Dec. 24 (Bloomberg) -- District Attorney Thomas Zugibe of Rockland County, New York, suspended his investigation of an accountant who audited the books of Bernard Madoff, accused by federal prosecutors of operating a $50 billion Ponzi scheme.

Zugibe said he will leave the probe of David Friehling to the U.S. attorney in Manhattan, who has been unraveling the case since Madoff’s Dec. 11 arrest on a securities fraud charge. Friehling’s firm operated out of a 550-square foot space in New City, a northern suburb of New York City in Rockland County.

“Following our discussion with the U.S. Attorney’s Office, it’s apparent our efforts would be a duplication of theirs,” Zugibe said today in an interview. “We’re satisfied the federal government is properly exploring Mr. Friehling’s involvement.”

Clients of Madoff, 70, who said they are victims of his alleged fraud include banks, hedge funds, universities, charities and individual wealthy investors. The auditing firm, Friehling & Horowitz, said in a fiscal 2007 audit that Madoff’s financial statements gave “reasonable assurance” they were “free of material misstatement.”

Hedge fund investment adviser Aksia LLC warned clients last year not to put their money with Bernard L. Madoff Investment Securities LLC after learning of “red flags” at his firm, including that its books were audited by Friehling & Horowitz.

‘For Rent’

Friehling, 49, operated the firm with his father-in-law, Jerome Horowitz, 80, a former outside accountant for Madoff who retired in the 1990s and moved to Palm Beach Gardens, Florida. The firm had a “for rent” notice on the door this week.

An attorney for Friehling, Andrew Lankler, and a lawyer for Horowitz, Latour Lafferty, didn’t return calls seeking comment. Friehling didn’t return a call to his home in New City.

In 1981, Friehling got a bachelor of science degree from Cornell University, according to university spokesman Simeon Moss. The auditor is on the board of the JCC Rockland, a Jewish center in the county. He also is a board member and past president of the Rockland chapter of the New York State Society of Certified Public Accountants.

Friehling began work at his firm in February 1987 and provided accounting, taxation and bookkeeping services to individuals and businesses, according to records he filed with the New Jersey Bureau of Securities. He worked 60 hours a week, according to the records.

At the same time, he worked for CJM Planning Corp., a former broker-dealer in Pompton Lakes, New Jersey, from June 1998 to January 2000 and from June 2001 to June 2004, according to state records. He also worked with PFS Investments Inc. in Nanuet, New York, from November 1999 to June 2001, according to the records.

Tax Accountants

CJM, which once had $1.5 billion in assets under management, often used tax accountants to give advice, sell mutual funds and handle retirement accounts, said a former owner, Joseph Musumeci.

“I couldn’t tell you how much he earned or how many clients he had,” Musumeci said. “He obviously wasn’t that big a producer, because I can tell you who the big producers were.”

CJM was sold in 2005 to Genworth Financial Inc. of Richmond, Virginia, in a private transaction.

Rebekah Carmichael, a spokeswoman for Acting U.S. Attorney Lev Dassin in Manhattan, declined to comment.

The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan).

To contact the reporters on this story: David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net; Karen Freifeld in New York state Supreme Court at kfreifeld@bloomberg.net; David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.

Last Updated: December 24, 2008 14:31 EST