An “Aggressive” Prosecution? David Siegal Talks to WSJ about Madoff Auditor Case

03/19/2009

An “Aggressive” Prosecution? Breaking Down Madoff Auditor Case
Wall Street Journal, Law Blog

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.

Friehling was charged with securities fraud and investment adviser fraud, as well as four counts of filing false audits with the SEC...

...David Siegal, a former SDNY prosecutor who is now at Haynes and Boone said, “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.

Article excerpted from Wall Street Journal.  For full text, click here.

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