Madoff's accountant pleads not guilty, but deal is brewing

NEW YORK -- Bernard Madoff's accountant pleaded not guilty to securities fraud and other charges Friday in a federal court hearing that signaled he may eventually admit guilt in a deal with prosecutors.

David Friehling, whose firm was Madoff's sole business auditor from 1991 to 2008, is the only one other than Madoff who has so far faced criminal charges in Madoff's multi-billion Ponzi scheme that victimized thousands of investors worldwide.

Friehling failed to conduct "meaningful" audits of Bernard Madoff's business operations, even though he issued repeated reports attesting that he had done so while earning as much as $14,500 monthly for his work, prosecutors charge in a 12-page criminal information filed Friday.

The 49-year-old accountant specifically failed to verify Madoff's business assets, review the disgraced financier's revenue sources or examine bank accounts — steps that could have uncovered the massive fraud — prosecutors say.

Moreover, the financial statements falsely certified that Friehling met independent auditor standards, even though he and his wife had more than $500,000 invested with Madoff at least since 1995, prosecutors allege.

Along with securities fraud, Friehling is charged with abetting investment adviser fraud and filing false audit reports with the Securities and Exchange Commission. He faces a maximum 20-year prison term on five of the six charges filed.

Friehling, who was originally arrested in March, entered the not guilty plea during an appearance before U.S. District Judge Alvin Hellerstein. He was allowed to remain free on bail pending a scheduled Oct. 1 court status conference.

Both sides in the case, however, have signaled the possibility of a plea deal. Friehling waived his right to an indictment by a federal grand jury, a move that enabled prosecutors to file Friday's criminal information. The procedure often means a defendant will ultimately plead guilty in an agreement with prosecutors.