Nov. 3 (Bloomberg) -- David Friehling, the accountant for con artist Bernard Madoff, pleaded guilty for his role in the largest U.S. Ponzi scheme and said he helped Madoff and others prepare phony tax returns.

Friehling, 49, entered his plea today in Manhattan federal court. He has also reached a cooperation agreement with the government and is helping prosecutors with their probe. He becomes the third person to plead guilty in the multibillion- dollar fraud. Madoff is serving 150 years in prison and aide Frank DiPascali is in jail awaiting sentencing.

The accountant, who served as Madoff’s outside auditor since 1991, told U.S. District Judge Alvin Hellerstein that he didn’t conduct an independent investigation of Bernard L. Madoff Investment Securities LLC as accounting rules required of him. He said he was unaware of Madoff’s Ponzi scheme and accepted on “face value” his claims about the finances of the firm.

“In surely the biggest mistake of my life, I placed my trust in Bernard Madoff,” Friehling told Hellerstein. “I am truly sorry for the suffering of all the victims.”

Friehling pleaded guilty to nine counts including securities fraud, investment-adviser fraud, and three counts of obstructing tax law administration. In detailing the tax charges, he said he helped Madoff and others prepare false returns.

‘Numerous Individuals’

Asked by Hellerstein if the others were “connected to” Madoff, Assistant U.S. Attorney Lisa Baroni interrupted so that Friehling wouldn’t answer and said he helped “numerous individuals.”

After court, defense attorney David Lankler declined to identify the others.

Jacob Frenkel, a former U.S. Securities and Exchange Commission lawyer now in private practice, said in an interview that the “implication” of this courtroom exchange is that Friehling is helping prosecutors develop tax cases against people associated with Madoff.

“David Friehling was one of the key enablers of Bernard Madoff’s historic fraud,” U.S. Attorney Preet Bharara said in a statement. “Friehling has taken responsibility for his crimes and will now assist us in holding others accountable for their involvement.”

Friehling was sole proprietor of Friehling & Horowitz CPAs PC. The firm occupied a 550-square-foot office in New City, New York, and served as auditor to Bernard L. Madoff Investment Securities since 1991. At one time the accountant operated the firm with his father-in-law, Jerome Horowitz, who retired in 1998 and died this year.

Seeking Leniency

Friehling, a resident of New City, a northern suburb of New York City, faces 114 years in prison and is seeking leniency by cooperating with the government. He was freed on a $2.5 million bond after pleading guilty. He is due in court in Feb. 26, although that date will likely be postponed.

In court today, Friehling said he began working with Horowitz in 1989 and took primary responsibility for the Madoff account in 1991. Friehling said Horowitz was introduced to Madoff in 1963 through the father of Madoff’s wife, Ruth. Friehling said Horowitz handled the Madoff books until he took over.

“At no time was I aware Bernard Madoff was engaged in a Ponzi scheme,” Friehling said in court. He said that his family held accounts with Madoff and that their accounts were wiped out in the fraud.

Monthly Fees

Friehling said he had no contact with Madoff’s investors and didn’t bring investors into Madoff’s fund. He admitted that he didn’t review material sources of firm revenue, didn’t examine a bank account through which billions of dollars of client funds flowed, and didn’t verify assets, liabilities or purported stock purchases. From 2004 to 2007, he was paid from $12,000 to $14,500 a month for his services, prosecutors said in court papers.

“I was not independent of BLMIS” because he had invested in the firm, Friehling said. “I did not conduct an independent investigation.”

Friehling signed off on Madoff’s 2007 statement claiming the firm had $1.09 billion in assets, liabilities of $425 million and equity of $668 million, the SEC said in a civil lawsuit that Friehling settled today.

SEC Settlement

In that settlement, Friehling agreed not to contest the allegations that he aided Madoff’s scheme, the agency said in a statement. The partial settlement doesn’t resolve how much money, including fines, Friehling may be ordered to pay, the regulator said. He didn’t admit or deny wrongdoing under the accord.

Friehling also has agreed to forfeit $3.1 million, including property he owns in New City and at a resort community in Florida, as the proceeds of his crimes.

Friehling is a past president of the Rockland County chapter of the New York State Society of Certified Public Accountants.

Madoff, 71, defrauded investors by using money from new clients to pay off old ones.

Investors lost more than $13 billion in the fraud, prosecutors said in court last week in the DiPascali case. Madoff investors were told they had $65 billion before the fraud came to light in December. DiPascali is also cooperating with prosecutors.

The case is U.S. v. Friehling, 09-cr-00700, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net.

Last Updated: November 3, 2009 14:44 EST