The Securities and Exchange Commission has charged Bernard Madoff’s auditors
with fraud in connection in what is thought to be the biggest scam in history.
David G Friehling and his firm Friehling & Horowitz, have been accused by
the US watchdog of saying it had conducted legitimate audits, when in fact it
In its complaint filed in federal court in Manhattan, the SEC alleged that
from 1991 until 2008, certified public accountant Friehling and his firm ‘merely
pretended to conduct minimal audit procedures of certain accounts to make it
seem like he was conducting an audit, and then failed to document his purported
findings and conclusions as required under Generally Accepted Auditing
If properly stated, those financial statements, along with BMIS related
disclosures regarding reserve requirements, would have shown that BMIS owed tens
of billions of dollars in additional liabilities to its customers and was
therefore insolvent, the SEC said.
The SEC previously charged Madoff and BMIS with committing securities fraud
through a multi-billion dollar Ponzi scheme perpetrated on advisory and
brokerage customers of his firm.
F&H also made representations BMIS accounts were GAAP compliant. The
sign-offs also said Friehling reviewed internal controls at BMIS, including
controls over the custody of assets, and found no material inadequacies.
According to the SEC’s complaint, Friehling knew that BMIS regularly distributed
the annual audit reports to Madoff customers and that the reports were filed
with the SEC and other regulators.
The SEC’s complaint alleges that all of these statements were materially
false because Friehling and F&H did not perform a meaningful audit of BMIS,
and did not perform procedures to confirm that the securities BMIS purportedly
held on behalf of its customers even existed.
James Clarkson, acting director of the SEC’s New York Regional Office, said,
‘As we allege in our complaint, Friehling’s and F&H’s misconduct is
egregious. Friehling essentially sold his license to Madoff for more than 17
years while Madoff’s Ponzi scheme went undetected. For all those years,
Friehling deceived investors and regulators by declaring that Madoff’s
enterprise had a clean audit record.’
Afraid that his work for BMIS would be subject to peer review, as required of
accountants who conduct audits, Friehling lied to the American Institute of
Certified Public Accountants for years and denied that he conducted any audit
work, the SEC added.
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