Bernard Madoff's longtime accountant has been released on $2.5 million in bail after being charged with securities fraud.
The allegations against David Friehling expand the case against Madoff as prosecutors target others who may have been involved in his sprawling $65-billion Ponzi scheme.
Friehling was responsible for auditing Madoff's securities business, but never reported the investment business was a giant fraud, prosecutors said. He is due back in court on April 17.
"His job was not merely to rubber stamp statements he didn't verify," FBI Assistant Director Joseph Demarest said. "Simply put, Friehling failed to do his job and lied to investors and regulators in saying he did."
Friehling allegedly failed to verify Madoff's assets or revenue as well as look into whether Madoff had made purchases as he had claimed. He was paid about $14,000 a month for bogus services between 2004-2007, prosecutors said.
Investigators said the accountant did not have direct knowledge of the scheme, but he deceived investors by falsely certifying that he had audited the financial statements when he had not. The SEC said the accounting firm made millions of dollars off of Madoff.
"Friehling had a fiduciary responsibility to investors, and a legal obligation to regulators, to report the truth," Demerest said. "The charges unsealed today make clear that Friehling did not fulfill those duties. He did little or no testing, no verification of the 'facts' he certified."
Friehling, 49, surrendered to authorities and faces charges of securities fraud, aiding and abetting investment adviser fraud and four counts of filing false audit reports with the FCC. The accountant was released after a brief hearing Wednesday in federal court in Manhattan.
He faces up to 105 years in prison if convicted of the charges. Friehling's attorney Andrew Lankler declined to comment when reached.
Friehling ran an accounting office in a nondescript suburban building north of New York City, and quickly drew scrutiny after the Madoff scandal broke.
Jerome Horowitz handled Madoff's books for many years before turning the business over to his son-in-law, Friehling.
Horowitz died of cancer last week at the age of 80. A family friend confirmed his death, and investigators mentioned in their criminal complaint that Friehling's former partner had died. Investigators interviewed Horowitz before he died, a source close to the investigation said.
Horowitz's lawyer had previously described him as one of Madoff's victims and said he was in financial ruin because of the fraud.