Victims Sue SEC Over Madoff ScamOct 20, 2009 | Parker Waichman LLP
Two of Bernard Madoff’s victims have filed suit against the Securities and Exchange Commission (SEC) for alleged negligence, CNN reported.
Madoff is now spending 150 years in prison for orchestrating a massive Ponzi scam estimated to have cost duped investors an incomprehensible $65 billion. As for the SEC, the regulator has come under fire for apparently missing warnings that something was amiss with Madoff’s investment advisory business.
Since news broke of Madoff’s scheme, the SEC has been faulted for failing to detect the historic fraud since 1992 and for not fully going after tips, having inexperienced staff handle reviews, not looking into unbelievable and sustained profits, not pushing when Madoff was clearly caught in lies, and not pursuing trading records that would have pointed them to the scam.
Now, the two victims—Phyllis Molchatsky and Steven Schneider—are accusing the SEC of “failing to detect Madoff's long-running scam,” said CNN. "Through its negligent actions and inactions ... the SEC caused Madoff's scheme to continue, perpetuate and expand, eventually in billions in losses by investors, and directly caused [the two] plaintiffs to lose more than $2.4 million," read the lawsuit, quoted CNN. The lawsuit also noted that the agency had "countless opportunities" to stop Madoff's scheme "and botched all of them," said CNN.
"Instead of watching the backs of Ms. Molchatsky and Dr. Schneider and the backs of all the other investors, the SEC—through its negligence—was effectively watching Bernie Madoff's back," said one of the plaintiffs' lawyers, who is also a former SEC attorney, reported CNN. "Now it is time for the SEC to be held accountable and for the federal government to do what the law says it must do: Compensate the victims for its negligence," it added.
Also according to the lawsuit, the SEC received "at least eight complaints or submissions indicating that Madoff was operating a Ponzi scheme," between the years 1992 and 2008, reported CNN, citing the lawsuit.
According to the U.S. Attorney's office in New York—the prosecutor in the case—as of last month, 2,336 victims have reported losses in excess of 13 billion, said CNN. Madoff, who is 71 years old, is scheduled for release in late 2139.
Madoff’s scam moved money from new clients to pay bogus returns supposedly issued by a so-called split-strike conversion that is a type of stock and options trading approach, explained Bloomberg.com previously. Among other tactics, Madoff and his staff at Bernard L. Madoff Investment Securities LLC would fabricate records to cover the scam. His bogus investment firm was presented as legitimate, but was simply a front, said CNN. The scam continued because new investors’ funds were used to pay existing investors, appearing to be investment profits. Those false profits were nothing more that stolen money, noted CNN.
Meanwhile, the trustee charged with locating the stolen funds—Irving Picard—has sued Madoff’s wife, Ruth for $45 million and four of Madoff's other relatives for $198 million, according to CNN.