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2nd Arrest In Madoff Case

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.

Court Complaint Against Madoff Accountant David Friehling
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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