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March 30, 2009

SEC charges Madoff auditor

The auditors of Bernard Madoff’s broker-dealer firm carried out partial audits and insufficient checks on internal controls, which helped cover up a multi-billion dollar Ponzi scheme, according to US Securities and Exchange Commission (SEC) charges.

The US regulator alleged that from 1991 to 2008 CPA David Friehling and his firm, Friehling & Horowitz CPAs (F&H), falsely claimed to audit financial statements and disclosures of Bernard Madoff Investment Securities (BMIS).

The SEC previously charged Madoff and BMIS with committing securities fraud through a multi-billion dollar Ponzi scheme. Madoff has since pleaded guilty to 11 counts of fraud.

The SEC claimed Friehling falsely stated that BMIS audit reports adhered to Generally Accepted Auditing Standards, including the requirements to maintain auditor independence and perform audit procedures regarding custody of securities. Friehling did not conduct audit procedures with respect to BMIS internal controls and had no basis to claim BMIS had no material inadequacies, the SEC added.

The auditor allegedly denied carrying out audit work to the American Institute of Certified Public Accountants to avoid being subject to peer reviews. Friehling and F&H also obtained “ill-gotten gains” through compensation from Madoff and BMIS, the SEC claimed.

The SEC is seeking financial penalties and a court order requiring both Friehling and F&H return funds received from BMIS.

Friehling was released on a $2.5 million bail bond on Wednesday. He faces a maximum of 105 years in prison if found guilty.

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