Case 2.6

Bernard L. Madoff Investment and Securities: A Focus on Auditors’ and

Accountants’ Legal Liability

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Madoff CaseRelevant Technical Knowledge

Common Law Liability to 3rd Parties Ordinary Negligence Gross Negligence Fraud

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Madoff CaseRelevant Technical Knowledge

Securities Act of 1933 According to Section 24 of the Securities Act of

1933, there can be criminal penalties imposed on an auditor. In order for an auditor to be subject to criminal penalties, there must be a willful violation by the auditors. That is, they must have “willfully” caused material misstated financial statements to be filed. As a result, this is very difficult to prove.

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Madoff CaseRelevant Technical Knowledge

Securities Exchange Act of 1934 According to Section 32 of the Securities

Exchange Act of 1934, there can be criminal penalties imposed on the auditor. In order for the auditor to be subject to criminal penalties, the critical test is whether the auditor “willfully and knowingly” knew about the misstatement in the financial statements.

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Psychology Literature - How to Best Acquire Knowledge Feature Repeated Case Experiences with

Feedback; and Teach Technical Concepts within Real-

Life Contexts Consider the following additional cases:

Madoff: The Role of the Securities and Exchange Commission (SEC)

Madoff: Broker-Dealer Fraud Madoff: Understanding the Client’s Business and Industry

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Epilogue - Madoff In March 2009, Bernie Madoff

pleaded guilty to 11 different federal felonies, including securities fraud.

On June 29, 2009, Madoff was sentenced to 150 years in prison, the maximum penalty allowed by law.

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Epilogue - Madoff On December 11, 2010, Bernie Madoff’s

son Mark Madoff committed suicide at the age of 46, 2 years to the day of his father’s arrest in 2008.

In November, 2009, David Friehling, Madoff’s CPA pled guilty with a maximum sentence of 108 years. As of September, 2013, he remains out of jail as he continues to cooperate with the ongoing federal investigation.

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