2nd Circuit blasts SEC for 'regrettable inaction' in massive Madoff fraud, but nixes victim suit
Expressing sympathy for the victims of a record-breaking Ponzi scheme by Bernard Madoff, a federal appeals court on Wednesday blasted the Securities and Exchange Commission for “regrettable inaction” in addressing the fraud but said the SEC is nonetheless protected from suit.
The plaintiffs sued the SEC in 2009 under the Federal Tort Claims Act, which permits some cases to be brought against the government despite the sovereign immunity that generally applies. However, the New York-City based 2nd U.S. Circuit Court of Appeals said an exception to the FTCA, which applies to government investigations, operates to immunize the SEC from suit over its failings to step in and timely deal with Madoff before he stole tens of billions of dollars, the New York Times’ DealBook blog reports.
Bloomberg and Reuters also have stories.
“Plaintiffs allege in detail approximately eight separate complaints the SEC received regarding Madoff and the SEC’s inadequate and often incompetent response to each,” said the court in its written opinion. “As a result of the SEC’s repeated failure to alert other branch offices of ongoing investigations, properly review complaints and staff subsequent inquiries, and follow up on disputed facts elicited in interviews, the SEC missed many opportunities to uncover Madoff’s multibillion-dollar fraud.”
Madoff himself is currently serving a 150-year prison sentence.
See also:
ABAJournal.com: “$65B Madoff Ponzi Scheme May Have Begun As Early as 1984”
ABAJournal.com: “Madoff Thought Jig Was Up in 2006, But SEC Didn’t Check Trades”
ABAJournal.com: “IG Says SEC Largely Ignored Likely Allen Stanford Ponzi Scheme for a Decade”
