Madoff Accountant Makes Bail After Arrest On Fraud

David Friehling

Arrested Madoff accountant David Friehling, is out on bail after meeting the requirement of $2.5 million personal recognizance bond by posting his home and the homes of three relatives.

Friehling was arrested after being charged in the Madoff case.

Prosecutors say Friehling "pretended" to conduct audits of the confessed swindler's investment firm, authorities said Wednesday in charging him with fraud going back 17 years in the biggest investment scheme on Wall Street.

Friehling, 49, who ran a small storefront firm in a New York suburb, is the first person besides Madoff to be arrested on criminal charges in the long-running fraud.

The U.S. Securities and Exchange Commission filed civil charges against Friehling.

Madoff, 70, pleaded guilty on March 12 in a dramatic courtroom admission to running a worldwide fraud that prosecutors said went back at least 20 years, drawing in as much as $65 billion from big and small investors and charities.

Madoff, a former Nasdaq stock market chairman, was jailed after pleading guilty to 11 criminal counts and could spend the rest of his life in prison when he is sentenced in June.

• Read the Details on the Charges Made by US Attorney's Office
• Read the U.S. Attorney's Criminal Complaint

The SEC said in its complaint that Friehling and his firm "did not perform anything remotely resembling an audit" of Madoff's money management firm or try to confirm that stocks that Madoff had purportedly bought for customers even existed.

Friehling's lawyer, Andrew Lankler, e-mailed a statement to CNBC, saying, "We have no comment at this time."

Friehling faces a maximum of 105 years in prison on the charges, including securities fraud, aiding and abetting investment adviser fraud and false audit reports. He surrendered to the FBI on Wednesday.

The SEC said Friehling "merely pretended" to conduct minimal audit procedures to make it seem as if he was auditing.  Even then, he failed to adequately document his purported findings.

Friehling and his firm were paid from Madoff's ill-gotten gains, and he and his family improperly held accounts at the Madoff firm in violation of accounting rules, the SEC said.

Authorities said there were millions of dollars of withdrawals from the accounts over the years.

Friehling is the only certified public accountant at his firm, and the firm's sole shareholder. He formed the firm around 1988, when he partnered with his father-in-law, Jeremy Horowitz.

Horowitz died of cancer at the age of 80 last Thursday, the same day that Madoff pleaded guilty.

The criminal complaint in Manhattan federal court said Friehling falsely stated that audits of Bernard L. Madoff Investment Securities LLC were conducted according to standards generally accepted in the United States.

"Friehling also falsely stated that the audit 'included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements' when in fact, no such examination ever took place," the complaint said.

Authorities said Friehling's fraud ran from 1991 to 2008, and according to the SEC, he "essentially sold his license to Madoff for more than 17 years while Madoff's Ponzi scheme went undetected." In a Ponzi scheme, early investors are paid with money from new clients.

• Slideshow: A Rogues Gallery of Financial Crime

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