The watchman that the Securities & Exchange Acts of ’33 and ’34 instituted to assure the reliability of financial statements was bought by Bernie Madoff. When I heard the story the evening it broke – a $50bn securities fraud that had gone on for a long time – the obvious thought went to where was the auditor?

At the time my feeling was the audit had to have been faked or be fraudulent. That raised its own questions on why no one in the pool of investors would have done basic due diligence on the audit firm. Today’s news release discussed the topic:

The acting United States attorney, Lev L. Dassin, said that while Mr. Friehling was not accused of knowing about Mr. Madoff’s scheme, he was charged with deceiving investors for years by falsely certifying that he had audited Mr. Madoff’s books.

Joseph M. Demarest Jr., the head of the New York F.B.I. office, said that Mr. Friehling, …did little or no testing or verification of the records he was hired to certify as an independent auditor.”

“…Friehling failed to do his job and lied to investors and regulators in saying he did.” Demarest said.

Mr. Friehling “essentially sold his license to Madoff for more than 17 years while Madoff’s Ponzi scheme went undetected,” said James Clarkson, acting director of the S.E.C.’s office in New York.