UPDATED 2:03 P.M. EDT (U.S.A.) Prosecutors have advised a federal judge that the government expects David G. Friehling to plead guilty to charges next week.
Friehling was the small-shop accountant for Bernard L. Madoff Investment Securities.
The mere fact that Bernard Madoff’s multibillion firm used a small shop that employed a single accountant — Friehling himself — was enough to make some investors pass on Madoff’s offerings while performing due diligence.
Other investors ignored the incongruity. Madoff’s empire collapsed in December 2008. In July 2009, prosecutors filed a criminal information against Friehling, accusing him of accounting fraud, securities fraud, investment-adviser fraud and making false filings.
In a letter yesterday to U.S. District Judge Alvin K. Hellerstein, prosecutors said they expected to file a superseding criminal information Nov. 3 and that Friehling will plead guilty and cooperate in the government’s ongoing probe.
Read the letter.
Friehling’s experience demonstrates one of the pickles Florida-based AdSurfDaily — itself implicated in an alleged Ponzi scheme — is in.
A hearing was held at ASD’s request Sept. 30 and Oct. 1 of last year to demonstrate it was not a Ponzi scheme. ASD, however, did not call either an in-house or external accountant to the witness stand to certify its books and financial statement, thus missing a chance to refute the government’s Ponzi claims by producing audited financials that could withstand scrutiny.
One of the likely reasons is that no accountant would or could certify ASD’s books under oath in a fashion favorable to the company. To have done so would have been to introduce some of the same elements that led to intense scrutiny directed at Friehling and the criminal information against him.
ASD published no verifiable financial information. There are major doubts that ASD even knew its own bottom line, amid assertions that members siphoned off money before it even arrived at ASD.
One of the allegations against Friehling is that he verified information for Madoff that simply was not true.
Among the assertions against Friehling was that he was not truly independent and was auditing a company in which he had a large personal stake — an investment account dating back to the 1980s that showed an equity balance of more than $500,000 each year.
If ASD employed accountants or bookkeepers who held large numbers of “ad-packs” or were being paid in “ad-packs,” their independence could be challenged.
Moreover, prosecutors said, Friehling’s purported audits did not comply with Generally Accepted Accounting Standards. Reports did not comply with Generally Accepted Accounting Principles.
Any accountant who certified information favorable to ASD, which prosecutors allege was insolvent, almost certainly would have been subjected to the same degree of scrutiny that Friehling later encountered in the Madoff case.