Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

The New York Times reports that  Bernard. Madoff’s longtime accountant pleaded guilty to three counts of obstructing the administration of the federal tax laws carrying a prison sentence of up to 114 years .  The accountant, David G. Friehling, admitted that for nearly 20 years he had "rubber-stamped" audits that allowed Madoff to conceal his  Ponzi scheme from regulators.  Friehling essentially conceded that he had never properly conducted an independent audit of the Madoff operation. Despite this lack of independence, he produced the purported independent audits that helped to enable the Madoff scheme for several years.  Friehling also acknowledged that he had prepared tax returns for Madoff and "others," who remained unnamed.  Legal experts suggest that the "others"  are Madoff family members, who may be the next targets of the government's continuing investigation.

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Two reports issued by the SEC's independent inspector general recommends sweeping changes to the agency's investigation and enforcement programs following failures to detect fraudulent activity, including Bernard Madoff's ponzi scheme, according to a New York Times report. 

The two reports issued by SEC inspector general H. David Kotz recommend a total of 58 changes in the way the agency evaluates tips, trains investigators and documents examinations.  The set of recommended changes include incorporation of basic investigative techniques, such as recording witness interviews and using a database for tips and complaints.  The SEC should also "require tips and complaints to be reviewed by at least two individuals experienced in the subject matter prior to deciding not to take further action,"  the report recommends.  (Read the Inspector General's Report)

The S.E.C. has accepted the recommendations, according the the New York Times article. 

The proposed changes follow the IG's publication of its investigative report regarding  the SEC’s failure to detect the Madoff ponzi scheme.  That investigation found that the SEC had failed to properly examine  Madoff’s firm and had not adequately followed up on whistleblower tips from as far back as 1992 that could have lead to discovery of the estimated $65 billion fraud scheme.

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The Wall Street Journal reports that FairfieldGreenwich Group, one of the largest funds to invest in Barnard Madoff's Ponzi scheme, has agreed to pay  Massachusetts $8 million to settle civil fraud charges filed by the state's chief securities regulator.  The April 2009 complaint alleged that FairfieldGreenwich invested its clients' money with Madoff, but neglected to conduct its promised due diligence.   According to the settlement, FairfieldGreenwich will pay a $500,000 fine to Massachusetts, with the remaining settlement funds used for restitution for Massachusetts investors who lost money in the Madoff scheme.  Following the filing of the complaint in April, the hedge fund initially denied the allegations, claiming that "[t]he complaint here was rushed into existence and is so filled with errors and factual distortions as to completely misstate the conduct of the companies that make up the Fairfield Greenwich Group."

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