Madoff Probe Widens

Investigators probing the alleged fraud carried out by Bernard Madoff are looking at a key lieutenant at the firm and have issued a subpoena to the accountant who audited the firm's financial statements, seeking documents going back to 2000, people familiar with the matter said.

Authorities are trying to determine who helped Mr. Madoff carry out what they say appears to be at least a 30-year scheme that may have caused at least $50 billion in losses. They are seeking information from the accounting firm that handled Mr. Madoff's audits for decades and are examining the role of Frank DiPascali, who dealt with client accounts and worked at Mr. Madoff's firm for more than 30 years, said a person familiar with the matter.

After Mr. Madoff's arrest on Dec. 11, investigators from the Securities and Exchange Commission showed up at the Madoff firm's headquarters in Manhattan and questioned Mr. DiPascali. He told the SEC he didn't know who was responsible for clearing and settling trades in the investment-advisory side of the firm, according to an SEC memorandum reviewed by The Wall Street Journal. He "responded evasively," the SEC memo said.

The 52-year-old Mr. DiPascali hasn't been charged with any wrongdoing.

Investigators issued a subpoena to David Friehling, a New City, N.Y., accountant who audited the Madoff firm's financial statements, and are seeking documents related to the Madoff firm going back to Jan. 1, 2000, said a person familiar with the matter. He has until Dec. 29 to fulfill the request. Andrew Lankler, a lawyer for Mr. Friehling, declined to comment on his client's knowledge of the Madoff investment-advisory business.

Mr. Friehling, 49, who operates out of a small office about an hour north of New York City, took over the accounting firm from Jerry Horowitz, who did work for Mr. Madoff for decades. A lawyer for Mr. Horowitz didn't return requests for comment.

Investigators are beginning to understand how Mr. Madoff's alleged fraud took place. A person familiar with the situation said investigators believe Mr. Madoff initially had a trading strategy that failed, and that he had made very few, if any, stock or options trades for clients over the years. Instead, the operation consisted of taking money in from new clients and paying it out to existing clients, said people familiar with the matter.