Disgraced money manager Bernard Madoff's longtime auditor pleaded guilty to securities fraud and other charges Tuesday in a cooperation deal that could leave him behind bars for years.
The government said David Friehling, whose plea was accepted in federal court in Manhattan, would have known that Madoff was carrying out history's biggest pyramid, or Ponzi scheme — because he kept the books.
But the auditor told U.S. District Judge Alvin K. Hellerstein: "At no time was I ever aware Bernard Madoff was engaged in a Ponzi scheme."
Prosecutors said last week that Friehling would enter a plea 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.
The charges carry a potential prison term of up to 108 years in prison, though substantial cooperation with prosecutors can result in leniency.
Friehling, 49, was Madoff's auditor from 1991 to 2008, roughly the amount of time that Madoff admitted he carried out his fraud when he pleaded guilty in March. The 71-year-old Madoff is serving a 150-year sentence at a prison in North Carolina.
Despite the more than $65 billion in private investments that Madoff claimed he oversaw for thousands of investors, Friehling seemed to be a small-time auditor with a tiny office in suburban New City, New York. Authorities say he appeared to have rubber stamped Madoff's records.
Authorities say if Friehling had done his job, they would have known years earlier that Madoff was carrying out history's greatest Ponzi scheme by paying money to some investors with the proceeds he received from other investors.
When Madoff revealed his fraud last December in a confession to his sons and later to the FBI, it was discovered that only a few hundred million dollars was left of the more than $170 billion that prosecutors say went through his accounts over the years. Prosecutors say investors originally entrusted Madoff with more than $13 billion and he greatly exaggerated bogus gains.
It's the third plea in the case. Frank DiPascali, Madoff's former finance chief, also is cooperating after pleading guilty in August to helping Madoff carry out his fraud.