| NEW YORK, April 10
NEW YORK, April 10 Victims of Bernard Madoff's
investment fraud have lost their bid to sue the U.S. Securities
and Exchange Commission for negligence in failing to uncover the
swindler's Ponzi scheme.
A federal appeals court in New York on Wednesday upheld the
dismissal of lawsuits against the U.S. securities regulator
brought by Madoff investors. The court said the SEC's actions
and "regrettable inaction" were protected by a law that shields
federal agencies from liability.
The Madoff case embarrassed the SEC, which had investigated
the now-imprisoned money manager but failed to detect his fraud.
The investor lawsuits relied heavily on a 2009 report by the
SEC Inspector General's office, which outlined how the agency
missed red flags and failed to follow up properly on leads that
he was running a massive scam at his firm, Bernard L. Madoff
Investment Securities LLC.
Howard Kleinhendler, a lawyer for eight plaintiffs who he
said lost $50 million in Madoff's scheme, said he could not
envision a better example of a case in which the SEC should be
held liable for failing to prevent a fraud.
"It just shows that we spend a lot of money on this agency,
and when they screw up, they're not accountable," he said,
adding that he would seek U.S. Supreme Court review of the case.
An SEC spokesman did not immediately respond to a request
In an unsigned opinion, a three-judge panel of the 2nd U.S.
Circuit Court of Appeals expressed "sympathy for Plaintiffs'
predicament (and our antipathy for the SEC's conduct)," but said
Congress' intent was to protect regulators' discretionary use of
their investigatory powers.
The ruling upholds an April 2011 decision by U.S. District
Judge Laura Taylor Swain in Manhattan, which tossed a lawsuit
brought by Madoff investors Phyllis Molchatsky and Steven
Several similar cases by other investors that were also
dismissed were consolidated for the appeal.
Separately, the 9th U.S. Circuit Court of Appeals earlier
this year rejected claims against the SEC by other former Madoff
Madoff pleaded guilty in March 2009 to running what
prosecutors say was a $65 billion Ponzi scheme. He was sentenced
to a 150-year prison sentence in June 2009.
Irving Picard, a court-appointed trustee, has said he has
recovered or reached settlements for $9.32 billion for former
The case is Molchatsky v. United States, 2nd U.S. Circuit
Court of Appeals, No. 11-2510.