John H. Eickemeyer [Shareholder, Vedder Price P.C.]: "The indictment if Mr. Friehling is hardly unexpected, as is the accompanying civil action by the SEC. The conduct alleged in the complaint certainly goes beyond poor auditing - in essence, Mr. Friehling is alleged to have done virtually no auditing at all. Mr. Friehling also allegedly issued independent auditor's reports on Madoff's investment company while not being independent and while telling the American Institute of Certified Public Accountants (AICPA) that he did not perform audits. It is hard to imagine a set of facts better suited for a criminal prosecution against an accountant.
Mr. Friehling's case may be unique given his long history with Madoff and his ability - if he was truly doing audits - to gain access to the internal workings of Madoff's company. However, other auditors may face civil liability based on their audits of funds or other entities who invested client moneys with Madoff. Some suits have already been filed alleging that auditors should not have readily accepted brokerage statements from Madoff's company on their face and should have investigated further to discover whether Madoff was really investing money in the ways he claimed.
While few accountants are likely to face prosecution as Mr. Friehling does, widespread acceptance of the theories of liability already asserted against auditors in the Madoff-related civil suits, and against accountants who recommended investments with Madoff to their clients, could have a devastating impact on the accounting profession."
Monday, March 23, 2009
