Madoff's auditor, David Friehling, operated out of a small office in suburban New York and ran a three-person auditing firm that would be hard pressed to effectively audit anything but the smallest businesses let alone a huge hedge fund! As such, the auditor should have been a huge red flag to anyone investing with Madoff, not to mention regulators.
Today, the 50 year old auditor decided to plead guilty to "securities fraud, investment adviser fraud, making false filings with the Securities and Exchange Commission, and obstructing or impeding the administration of the Internal Revenue laws."
While prosecutors argue that Friehling must have known that Madoff was pulling off the largest Ponzi scheme ever, Friehling is claiming: "At no time was I ever aware Bernard Madoff was engaged in a Ponzi scheme."
Personally, I believe Friehling had no idea that Bernie was committing fraud. However, that does not excuse him from what might be considered constructive fraud and was surely gross negligence on his part. I believe Friehling was so over his head in trying to perform that audit that he should have never taken the engagement. .
No doubt Bernie paid a handsome fee to his auditor just as he did to his investors. Too bad Bernie was giving away other people's money!