UPDATE 3-Madoff ex-accountant takes step toward resolving case
* "Waiver of indictment" expected by ex-outside auditor
* Friehling was charged in March with improper audits
* SEC charges still pending (Recasts; adds case assigned to a federal district judge, background on other criminal investigations)
By Martha Graybow
NEW YORK, July 15 (Reuters) - U.S. prosecutors filed a court document on Wednesday that shows Bernard Madoff's former outside accountant, David Friehling, may be moving toward resolving the criminal case against him.
The filing, signed by a federal prosecutor and Friehling's defense lawyer, indicates that the accountant plans to waive indictment and possibly plead guilty. An indictment by a federal grand jury would be necessary if he were to contest the criminal charges filed against him in March and go to trial.
"Please take notice that the United States Attorney's Office will file an information upon the defendant's waiver of indictment," the court papers said.
An information is an alternative charging document in lieu of an indictment, and is typically used when a defendant decides to forego a trial and plead guilty.
It could also indicate that a plea agreement is being worked out between prosecutors and defense lawyers. Friehling's case was assigned to U.S. District Judge Alvin Hellerstein in Manhattan.
The auditor's lawyer, Andrew Lankler, declined to comment.
Friehling is the only person to be criminally charged in the Madoff affair besides the confessed swindler. Madoff was sentenced to 150 years behind bars last month for running a $65 billion Ponzi scheme and checked in to a North Carolina prison on Tuesday to begin serving his time.
U.S. investigators have said 10 or more people associated with Madoff could face criminal charges in the coming months, a law enforcement source has previously told Reuters.
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.
Prosecutors filed criminal charges against Friehling in March, contending he did not conduct proper audits. He worked as Madoff's outside auditor from 1991 until the disgraced financier's downfall last December.
Friehling has been free on bail since his arrest but he was expelled by the American Institute of Certified Public Accountants the same day U.S. authorities brought charges against him.
He has not been accused of knowing about Madoff's Ponzi scheme, a scam in which money from newer clients is used to pay earlier ones, but prosecutors said his actions helped create an illusion that Madoff was a legitimate investor.
Friehling has been charged with fraud, aiding and abetting investment adviser fraud, and filing false audit reports. He faces up to 105 years in prison if convicted.
He also faces separate civil charges filed by the U.S. Securities and Exchange Commission.
The SEC has said that Friehling "merely pretended" to follow minimal audit procedures to make it seem as though he was auditing Madoff's books. Authorities also contend Friehling and his firm improperly held accounts at the Madoff firm in violation of accounting rules. (Reporting by Martha Graybow; Editing by Tim Dobbyn, Bernard Orr)
