As we expected, now that SEC head Chris Cox has already all-but-admitted that the SEC made multiple mistakes in its monitoring of Bernie Madoff, investors are suing for damages. It wouldn’t be America if this didn’t happen. So much for “sovereign immunity.”
Kara Scannell, WSJ: A New York woman who lost nearly $2 million investing with Bernard Madoff has filed a claim against the Securities and Exchange Commission alleging the agency was negligent in failing to detect an alleged decades-long fraud.
The administrative claim for relief was filed with the SEC on Monday and is believed to be the first attempt by an investor to recover lost money from regulators. Phyllis Molchatsky, a 61-year-old retiree from Valley Cottage, N.Y., is seeking $1.7 million in damages from the agency.
The SEC’s “statutory purpose is to protect the public interest. We feel they fell down on the job in this instance,” said Howard Elisofon, the lawyer representing Ms. Molchatsky and a former SEC enforcement attorney.
The SEC declined to comment.
An administrative claim for relief is the first step in filing a lawsuit against the government. If the SEC doesn’t negotiate or respond to the claim within six months, the investor can file a lawsuit in federal court.
The doctrine of sovereign immunity limits the kind of cases in which a U.S. citizen can sue the government for damages.
“It’s an uphill battle to succeed with this,” said Gregory Sisk, a law professor at the University of St. Thomas School of Law in Minneapolis. He said courts are reluctant to find that government agencies should act as insurance against any losses.