In Madoff Scandal, First Domino Falls

(NYSSCPA)
Remember all that hash last week about how Bernard Madoff could not possibly have run his massive swindle for so long all by himself? Wonder no more. Moving quickly while the paper trail is still hot and public anger still roiling, the Justice Department Wednesday arrested and charged an alleged tribune of Bernard Madoff's massive scam—the accountant who signed off on the financial statements that we now know weren't worth the bytes they took up on a computer.

C.P.A. David Friehling is not charged with being a part of the Ponzi scheme itself. Apparently prosecutors at this point cannot prove that he knew with specificity what Madoff was up to for all those years. His charges are not nearly as serious as were the charges against Madoff. But Friehling is on the hook for "deceiving investors by falsely certifying that he audited the financial statements of Mr. Madoff's business," according to the feds. "Mr. Friehling's deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money," is how the press release puts it.

This legal standard doesn't just spell trouble for Friehling. It also ought to make many other Madoff men and women, instruments to the crime, quake in their Guccis. What sworn representations did Madoff's lawyers make about his company and its investments? What about Madoff's bankers? How the people who handled all those phony "investments"? If you take out the element of conspiracy—if you concede that people didn't know what Madoff's mind and plan were—suddenly a much larger group within Madoff's circle become potential investigative targets or subjects.

Try as he might to take all of the blame upon himself, the truth is that it took a village to allow Madoff to get away with his crime for so many years. Wednesday, one of those other villagers also got in big trouble. And if the government continues to hold professionals accountable for their statements and representations about Madoff, Friehling won't be the last.



(CBS)
Andrew Cohen is CBS News Chief Legal Analyst and Legal Editor. You can read more of his posts in Hotsheet here.
  • Andrew Cohen

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