The accountant who helped conceal Bernard L. Madoff's record-breaking Ponzi scheme pleaded guilty Tuesday, admitting in Manhattan federal court that he rubber-stamped financial statements used to deceive regulators and investors.
David G. Friehling, 49, entered guilty pleas before Southern District of New York Judge Alvin K. Hellerstein to single counts of securities fraud and investment advisor fraud, four counts of making false filings with the Securities and Exchange Commission and three counts of obstructing or impeding administration of the Internal Revenue laws.
Friehling, the accountant for Bernard L. Madoff Investment Securities since 1991, allocuted to the facts needed to support guilty pleas on a superseding information offered by Assistant U.S. Attorneys Lisa A. Baroni and Marc O. Litt, but not before an introductory statement in which he cast himself and his family as victims of Madoff.
"In what was surely the biggest mistake of my life, I placed my trust in Bernard Madoff," Friehling said. Standing next to defense attorney Andrew Lankler of Lankler & Carragher, Friehling said, "At no time was I ever aware that Bernard Madoff was engaged in a Ponzi scheme."
Friehling, who was initially charged on July 17, pleaded guilty as part of a cooperation agreement with the government in which he pledged to help prosecutors and investigators discover who else may be criminally responsible for investor losses now estimated to be in excess of $20 billion.
"I want to apologize to the Madoff victims for the role I know I played in this massive and devastating fraud," he said.
Friehling, a certified public accountant at Friehling & Horowitz in New City, Rockland County, N.Y., told the court he has cooperated with prosecutors from the outset on the investigation into Madoff, who was sentenced in June to serve 150 years in prison by Southern District of New York Judge Denny Chin.
No date has been set for Friehling's sentencing. He faces up to 20 years in prison on the securities fraud and false SEC filing charges.
The agreement with the government calls for Friehling to forfeit $3.18 million, which represents the total amount of compensation he was paid for tax and accounting services and the amount that he and his wife and children withdrew from their accounts at Bernard L. Madoff Investment Securities.
The father of three said his father-in-law, Jerome Horowitz, was introduced to Madoff in 1963. Horowitz brought his son-in-law into the firm in 1989 and then went into semi-retirement in 1991 but continued to assist Friehling for the next seven years.
Among other admissions made by Friehling on Tuesday was that he approved filings with the SEC but "did not conduct a meaningful audit."
Friehling also said he had prepared tax returns for Madoff and "others," and that he violated the prohibition on accountants auditing the broker-dealers with whom they are investing.
Friehling became the third person to plead guilty in the scandal. The second was Frank DiPascali, the former finance chief at Bernard L. Madoff Investment Securities who pleaded guilty to 10 counts before Judge Richard Sullivan on Aug. 11. DiPascali -- who told Sullivan, "It was all fake. It was all fictitious" -- is awaiting sentencing.
The SEC announced Tuesday that it had settled with Friehling on a companion civil suit filed in the Southern District, SEC v. Friehling, 09 CV 2467.
In the settlement, Friehling promises not to contest the SEC's allegations that he falsely stated he had audited the Madoff financial statements, but it leaves for another day the amount of penalty to be paid by Friehling and his firm. The case is before Judge Louis L. Stanton.
Friehling's next court date in the criminal prosecution is Feb. 26. He remains free on $2.5 million bond.
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