Ex-Madoff accountant to admit guilt, cooperates

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) - Arch swindler Bernard Madoff's former outside accountant will plead guilty to criminal charges next Tuesday as part of an agreement to help investigators of the multibillion-dollar Madoff fraud, U.S. prosecutors said.

The accountant, David Friehling, worked out of a small suburban New York firm, and accounting experts say it would have been next to impossible for it to have properly audited Madoff's huge asset management business.

Friehling, 49, is the second person after Madoff's longtime deputy Frank DiPascali, 53, to be acknowledged as a government cooperator in the case that shook investor confidence when the once-respected financier Madoff confessed and was arrested last December.

"Cooperators who have overviews provide not just investigative leads but explanations and insights into a silent paper trail," said Daniel Richman, a Professor of Law at Columbia University in New York. "Insiders like DiPascali and Friehling seem to have had very close contact with Madoff and the full extent of his business operations."

Only three people -- Madoff, DiPascali and Friehling -- have been criminally charged so far in the case considered the biggest investment fraud in Wall Street history, involving as much as $65 billion.

A court-appointed trustee hunting to recover billions of dollars for thousands of defrauded investors, has sued Madoff's wife, brother, two sons and a niece and managers of funds he has described as Madoff insiders.

In a letter released on Friday in Manhattan federal court, prosecutors said Friehling is expected to admit to securities fraud, investment adviser fraud, making false statements to the U.S. Securities and Exchange Commission and breaking tax laws. Some of the charges carry a maximum penalty of 20 years imprisonment and millions of dollars in fines.

Friehling's lawyer Andrew Lankler declined to comment. Friehling was initially charged in March and pleaded not guilty in court in July. He is free on bail.

"The government anticipates that, at the pretrial conference scheduled for November 3, 2009... David G. Friehling, the defendant, will plead guilty pursuant to a cooperation agreement with the Government," said the letter, by the office of the U.S. Attorney in Manhattan, to the judge handling the case.

Friehling worked as an outside auditor for Bernard L. Madoff Investment Securities LLC from 1991 until Madoff's arrest in December 2008.

Madoff, 71, was sentenced to 150 years' imprisonment in June and is incarcerated at a medium security prison in North Carolina. DiPascali, who worked at the firm from 1975 and rose through the ranks to eventually become chief financial officer, is jailed pre-sentencing after pleading guilty in August to securities fraud and other charges.

The case is USA v Friehling, U.S. District Court for the Southern District of New York No. 09-0700

(Reporting by Grant McCool, editing by Gerald E. McCormick and Tim Dobbyn)