Madoff Ex-Accountant Tells Jury Aide Helped Fudge TaxesErik Larson
Bernard Madoff and his wife chose the exact amount of personal tax they would pay each year with the help of fake documents provided by a top aide on trial over the con man’s $17 billion fraud, a jury was told.
Daniel Bonventre, one of five former Madoff employees on trial in Manhattan, prepared false general ledgers and corporate profit statements to help reach what Madoff called “fudged” numbers for tax filings, David Friehling, Madoff’s accountant for more than 20 years, testified yesterday.
Friehling, 53, said he told Bonventre to “destroy or get rid of” copies of accounting documents that were fabricated to trick auditors because they “had no bearing on the business going on.” Bonventre didn’t object, he said.
The five former colleagues are accused of helping Madoff hide his fraud from customers and regulators for years, and getting rich in the process. It’s the first criminal trial stemming from the scheme, which prosecutors say started in the early 1970s and imploded at the peak of the financial crisis.
Some of the defendants are accused of tax fraud in addition to the securities violations at the heart of the Ponzi scheme, which deprived investors of $17 billion in principal and about $47 billion in fake profit they believed was being held in their accounts.
Friehling pleaded guilty to fraud in November 2009, and agreed to cooperate in a bid for leniency when he’s sentenced. He said he never conducted an independent probe of Madoff’s firm as accounting rules required and knowingly used false records to reduce Madoff’s tax bills.
Madoff’s securities company was a sole proprietorship, meaning its annual profit or loss had a bearing on the con man’s personal taxes, Friehling said. Madoff would say how much tax he wanted to pay, and corporate documents would be faked to generate that amount, the former accountant said.
Bonventre, who oversaw the broker-dealer and proprietary trading operations of Madoff’s company, pleaded not guilty and has denied involvement in the fraud, saying he was duped like thousands of others.
Defense lawyers have said the government’s witnesses are willing to lie and implicate others to reduce their own sentences.
Bonventre’s lawyer, Andrew Frisch, asked Friehling during cross-examination today whether Bonventre ever explicitly said the documents were fake or agreed to destroy them. Friehling said no, and confirmed that some of the fraudulent documents shown to the jury were Bonventre’s copies that had been put in storage and recovered by investigators.
Friehling also prepared the personal taxes of Madoff’s brother Peter and his wife Marion, who had an investment account at the securities firm. Peter Madoff, who helped his brother run the firm for four decades, has pleaded guilty to a role in the scheme and was sentenced to 10 years in prison.
Annette Bongiorno, who ran the investment advisory business and is also on trial, once gave Friehling information about a purported stock sale by Peter Madoff to assist with his tax filings, Friehling testified. The data showed Peter Madoff made a short-term gain of about $5 million from the sale, resulting in a higher tax payment than if it had been long-term, Friehling said.
Peter Madoff became “quite angry,” and called the result “nuts,” Friehling testified. “I checked back with Annette Bongiorno and she gave me new information showing it was long-term.”
All the trades at the investment advisory business were fake, and Bongiorno is accused of helping create phony stock transactions for years to create realistic account statements. She has denied the allegations and pleaded not guilty.
Friehling also said yesterday that he wrongfully allowed Madoff to keep in his Midtown office a stamp of the accountant’s written signature and stacks of his accounting firm’s stationery.
“It could be used to put my signature on any document at any time, without my knowledge,” Friehling said. “I did not object and I agreed to it.”
Friehling, whose children and other extended family members lost a total of $4.3 million in Madoff’s scheme, said he accepted on “face value” Madoff’s claims about the firm’s finances and didn’t know about the Ponzi scheme. He said he was “shocked” by Madoff’s arrest on Dec. 11, 2008. Madoff pleaded guilty in 2009 and is serving a 150-year sentence.
“I never thought he was running any other kind of business other than a legitimate securities business,” Friehling said yesterday.
In November 2012, Friehling’s son Jeremy killed himself with a self-inflicted gunshot wound in his apartment in Columbus, Ohio, where he was attending Ohio State’s medical school, the Associated Press reported at the time. Madoff’s son Mark hanged himself in New York City in December 2010, on the two-year anniversary of his father’s arrest.
Randall Jackson, a prosecutor, asked Friehling to explain various discrepancies in Madoff tax documents recovered from the accountant’s office. In one of several examples displayed on jurors’ flat-screen monitors, an original profit-and-loss statement from 2001 showed Madoff’s firm had total income of $47 million, while a similar statement for the same year used on Madoff’s personal taxes showed the firm made only $976,589.
“It reduced the tax liability significantly,” Friehling said. “The figures were given to me by Daniel Bonventre.”
Friehling said he studied nursing after Madoff’s arrest dried up his business. He said he hasn’t yet been certified as a nurse, and that he’s been making ends meet with a part-time job at a gym and driving a delivery truck for United Parcel Service Inc.
He told the jury he forfeited all the money paid to him by Madoff for 20 years and all money withdrawn from the family’s accounts with Madoff. He also gave up the family’s house and a time-share vacation home, he said.
Friehling was sole proprietor of Friehling & Horowitz CPAs PC, which occupied a 550-square-foot office in New City, New York, and served as auditor to Bernard L. Madoff Investment Securities since 1991. Friehling said he first worked on Madoff’s account in 1986, when he operated the accounting firm with his father-in-law, Jerome Horowitz, who retired in 1998 and died in 2009.
Friehling said his wife used to be a summer intern at Madoff’s firm, and that he heard about Madoff from her father. Friehling first opened an account with Madoff when he was 21, using $15,000 in cash gifts from his bar mitzvah, birthdays and earnings working at his parents’ hotel, he testified. In the years that followed, he deposited his children’s bar mitzvah money and savings from his brother, sister, father and six nephews.
When Friehling’s oldest son was five, the child received a money gift, which he then handed to his father, saying “Dad, here’s a check for my Madoff account,” according to yesterday’s testimony.
The other defendants in the case, all accused of helping make fake documents for decades, are Joann Crupi, who managed large accounts, and computer programmers George Perez and Jerome O’Hara. All five have pleaded not guilty.
The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).
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