Wednesday, March 18, 2009

The First Bernie Madoff Domino Falls


Bernard Madoff's auditor, David G. Friehling, just got the book thrown at him in a criminal complaint filed by federal prosecutors in Manhattan.

From the U.S. Attorney's announcement:

FRIEHLING failed to conduct audits that complied with
GAAS and GAAP by, among other things, failing to: (a) conduct
independent verification of BLMIS assets; (b) review material
sources of BLMIS revenue, including commissions; (c) examine a
bank account through which billions of dollars of BLMIS client
funds flowed; (d) verify liabilities related to BLMIS client
accounts; or (e) verify the purchase and custody of securities by
BLMIS. FRIEHLING also failed to test internal controls as
required under GAAP and GAAS standards. For example, FRIEHLING
did not take any steps to test internal controls over areas such
as BLMIS’s redemption of client funds, the payment of invoices
for corporate expenses, or the purchase of securities by BLMIS on
behalf of its clients. Further, commencing at least as far back
as 1995, FRIEHLING did not maintain professional independence
from his audit client, BLMIS.

Etcetra. Sounds like something that happens all the time, to tell you the truth, but I guess that it can get you in trouble with a client like Madoff. The hapless numbers-cruncher faces up to 105 years in jail.

How much time will it take for him to flip? My guess is "five seconds."

The dominoes are falling.

© 2009 Gary Weiss. All rights reserved.

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