So where is Madoff's auditor? |
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Nobody home at tiny firm that audited Madoff's $50 billion fund; no peer review in 15 years
As the investigation into the alleged fraud perpetrated by Bernard Madoff widens, one question that continues to puzzle: Who the heck is Friehling & Horowitz?
The small, three-person accounting firm located in a New York City suburb was listed by Mr. Madoff as the main auditor of his multi-billion dollar operation. The firm is reportedly run by 49-year-old David Friehling. The other principal, 80-year-old Jerome Horowitz, apparently left the firm years ago. He is believed to live in Florida, and according to wire service reports, may be Mr. Friehling’s father-in-law.
Rockland County District Attorney Thomas Zugibe, who is investigating the firm, stated he did not know where Mr. Friehling was. Investigators for the DA’s office went to the audit firm’s office, but no one answered.
If Mr. Friehling’s independent audit reports were fraudulent, “You’re dealing with some very serious felony offenses under state law,” the district attorney said.
The accounting firm has not been charged with any crime, and the U.S. attorney’s office would not confirm whether the business is under investigation.
But questions about the firm mount—as does the anger over the firm’s role as Mr. Madoff’s independent auditor. One irate senior manager at an investment firm emailed Financial Week, stating that Mr. Madoff’s auditors should not only lose their license, they “should be hung.”
Certainly, it’s mind-boggling to think that a tiny accounting firm such as Friehling & Horowitz was the auditor for Mr. Madoff’s firm, which purportedly managed billions in assets. “What if General Motors had a three-person accounting firm doing its audits?” Jim Vos, CEO and head of research at the hedge fund consulting firm Aksia LLC in New York City, stated.
According to the wire service account, Mr. Vos’ company looked into Mr. Madoff’s firm last year. He didn’t like what he found. One of his biggest concerns: the Lilliputian size of Friehling’s firm. A private investigator reported to Aksia that there seemed to be only one person working in the office.
“We found that there were just three employees, the two principals and a secretary,” Mr. Vos said.
Meanwhile, William Roberts, a spokesman for The American Institute of CPAs, said Friehling & Horowitz told the AICPA that it was not doing audits for any company. In an interview with Reuters, Mr. Roberts said that, although the tiny firm was enrolled in the peer review program, it had not undergone a professional review in 15 years.
“It appears that he (Friehling) did an audit of Madoff’s investment advisory, while he was telling us that he didn’t do audits and therefore wasn’t subject to the normal professional reviews that audit firms are required to have,” Mr. Roberts said.
Friehling & Horowitz does appear to have a clean record, however. Jane Briggs of the state Education Department, which licenses certified public accountants, stated that there has never been any disciplinary action taken against the firm.
But the district attorney, while acknowledging that his investigation was in its early stages, said, “It’s a local accounting firm that may well be a critical partner in the largest financial fraud that we’ve ever seen.”