Case 2.6
Bernard L. Madoff
Investment and Securities:
A Focus on Auditors’ and
Accountants’ Legal
Liability
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Madoff Case
Relevant Technical Knowledge
Common Law Liability to 3rd Parties
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Ordinary Negligence
Gross Negligence
Fraud
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Madoff Case
Relevant 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 Case
Relevant 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
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Feature Repeated Case Experiences with
Feedback; and
Teach Technical Concepts within RealLife Contexts
Consider the following additional cases:
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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
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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
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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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