By Mark Huffman
ConsumerAffairs.com
October 14, 2009
Two investors who were swindled in the Bernard Madoff Ponzi scheme have sued the U.S. Securities Exchange Commission, accusing the regulatory agency of being asleep at the switch. The suits seek a total of $2.4 million in actual damages.
The litigation may prove to be purely an exercise in symbolism. The U.S. Government claims sovereign immunity, under which it protects itself from lawsuits. But the plaintiffs in this suit argue sovereign immunity should be waived.
The reason? A pattern of incompetence, the plaintiffs say, with the SEC stumbling over no fewer than six chances to uncover the Madoff fraud.
Had the SEC carried out its functions with even a minimum of reasonable due care, many, if not most, of Madoffs victims would have been spared the financial ruin they face today, the two New York investors said in their 63-page complaint.
The plaintiffs in the case are Phyllis Molchatsky, a disabled retiree who lost $1.7 million, and Steven Schneider, a physician who lost more than $750,000.
The SEC cannot evade accountability with a shield of immunity that is designed to be reserved for policy decisions, the investors said in the complaint.
Madoff is serving a 150-year sentence for engaging in the decades-long fraud. His family members and his biggest investors have been sued for as much as $15 billion.
By the time the SEC brought charges against Madoff last December his investors had lost more than $50 billion, making it the largest Ponzi scheme in history. That's nearly five times larger than the fraud that drove WorldCom into bankruptcy in 2002.
Madoff, a former chairman of the Nasdaq stock market, was convicted of deceiving wealthy investors who thought they were reliably earning two percent or more per month on their money even when financial markets were performing poorly.
