Legal News

An ?Aggressive? Prosecution? Breaking Down Madoff Auditor Case

By Amir Efrati

Now that we’ve all had a chance to reflect on the fraud charges brought Wednesday against Bernard Madoff’s outside auditor, David Friehling, let’s delve a little deeper. Friehling was accused of enabling Madoff’s fraud by conducting sham audits. (See the WSJ story here.)

We’ve heard from some lawyers who say this prosecution is aggressive because the criminal complaint against him doesn’t have any direct evidence that Friehling (pictured) had “fraudulent intent” in the form of witness testimony or tape recordings, for example, showing his “criminal state of mind.”

One such lawyer is David Siegal, a former SDNY prosecutor who is now at Haynes and Boone. “There’s nothing improper about this charge; it’s a viable legal theory,” he says. But “bringing a criminal case based on expert testimony that an audit was not conducted properly, absent any allegation of actual knowledge of fraud, is an aggressive, and in my experience, unusual prosecution.”

He says that in a typical fraud prosecution, the government shows evidence that the defendant had actual knowledge that something fraudulent was afoot. Here, by contrast, the allegations are that government’s accounting expert says that there are certain audit steps that would typically be taken in an audit; that the defendant certified he had taken appropriate audit steps; and that, in fact, the defendant failed to take those steps the government expert says he should have taken.”

Presumably, Siegal says, Friehling could argue in his defense that he was a “lousy auditor” and even “grossly negligent” but didn’t have knowledge of fraud and didn’t intend to mislead anyone. In other words, being a lousy accountant might not make him a criminal.

Andrew Lankler of Lankler and Carragher, Friehling’s lawyer, declined to comment to the Law Blog.

LBers, what say you? Is this an “aggressive” prosecution?

Full post as published by Law Blog - WSJ.com on March 19, 2009 (boomark / email).