Madoff auditor waives indictment

David Friehling, an accountant with ties to disgraced financier Bernard Madoff, leaves the Manhattan federal courthouse after being charged with securities fraud and aiding investment adviser fraud in connection with Bernard Madoff's ponzi scheme in New York March 18, 2009.

NEW YORK (Reuters) - Bernard Madoff's former outside accountant told a judge on Friday that he would waive his right to a criminal indictment on fraud charges, a sign he might reach agreement with prosecutors to resolve his case.

The accountant, David Friehling, 49, said "not guilty" when he was asked in Manhattan federal court by Judge Alvin Hellerstein whether he wanted to enter a plea to criminal charges filed by the government.

Friehling's decision means a federal grand jury will not be called to consider the charges but more evidence will be gathered and examined by prosecutors and defense lawyers.

"Discussions continue on a disposition of the case," U.S. prosecutor Lisa Baroni told the judge.

Hellerstein set October 1 for the next hearing for Friehling, the only person charged so far other than Madoff in the $65 billion worldwide Ponzi scheme in which early investors were paid with the money of new clients.

Friehling was the sole practitioner at a small storefront accounting firm, Friehling & Horowitz, in a New York suburb, but accounting experts say it would have been next to impossible for such a small firm to have properly audited Madoff's multibillion-dollar asset management business.

"Time is set aside for evaluation of documents and for the defendant to consider his options," the judge said.

The accountant is out on bail but he reports regularly to authorities, the court heard.

The government on Friday filed what is called a felony information, an alternative charging document to a grand jury indictment. It is typically used when a defendant decides to forego a trial and plead guilty, as Madoff did in March.

The information charged Friehling with securities fraud, aiding and abetting investment adviser fraud and filing false audit reports with the U.S. Securities and Exchange Commission and demands forfeiture of his proceeds from the fraud.

His lawyer Andrew Lankler declined comment.

Prosecutors filed criminal charges against Friehling in March, contending he did not conduct proper audits. He worked as an outside auditor for Bernard L. Madoff Investment Securities LLC from 1991 until the disgraced financier's arrest last December.

Madoff, 71, was sentenced to 150 years imprisonment last month and began serving his term on Tuesday at a prison in North Carolina.

Friehling has not been accused of knowing about Madoff's Ponzi scheme.

The case is USA v Friehling 09-mj-00729 in U.S. District Court for the Southern District of New York (Manhattan).

(Reporting by Grant McCool; Editing by Tim Dobbyn and Gerald E. McCormick)