Tough Questions For Madoff Auditor, But Where Is He?

Dec 19 2008 | 2:00am ET

Questions continue to swirl about the mysterious accounting firm that signed off on the books of Bernard L. Madoff Investment Securities, which authorities believe was a $50 billion Ponzi scheme.

According to the American Institute of Certified Public Accountants, Friehling & Horowitz is not supposed to have been conducting audits for the past 15 years. The firm is enrolled in the group’s peer review program, but has not been reviewed since 1993 because it has told the organization in writing for each of the past 15 years that it does not perform audits. Yet, according to Madoff Securities’ statement of financial condition of Oct. 31, 2006, the firm did just that, signing off on Madoff’s books.

AICPA has opened an ethics investigation into Friehling & Horowitz in light of the revelations. “The plain fact is that this group hasn’t submitted for peer review and appears to have done an audit.”

Friehling & Horowitz is run out of a storefront office in New City, N.Y., about 30 miles north of Manhattan. According to Jim Vos, the CEO of hedge fund consultant Aksia, the firm has just three employees, the two named partners and a secretary. But one of the partners, Jerome Horowitz, is an 80-year-old who retired in 1997 and is believed to be living in Florida. Authorities admit they do not know exactly where the other, David Friehling—who may or may not be Horowitz’s son-in-law—is.

“Most hedge funds, even when they are small, use one of the four or five big-name firms,” Jake Walthour of Aksia told the Associated Press. “And this wasn’t one of them.”

The Rockland County, N.Y., district attorney is also investigating the firm. But Thomas Zugibe tells the AP that he has no idea where Friehling is, and that no one answered the door during a visit to the accounting firm’s office on Monday. The AP reports that a failed UPS delivery notice was on the door on Wednesday.

Friehling lives near his office on a private road, and the AP reports that no one answered the phone at his residence when it attempted to contact the auditor. He is the immediate past president of the Rockland County chapter of the New York State Society of Certified Public Accountants, and continues to sit on its executive board. He is also a board member of the Rockland County Jewish Community Center, which, unlike many other Jewish organizations, does not appear to have any exposure to the Madoff firm.

Friehling’s erstwhile client, for his part, laid low on Thursday, a day after appearing in federal court in lower Manhattan to sign his new bail agreement, which includes an electronic monitoring bracelet and a 7 p.m. curfew. But he couldn’t stay out of the news.

At a Chicago press conference introducing his picks to head three key economic regulators, President-elect Barack Obama mentioned Bernard Madoff as an example of why the U.S. regulatory system needs to be revamped.

“In the last few days, the alleged scandal at Madoff Investment Securities has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets,” Obama said. “Charities that invested in Madoff could end up losing savings on which millions depend—a massive fraud that was made possible in part because the regulators who were assigned to oversee Wall Street dropped the ball.”

Another politician, Rep. Anthony Weiner (D-N.Y.), took his criticism of Madoff a little closer to home. Weiner, a one-time candidate for mayor of New York City, called for Madoff’s bail to be revoked at a press conference outside of Madoff’s Manhattan apartment building. According to Weiner, it is a “mistake not to consider him a flight risk,” despite the electronic monitoring and the fact that both Madoff and his wife, Ruth, have surrendered their passports. Weiner said Madoff should be in a “dank, cold jail cell” rather than his $7 million penthouse.

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