A federal appeals court in New York has ruled that victims of Bernard Madoff’s investment fraud are not entitled to sue the Securities and Exchange Commission for negligence, saying the SEC was not liable even though it failed to detect his ponzi scheme.
“It just shows that we spend a lot of money on this agency, and when they screw up, they’re not accountable, ” attorney Howard Kleinhendler, who represents eight investors who lost of $50 million in the Madoff fraud, told The New York Times
The lawsuit drew heavily on a 2009 report by the SEC Inspector General’s office, which admitted the agency missed red flags when investigating Madoff.
“Plaintiffs allege in detail approximately eight separate complaints the SEC received regarding Madoff and the SEC’s inadequate and often incompetent response to each,” the court ruling noted. “As a result of the SEC’s repeated failure to alert other branch offices of ongoing investigations, properly review complaints and staff inquiries, and follow up on disputed facts elicited in interviews, the SEC missed many opportunities to uncover Madoff’s multibillion-dollar fraud.”
Nonetheless, the court said on Wednesday that while the SEC’s inaction was “regrettable,” the agency is protected by a law that shields federal departments from liability.
According to the Times, the investors plan to appeal the case to the Supreme Court, even though previous lawsuits against the government have also been dismissed.
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