Posted Oct 14, 2009 07:55 pm CDT
Contending that their losses from Bernard Madoff’s record-breaking Ponzi scheme would have been far less if the U.S. Securities and Exchange Commission had “simply done its job,” two of Madoff’s swindled victims have sued the federal agency for $2.4 million in damages.
Lawyers from Herrick Feinstein, who are representing the plaintiffs, say they do not expect the doctrine of sovereign immunity to bar the claim because of the SEC’s “serial, gross negligence” in failing to carry out its day-to-day securities law enforcement duties, reports the New York Times.
The complaint contends that the SEC “through its negligent actions and inactions … caused Madoff’s scheme to continue, perpetuate and expand, eventually in billions in losses by investors, and directly caused [the two] plaintiffs to lose more than $2.4 million,” reports CNN Money.
The SEC declined to comment on the lawsuit by the two investors, the Times says, but the CNNMoney article says a spokesman described the complaint as having “no merit.”
For evidence of claimed wrongdoing by the SEC, the complaint, which was filed in federal court in Manhattan today, relies heavily on an August report by the commission’s inspector general, the Times notes.
Peter Henning, a professor at Wayne State University Law School, tells Bloomberg that the plaintiffs have a tough battle to fight.
In addition to having to prove that the SEC acted unreasonably, the suit, if it is successful, will potentially expose the government to “massive liabilities” in the $65 billion Madoff fraud and other unrelated schemes, he tells the news agency. “That’s why courts are generally reluctant to let these cases go very far.”
Additional and related coverage:
ABAJournal.com: “SEC Never Did ‘Thorough & Competent’ Madoff Probe, Internal Report Says”
Wall Street Journal (sub. req.): “Two Investors Sue SEC Over Madoff Probe “