Madoff’s “Auditing” Firm: Friehling & Horowitz, One Room Office, Three Employees
December 16th, 2008Via: Bloomberg:
The auditor for Bernard L. Madoff Investment Securities LLC, whose namesake was charged in a $50 billion Ponzi scheme last week, is under investigation by the district attorney in New York’s Rockland County, a northern suburb of New York City.
The New City, New York, auditing firm Friehling & Horowitz signed off on the annual financial statement of Madoff’s Manhattan-based investment advisory business through Oct. 31, 2006, according to a copy obtained by Bloomberg News.
Madoff was charged by federal prosecutors in Manhattan and sued by the U.S. Securities and Exchange Commission on Dec. 11. He told senior employees that the firm was insolvent and “had been for years,” prosecutors said in the criminal complaint. David Friehling, whose name is on the door to the store-front accounting office, hasn’t been charged.
“We’re trying to determine if there have been any state crimes here,” Rockland County District Attorney Thomas Zugibe said in a telephone interview yesterday. “When you have a key player like that operating in your county, you have to look.”
Friehling didn’t return calls for comment.
Zugibe said, among other things, he was probing to see whether any other Rockland-based businesses or other organizations might be affected.
“The implication is pretty broad,” Zugibe said.
Friehling is on the board of the JCC Rockland, a Jewish center in the county. He also is a past-president and a current board member of the Rockland chapter of the New York State Society of Certified Public Accountants.
Hedge Fund Adviser
Hedge fund investment adviser Aksia LLC warned clients last year not to put their money with Madoff after learning of “red flags” at his company, including that its books were audited by a three-person accounting firm.
Friehling & Horowitz included one partner in his late 70s who lives in Florida, a secretary, and one active accountant, Aksia said.
The copy of the four-page annual financial statement, dated Dec. 18, 2006, attested that the financial statements of Madoff’s securities firm were “in conformity with accounting principles generally accepted in the United States.”
The financial analysis said Madoff Securities had $1.3 billion in assets, including $711 million in marketable securities and $67 million in U.S. debt. Members’ equity, the firm’s net worth, was $604 million, according to the document.
The firm operates from a storefront office in the Georgetown Office Plaza in New City, New York, sandwiched between a pediatrician’s office and another medical office.
Leslie Cousar, who works in a nearby office, said on Dec. 12 that the man who comes to the auditor’s office does so for 10-to- 15 minute periods and leaves. She said he drives a Lexus and doesn’t dress in business attire.
The case is U.S. v. Madoff, 08-MAG-02735, U.S. District Court for the Southern District of New York (Manhattan).
They functioned as a broker-of-brokers, a sort of risk-liable clearing house. You might imagine they could have gotten a slim margin of arbitrage income out of this, and some clients figured the 12% was possible due to insider trading based on the information. That it was a Ponzi scheme is interesting, why not run a more profitable options scheme based on knowing a greater percentage of the cards than the other big boyz at the table?
Well, suffice to say a bigger prize may have been at stake. Either routing information for “market management”, like what JP Morgan Futures Inc. has done for gold, might have been their utility in the scheme of things. Providing black budget liqudity and laundering, like the equities equivalent of AIG, is probably more likely. Why not both?
The paradox of all Ponzi schemes is this: in order to design one you need a grasp of basic algebra, but if you have a grasp of algebra you can see where the thing is going. Therefore, the scheme is a means to an end. For the original Charles Ponzi, that end was getting out rich, same for the recent Columbian scam. For the architects of the Bank of England, Federal Reserve et al. there is no “out” to escape to, they’re it. It’s not unreasonable to conjecture this is all an algorithm for massive consolidation of power.