid revelations of accounting irregulariti ...

WorldCom MCI, Inc. (formerly WorldCom and MCI WorldCom) was a telecommunications company. For a time, it was the second-largest long-distance telephone company in the United States, after AT&T. WorldCom grew largely by acquiring other telecommunicatio ...

. The firm consisted of two principals—Friehling and Jerome Horowitz—and a part-time secretary. Horowitz met Madoff in 1963 while working at the accounting firm run by Saul Alpern, Madoff's father-in-law. At the time, the Madoff organization was a

penny stock Penny stocks are common shares of small public companies that trade for less than five dollars per share. The U.S. Securities and Exchange Commission (SEC) uses the term "penny stock" to refer to a security, a financial instrument which repr ...

trader. He audited Madoff's books for years, and took the Madoff account with him after starting his own firm. He retired to

Palm Beach Gardens, Florida Palm Beach Gardens is a city in Palm Beach County, Florida, Palm Beach County, Florida, United States, approximately 80 miles north of Miami. Palm Beach Gardens is a principal city of the Miami metropolitan area. The population was 59,182 at the ...

, in 1991 and handed the account to his son-in-law, Friehling. Horowitz died on March 12, 2009–the day Madoff entered his guilty plea–after a long battle with cancer; it is not known whether he was a target of the Madoff investigation.Hamblett, Mark
Madoff's Accountant Acknowledges Guilt, Casts Himself as Victim
New York Law Journal, November 4, 2009. Well before the Madoff scandal broke, several observers doubted that a tiny firm with only one active accountant could competently audit a firm that had grown into a multibillion-dollar operation. In 2007, Aksia, a hedge fund consultant, warned its clients to stay away from Madoff for that very reason; its CEO, Jim Vos, likened this situation to

General Motors General Motors Company (GM) is an American Multinational corporation, multinational Automotive industry, automotive manufacturing company headquartered in Detroit, Michigan, United States. The company is most known for owning and manufacturing f ...

being audited by a three-person firm. Others were suspicious that Madoff refused requests for

due diligence Due diligence is the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. Due diligence ...

because his accountant—supposedly his brother-in-law—was the only one allowed to see the books. Indeed, for many years, Friehling's practice was so small that he operated out of his house. He only got an office when Madoff told him that some investors were asking questions about the audits. Even then, his operation remained very small; in 2008 it only garnered $180,000 in earnings, far less than conventional wisdom would suggest for a firm that was supposedly earning substantial fees from auditing the Madoff operation. Soon after the Madoff scandal broke, it emerged that Friehling & Horowitz had informed the

American Institute of Certified Public Accountants The American Institute of Certified Public Accountants (AICPA) is the national professional organization of Certified Public Accountants (CPAs) in the United States, with more than 428,000 members in 130 countries. Founded in 1887 as the Americ ...

in writing since 1993 that it didn't conduct audits. An investigation into Friehling by Rockland County

district attorney In the United States, a district attorney (DA), county attorney, county prosecutor, state attorney, state's attorney, prosecuting attorney, commonwealth's attorney, or solicitor is the chief prosecutor or chief law enforcement officer represen ...

Thomas Zugibe was stopped in deferral to the investigation by the United States Attorney for the Southern District of New York. However, he publicly claimed to have "hundreds of clients." Friehling was not registered with the

Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of US-listed public companies. The PCAOB also oversees the audits of broker-dealers, including co ...

, which was created under the Sarbanes-Oxley Act of 2002 to help detect fraud. Nor was the firm "

peer review Peer review is the evaluation of work by one or more people with similar competencies as the producers of the work (:wiktionary:peer#Etymology 2, peers). It functions as a form of self-regulation by qualified members of a profession within the ...

ed", in which auditors check one another for

quality control Quality control (QC) is a process by which entities review the quality of all factors involved in production. ISO 9000 defines quality control as "a part of quality management focused on fulfilling quality requirements". This approach plac ...

. According to the AICPA, Friehling was enrolled in their peer-review program, but was not required to participate because he supposedly didn't conduct audits. It later emerged that Madoff's banker,

JPMorgan Chase JPMorgan Chase & Co. (stylized as JPMorganChase) is an American multinational financial services, finance corporation headquartered in New York City and incorporated in Delaware. It is List of largest banks in the United States, the largest ba ...

, had known that Friehling wasn't registered with the PCAOB or subject to peer review as early as 2006. Additionally, officials at Fairfield Greenwich Group, operator of the largest Madoff feeder fund, had been aware as early as 2005 that Friehling was the firm's sole employee.

Arrest, guilty plea, cooperation with federal government, and sentence

Friehling was charged on March 18, 2009, with

securities fraud Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information.investment adviser fraud, and four counts of filing false audit reports with the

Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...

. On July 10, 2009, Friehling waived indictment and pleaded not guilty to criminal charges. He agreed to proceed without having the evidence in the criminal case against him reviewed by a grand jury at a hearing before U.S. District Judge Alvin Hellerstein in Manhattan. On November 3, 2009, he pleaded guilty to the charges against him. He admitted to simply rubber-stamping Madoff's filings with the SEC; rather than perform actual audits, he signed blank SEC forms before Madoff and others filled them in. He also revealed that he continued to audit Madoff even though he had invested a substantial amount of money with him; accountants aren't allowed to audit broker-dealers with whom they're investing. He agreed to forfeit $3.18 million in accounting fees and withdrawals from his account with Madoff, as well as his three-story, 4,400-square-foot house in New City and one other property. Friehling faced a maximum sentence of 114 years in prison, but unlike Madoff has agreed to cooperate with the government.Lieberman, Steve
Sentencing of Madoff's New City auditor put off again
The Journal News, 2014-07-04. The guilty plea effectively ended his career as an accountant; the SEC is not allowed to accept audits from convicted felons. He lost his CPA license on July 19, 2010. Friehling's sentencing was originally set for February 2010, but was postponed several times at the prosecutors' request due to his cooperation with the government's effort to unwind Madoff's crimes. It was initially rescheduled to September 2010 (at the request of the prosecution, citing Friehling's "continuing cooperation with the Government"). In March 2012 it was postponed to October 26, 2012. In July 2014, it was postponed to December 2014. In late 2014, it was postponed again. In May 2015, U.S. District Judge Laura Taylor Swain sentenced Friehling to one year of home detention and one year of supervised release. Friehling avoided prison because he cooperated extensively with federal prosecutors and because he had been unaware of the extent of Madoff's crimes. Addressing the court at the hearing, Friehling apologized to Madoff's victims. Referring to Madoff's reported statement that he was a "dumb auditor", Friehling said: "I would rather be regarded as dumb than crooked. I did not question what I should have questioned."Matthew Goldstein
Madoff Accountant Avoids Prison Term
''New York Times'' (May 28, 2015). Swain accepted the plea terms, but suggested that Friehling be forced to pay part of the overall $130 million forfeiture arising from the fraud. Swain said that she did not believe Friehling's nonfeasance took place "in a vacuum", and felt the forfeiture was necessary to hold the defendants to account even though it will likely never be repaid in full.

SEC charges

The SEC sued Friehling and his firm on March 18, 2009. On November 3, 2009, Friehling and his firm agreed to a settlement in which they neither admitted nor denied the charges. They also accepted permanent injunctions barring them from violating "certain antifraud provisions" of the securities laws. However, Friehling's guilty plea that same day effectively estopped him from contesting the SEC's allegations, and also had the effect of permanently closing his firm. Madoff's firm paid Friehling between $12,000 and $14,500 a month for his services between 2004 and 2007.

Personal life and family

Friehling has three children.Lisa Cornell
Jeremy Friehling, Son of Bernard Madoff's Accountant, Kills Himself in Ohio
''Huffington Post'' (November 18, 2012). Trusting in Madoff, he placed his own family's savings, including college savings, into Madoff's business. In November 2012, Friehling's 23-year-old son Jeremy Friehling, a second-year student at the Ohio State University College of Medicine, committed suicide.

References