SEC Claims It Is Immune From Madoff Suit, Says Court Can Assume Scheme Was "Preventable"

Madoff Guilty

Two victims of Bernie Madoff’s Ponzi scheme sued the SEC in October in a case nearly everyone thought would get nowhere, given the SEC’s option to invoke immunity.

At the time, we threw the idea out to a few litigators, for debating purposes.

There was no debate, even among the plaintiff’s attorneys. In fact, they showed a fair amount of contempt for the idea that taxpayers should pay damages to other taxpayers in this type of situation.

And today, predictably, the SEC filed a motion to dismiss the suit, claiming it is immune from liability for its Madoff failures because its activities fall under a “discretionary functions” exception to the Federal Tort Claims Act. The Act shields government agencies from their decisions on day-to-day activities.

The SEC does not, however, try to defend its actual actions in regard to Madoff.  From page one of the government’s motion:

Plaintiffs’ losses are undeniably tragic. And, for the purpose of this motion, the Court may assume they were preventable — if only the SEC had shut down Madoff’s scheme; or if only it had employed better-qualified and more-experienced investigators, been more persistent in its pursuit of the facts, or devoted additional time and resources to its examinations.

Even considering all the above, this lawsuit, filed by Herrick, Feinstein and asking for $2.4 million has a serious uphill climb.

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