2nd Arrest In Madoff Case

CBS News Learns Madoff's Chief Accountant Has Surrendered To Authorities And Will Have Court Appearance Today

(CBS)  CBS News has learned that a second person was arrested Wednesday in connection with the Madoff scandal. Madoff's chief accountant David Friehling has been charged with filing false audits with and aiding and abetting security fraud. Friehling surrendered to authorities and is scheduled to appear before a U.S. magistrate in federal court in Manhattan later today.

Friehling was an independent accountant, and did not work at Madoff's firm. In a government complaint he is named as the auditor that certified Madoff's annual statements with the Securities and Exchange Commission and for investors.

Friehling, 49, faces a statutory maximum sentence of 105 years in prison. He will be appear later Wednesday before U.S. Magistrate Judge Theodore H. Katz in Manhattan federal court.

"Mr. Friehling is charged with crimes that represent a serious breach of the investing public's trust," said Acting U.S. Attorney Lev L. Dassin.

"Although Mr. Friehling is not charged with knowledge of the Madoff Ponzi scheme, he is charged with deceiving investors by falsely certifying that he audited the financial statements of Mr. Madoff's business. Mr. Friehling's deception helped foster the illusion that Mr. Madoff legitimately invested his clients' money," Dassin said in a statement.

Court papers on Friehling's charges say that from 1991 through 2008, his firm was the accounting firm retained by Madoff to audit his company's financial statements.

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Court Complaint Against Madoff Accountant David Friehling

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As auditor, Friehling's responsibilities included purportedly auditing financial statements, balance sheets, statements of income, statements of cash flows and reports on internal controls.

The prosecutors allege Friehling falsely certified that he had prepared such statements, which were sent to the SEC and Madoff's clients.

Madoff's firm paid Friehling approximately $12,000 to $14,500 per month for his services between 2004 and 2007, prosecutors say.

Last Thursday, Madoff pleaded guilty to 11 felony counts, including securities fraud, in what may be the biggest fraud in Wall Street history. His $10 million bail was immediately revoked and he was taken into custody.

Madoff's lawyers have appealed his jailing, saying he should be released until his June sentencing because he never fled, even knowing he could expect to die in prison.

Prosecutors are also eyeing the assets of his wife, Ruth Madoff. In court papers they sought to take control of most of the couple's assets, including three properties listed solely in Ruth Madoff's name: a $7 million Manhattan penthouse bought in 1984, an $11 million Palm Beach, Fla., home purchased in 1994 and a $1 million home in Cap d' Antibe, France. Another $3 million home bought in 1979 in Montauk is jointly owned by the couple.

The government also said Madoff and his wife should forfeit:

$10 million in furnishings for all of the homes, along with accounts in Ruth Madoff's name that hold $17 million in cash and $45 million in securities.

"Bull," a $7 million yacht in France and its $1.5 million boat slip, and "Little Bull," a $320,000 Montauk boat, all in Ruth Madoff's name, as well as a $2.2 million fishing boat in Palm Beach, Fla., that is in Madoff's name.

A 1999 Mercedes SLK convertible in Florida, a 2001 Mercedes station wagon and a 2004 Volkswagen, estimated to be worth a total of $25,000.

Still outstanding is how to recover investors' funds that Madoff may have placed overseas. One financial analyst says he may be literally worthless.

CBS News contributor Lucinda Franks told CBS News this week that getting a hold of Madoff assets held overseas poses many problems.

"They have to go to trial," Franks said on CBS' The Early Show. "They cannot seize the French houses because how could you come into France with a U.S. court order? They're not going to honor it."

She said authorities are tracking where Madoff has transferred funds: "They know that it has been laundered from bank to bank in Switzerland, England, Ireland, Chile and Gibraltar, and maybe Italy and Austria."

But even with knowing that money has been stashed in Gibraltar, Franks said, it is very difficult to get at because the funds have been frozen. "The trustee that's responsible for disbursing the money to victims are trying to keep it frozen until they can get it."

The assets were first listed in a document made public Friday that listed the couple's combined assets at between $823 million and $826 million, most of it the estimated $700 million value of what is left of Madoff's businesses.


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Add a Comment See all 12 Comments

by bajajohn1 March 18, 2009 4:16 PM EDT

Seems like the Sarbanes-Oxley Act does work. Good. Next will be the lawyers who facilitated all these illicit transactions.

Reply to this comment

by bajajohn1 March 18, 2009 4:14 PM EDT

He needs to be waterboarded. Make him talk!

Reply to this comment

by specialty8 March 18, 2009 2:39 PM EDT

Hey this guy knows how to make money! He would be a great addition to the Obama team of tax crooks.

Reply to this comment

by quapawsix March 18, 2009 2:36 PM EDT

Just a thought instead of prison they are never to work in this field or any field related to money they are to forefoot everything they own their mansions cars yachts, airplanes etc. no credit nothing. Then let them work in a different job say McDonald's Wally World or sweeping floors
for the rest of their life's that way we don't pay to keep them in jail, they still get to pay into SS and taxes, and you know, it might, make them better persons in the end.
Remember just a thought.

Reply to this comment

by iDragon13 March 18, 2009 2:15 PM EDT

Bernie, Bernie, Bernie....you should have just given most of the money to the poor. Then you would be seen as a Robin Hood and the book being thrown at you would be much smaller. Wait, what am I saying? The rich run the show and you stole from them. Tsk tsk. Your wife needs to be imprisoned also. How is she getting a free pass in all of this?

Reply to this comment

by beagodschild March 18, 2009 1:26 PM EDT

Mess with rich people's money and you could expect to get 100 years or more in prison, molest a child you could expect 2-3 years, after all child molesters are not criminals they are just sick. The time does not fit the crime, do they deserve time in jail, of course, do they deserve a lot of time, of course. What message is this sending to the public, don't mess with rich people's money or will never see the light of day.

Reply to this comment

by edward1975-2009 March 18, 2009 1:09 PM EDT

He'll start singing when they start arresting his family.

Reply to this comment

by jimbonic12 March 18, 2009 12:58 PM EDT

Slammer for the scammers!

Reply to this comment

by jtdev1 March 18, 2009 11:44 AM EDT

The charges won't stick unless the government can prove that this accountant knew what he was doing was wrong. If he didn't know of the other (real) set of books, nothing will stick.

You can hand your accountant any set of books and have him file the paperwork without him knowing your running a scam. The only way this will stick is if your accountant knew of the second set of books.

Reply to this comment

by dprice123-2009 March 18, 2009 11:43 AM EDT

823 million in assets. Every penny needs to go back to the people he stole from...Ruth would have not made a penny without her criminal husband. What a greedy B****.

Reply to this comment

by thetireguy1 March 18, 2009 11:25 AM EDT

4,500 statements being sent out every month somebody had to stuff the envelopes and put
stamps on them! I would indict all of them and see what happens unless the government
decides to bail them out like AIG and then, those scoundrels will all get bonus for retention
purposes! Lets not forget Madoff's wife, I mean did she file income tax on her bonus money
why don't they opened up their income tax documents!

And as far as allowing Madoff to return home before sentencing! Why give him the chance to
end his life! after all, he already plead guilty and faces 150 years doing hard time!
What does he have to look forward to? Death would be the easy way out!!!!!!!!!!

Reply to this comment

by frustratedsr March 18, 2009 11:08 AM EDT

Glad there is more investigating being done in this scandal. Of course, Madoff did not do this by himself. He had to have accomplices. His accountant had to be aware of what was going on.

Reply to this comment

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[bajajohn1]

Seems like the Sarbanes-Oxley Act does work. Good. Next will be the lawyers who facilitated all these illicit transactions.

[bajajohn1]

He needs to be waterboarded. Make him talk!

[specialty8]

Hey this guy knows how to make money! He would be a great addition to the Obama team of tax crooks.

[quapawsix]

Just a thought instead of prison they are never to work in this field or any field related to money they are to forefoot everything they own their mansions cars yachts, airplanes etc. no credit nothing. Then let them work in a different job say McDonald's Wally World or sweeping floors
for the rest of their life's that way we don't pay to keep them in jail, they still get to pay into SS and taxes, and you know, it might, make them better persons in the end.
Remember just a thought.

[iDragon13]

Bernie, Bernie, Bernie....you should have just given most of the money to the poor. Then you would be seen as a Robin Hood and the book being thrown at you would be much smaller. Wait, what am I saying? The rich run the show and you stole from them. Tsk tsk. Your wife needs to be imprisoned also. How is she getting a free pass in all of this?

[beagodschild]

Mess with rich people's money and you could expect to get 100 years or more in prison, molest a child you could expect 2-3 years, after all child molesters are not criminals they are just sick. The time does not fit the crime, do they deserve time in jail, of course, do they deserve a lot of time, of course. What message is this sending to the public, don't mess with rich people's money or will never see the light of day.

[edward1975-2009]

He'll start singing when they start arresting his family.

[jimbonic12]

Slammer for the scammers!

[jtdev1]

The charges won't stick unless the government can prove that this accountant knew what he was doing was wrong. If he didn't know of the other (real) set of books, nothing will stick.

You can hand your accountant any set of books and have him file the paperwork without him knowing your running a scam. The only way this will stick is if your accountant knew of the second set of books.

[dprice123-2009]

823 million in assets. Every penny needs to go back to the people he stole from...Ruth would have not made a penny without her criminal husband. What a greedy B****.

[thetireguy1]

4,500 statements being sent out every month somebody had to stuff the envelopes and put
stamps on them! I would indict all of them and see what happens unless the government
decides to bail them out like AIG and then, those scoundrels will all get bonus for retention
purposes! Lets not forget Madoff's wife, I mean did she file income tax on her bonus money
why don't they opened up their income tax documents!

And as far as allowing Madoff to return home before sentencing! Why give him the chance to
end his life! after all, he already plead guilty and faces 150 years doing hard time!
What does he have to look forward to? Death would be the easy way out!!!!!!!!!!

[frustratedsr]

Glad there is more investigating being done in this scandal. Of course, Madoff did not do this by himself. He had to have accomplices. His accountant had to be aware of what was going on.