The First Bernie Madoff Domino Falls

Bernard Madoff's auditor, David G. Friehling, just got the book thrown at him in a criminal complaint filed by federal prosecutors in Manhattan.

From the U.S. Attorney's announcement:

FRIEHLING failed to conduct audits that complied with GAAS and GAAP by, among other things, failing to: (a) conduct independent verification of BLMIS assets; (b) review material sources of BLMIS revenue, including commissions; (c) examine a bank account through which billions of dollars of BLMIS client funds flowed; (d) verify liabilities related to BLMIS client accounts; or (e) verify the purchase and custody of securities by BLMIS. FRIEHLING also failed to test internal controls as required under GAAP and GAAS standards. For example, FRIEHLING did not take any steps to test internal controls over areas such as BLMIS's redemption of client funds, the payment of invoices for corporate expenses, or the purchase of securities by BLMIS on behalf of its clients. Further, commencing at least as far back as 1995, FRIEHLING did not maintain professional independence from his audit client, BLMIS.

Etcetra. Sounds like something that happens all the time, to tell you the truth, but I guess that it can get you in trouble with a client like Madoff. The hapless numbers-cruncher faces up to 105 years in jail.

How much time will it take for him to flip? My guess is "five seconds."

The dominoes are falling.

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