NEW CITY, N.Y. (AP) – The office for Bernard Madoff’s sole auditor exudes anything but wealth and intrigue: It is next door to a pediatrician in a drab suburban building. The tiny storefront is discreetly labeled “Friehling & Horowitz” on its single glass door.

The people milling around outside are not high-end investors; they are mothers with children, waiting for the doctor’s office to open.

But the auditor, a 49-year-old accountant named David Friehling, is enmeshed in one of Wall Street’s biggest scandals and is under criminal investigation in a case that has left people in financial ruin around the world.

The fact that a such a small accounting business was the main auditor for Madoff’s multibillion-dollar operation has emerged as one of the most mysterious elements of the case. Experts say it would be preposterous for a tiny firm to audit properly an operation the size of Madoff’s.

“What if General Motors had a three-person accounting firm doing its audits?” said Jim Vos, CEO and head of research at the hedge fund consulting firm Aksia LLC in New York City, 30 miles south of this suburb.

Colleague Jake Walthour said, “Most hedge funds, even when they are small, use one of four or five big-name firms. And this wasn’t one of them.”

Calls to the firm have gone unanswered this week, and the storefront has been locked every day this week. On Wednesday, a notice of a failed UPS delivery was hung on the door.

Friehling’s home nearby is on a private road that was blocked by a security car, and no one answered the phone.

Rockland County District Attorney Thomas Zugibe, who is investigating the firm, said this week he did not know where Friehling was and had not had any contact with him. Zugibe’s investigators were at the Friehling office Monday morning, knocking fruitlessly at the locked door.

If Friehling’s independent audit reports were fraudulent, “You’re dealing with some very serious felony offenses under state law,” the district attorney said.

“When people make a decision on whether to invest, they do look to see that there was an independent auditor’s report and whether or not it was objective and whether or not it basically laid out the strength of the company.”

The accounting firm has not been charged, and the U.S. attorney’s office would not confirm whether the business is under investigation.

On Wednesday, the American Institute of Certified Public Accountants said it has opened an ethics investigation of Friehling & Horowitz. Spokesman William Roberts said that the firm had been falsely reporting that it was not doing auditing work, thereby avoiding periodic reviews.

Vos’ company looked into Madoff’s firm last year and warned investors off, finding several “red flags.” One was the size of Friehling’s firm. A private investigator reported to Aksia that there seemed to be one person working there. Phone calls were not returned until someone finally answered and said the firm was not open for business, Vos said.

“We found that there were just three employees, the two principals and a secretary,” Vos said.

One of the principals, 80-year-old Jerome Horowitz, actually left the firm in 1997, state records show. He now lives in Florida and may be Friehling’s father-in-law.

This stands in sharp contrast to big auditors such as Ernst & Young, PricewaterhouseCoopers and KPMG – established firms that have the manpower to handle a huge client like Madoff.

Vos also noted that Madoff had used a pre-existing licensed firm, unlike other frauds where swindlers created fictional auditing firms that issued fraudulent reports.

“It’s a real firm, that’s what’s hilarious.” he said. “Their story is going to be that they were fooled. … It is possible.”

Asked if the accountant could have been fooled by Madoff, the district attorney said, “Independent auditors don’t depend on what they’re given. They’re supposed to dig into things.”

The firm seems to have a clean record. Jane Briggs of the state Education Department, which licenses certified public accountants, says there has never been any disciplinary action – and none is pending – against Friehling or the firm.

The business has no current tax problems, and there is no record of judgments against it or a criminal record for Friehling.

Little is known about Friehling’s other clients or how he came to be Madoff’s auditor. State documents indicate that it is a firm engaged in the business of tax preparation, bookkeeping, accounting and auditing.

Friehling is a registered Democrat who voted this year and is a past president of the county chapter of the state CPA society. He is on the board of the Jewish Community Campus in West Nyack, a community center where spokesman David Kirschtel said Friehling is “a nice guy, generous, always supportive of the community.”

Kirschtel said the group had not invested in the Madoff funds.

The district attorney, while acknowledging that his investigation was in its early stages, said, “It’s a local accounting firm that may well be a critical partner in the largest financial fraud that we’ve ever seen.”

Mitchell Gusler, a fellow member of the CPA society, said Wednesday he last saw Friehling at a chapter function in the first week of December.

“None of this makes any sense,” he said.

Associated Press Writers David B. Caruso and Marcy Gordon contributed to this report.

AP-ES-12-17-08 1730EST

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