Ex-Madoff Accountant Avoids Prison Over Firm’s Bogus Audits

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David Friehling
David Friehling, Bernard Madoff's former accountant, center, exits federal court following a sentencing hearing in New York on Thursday. Photographer: Sam Hodgson/Bloomberg

The accountant who signed off on phony audits of Bernard Madoff’s firm for decades became the fourth person tied to the $17.5 billion fraud to avoid prison after aiding prosecutors.

David Friehling, who also helped the Madoff family with their bogus personal tax filings, faced a prison term of as long as 114 years for his role in the scam.

The 55-year-old former accountant was sentenced Thursday by U.S. District Judge Laura Taylor Swain in Manhattan to two years’ probation, including a year under house arrest, and ordered to perform 250 hours of community service.

Swain said Friehling’s “complete abdication of his duties” helped Madoff ruin the lives of thousands of clients, but that his testimony at trial was “crucial.”

A jury in 2014 convicted five of Madoff’s former top aides after a trial overseen by Swain in which Friehling and others gave an insider’s view to the unprecedented Ponzi scheme. Federal prosecutors sought leniency for Friehling and other cooperating witnesses who fessed up.

Friehling, reading from a statement before the sentence was handed down, apologized to the victims, including his 90-year-old father, his mother-in-law, his siblings and his nieces and nephews, all of whom lost their life savings in the scheme.

He said he never conducted a real audit of Madoff’s firm because he always took the con man at his word.

Trusted, Believed

“The bottom line is that I trusted and I believed,” Friehling said. “For the rest of my life, I will regret not doing my job as an auditor.”

In seeking leniency, Friehling fought back tears as he cited the 2012 suicide of his 23-year-old son, and the pain it causes his family.

The former accountant has been holding odd jobs since Madoff’s arrest in 2008, including working at a gym and selling cars, said his lawyer, Andrew Lankler. He’s also training to be a nurse, though the fraud case has made it hard to get a job, Lankler said.

Friehling was an “unwitting participant” in the scam who was horrified to discover “that he had in fact facilitated it,” Lankler said.

One of the prosecutors, Randall Jackson, said Friehling was among the first people tied to the fraud to seek to cooperate with investigators.

Friehling displayed a “stunning level of clarity and forthrightness” and was “the very model of what we ask for when people come to the realization they did something wrong,” Jackson said.

Nine Counts

Friehling pleaded guilty in 2009 to nine counts including securities fraud, investment-adviser fraud and obstructing tax law administration.

Three former Madoff employees who cooperated with prosecutors were sentenced this month to probation and community service instead of the lengthy prison terms they potentially faced. Among them was David Kugel, who worked for Madoff for almost four decades and was the first witness to testify in the trial to admit knowing about the fake securities trades at the center of the scheme.

The other two sentenced in May were Eric Lipkin, a former payroll clerk and longtime assistant to Madoff’s late chief financial officer, and former controller Enrica Cotellessa-Pitz.

Son’s Sentence

Kugel’s son Craig also avoided a prison term. Craig Kugel, who was a human resources worker for Madoff, gave salaries and benefits to people who weren’t employed at the company, including family members of defendants in the case.

Kugel, who faced more than three years in jail, was given two years of probation Thursday. He pleaded guilty in 2012, though he didn’t know about the massive Ponzi scheme.

According to Friehling, Madoff and his wife, Ruth, chose the exact amount of personal tax they would pay each year with the help of fake documents provided by the securities firm.

Friehling also admitted he wrongfully allowed Madoff to keep a stamp of his signature and stacks of his accounting firm’s stationery, allowing the con man to give a formal accounting sign-off to any document he wished.

The case is U.S. v. Friehling, 09-cr-00700, U.S. District Court, Southern District of New York (Manhattan).

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