Madoff Investors Sue SEC for Botched Investigation

Two of Bernard Madoff’s victims sued the U.S. Securities Exchange Commission for failing to uncover the con man’s $65 billion Ponzi scheme, in a case that could trigger a wave of lawsuits if it isn’t dismissed, Bloomberg.com reports.

The government’s “sovereign immunity” from lawsuits should be waived under a law that permits cases against the U.S. if its workers were negligent, according to a complaint filed in Manhattan federal court seeking the return of $2.4 million.

Through a “pattern of incompetence,” the SEC missed at least six opportunities to uncover Madoff’s fraud even after receiving detailed tips from an expert explaining how Madoff’s high returns and mysterious investment strategy were proof of the world’s biggest Ponzi scheme, according to the complaint.

“Had the SEC carried out its functions with even a minimum of reasonable due care, many, if not most, of Madoff’s victims would have been spared the financial ruin they face today,” the two New York investors said in their 63-page complaint.

The lawsuit was filed by Phyllis Molchatsky, a disabled retiree and single mother who lost $1.7 million, and Steven Schneider, a doctor who lost almost $753,000. The SEC earlier denied the investors’ administrative claims, clearing the way for them to file today’s suit under the Federal Tort Claims Act.

“Based on our initial understanding of the matter, we believe there is no merit to the complaint,” SEC spokesman John Heine said today in a statement.

No related posts.