NEW YORK – Bernard Madoff’s longtime auditor pleaded guilty to securities fraud charges Tuesday, saying he failed to do his job to verify the disgraced money manager’s financial records but did not know Madoff was running history’s biggest Ponzi scheme.
David Friehling, 49, entered the plea in U.S. District Court in Manhattan, apologizing to the thousands of victims who lost billions of dollars while he audited Madoff’s financial records between 1991 and 2008. The plea was part of a cooperation deal with prosecutors.
“In what was the biggest mistake of my life, I put my trust with Bernard Madoff,” Friehling told Judge Alvin K. Hellerstein.
Friehling said, “At no time was I ever aware Bernard Madoff was engaged in a Ponzi scheme.”
He said if he had known that investor money was not properly invested, he would not have poured his family’s savings, including the college funds for three children ages 17, 20 and 24, into Madoff’s investment business.
But he admitted that he took the financial records handed him by Madoff “at face value,” failing to independently verify the assets of Madoff’s investment company or ensure that his bank account records or charts listing the purchase of securities were accurate.
He said he also prepared personal tax returns for Madoff that he knew were not accurate.
As part of his statement supporting his guilty plea, he apologized to Madoff’s investors for his role in the fraud. Hellerstein provided an opportunity for investors to speak at the proceeding but no one asked to do so in a courtroom crowded with reporters.
Friehling’s statement was made to support his guilty plea to charges of securities fraud, investment adviser fraud, making false filings with the Securities and Exchange Commission, and obstructing or impeding the administration of Internal Revenue laws.
The charges carry a potential prison term of up to 114 years in prison, though substantial cooperation with prosecutors can result in significant leniency.
Friehling has agreed to forfeit $3.1 million, which represents what he was paid by Madoff for his accounting and tax services, along with what his family withdrew from their Madoff accounts. A tentative sentencing date was set for Feb. 26, but it was unlikely that Friehling will be sentenced until he completes his cooperation with prosecutors.
Friehling remains free on $2.5 million bail.
Friehling was Madoff’s auditor from 1991 to 2008, a job he inherited from his father-in-law, who was originally hired by the father of Madoff’s wife, Ruth, in 1963, shortly after Madoff began his investment career.
The 71-year-old Madoff, who pleaded guilty to fraud charges in March, is serving a 150-year sentence at a prison in North Carolina.
Authorities say if Friehling had done his job, they would have known years earlier that Madoff was carrying out history’s greatest Ponzi scheme.