JURIST - Paper Chase: Madoff victims file $2.4 million negligence suit against SEC

[JURIST] Two of the victims of Ponzi scheme perpetrated by Bernard Madoff [JURIST news archive] sued the US Securities and Exchange Commission (SEC) [official website] in federal court on Wednesday, seeking $2.4 million in damages. The complaint [text, PDF], filed in the US District Court for the Southern District of New York [official website], alleges that the SEC owed a duty of care to investors and that employees of the agency were negligent in their investigation of the scheme, which is believed to have defrauded investors of over $65 billion. The complaint summarized the issue as follows:

[D]espite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic steps to determine if Madoff was operating a Ponzi scheme. Had these efforts been made with the appropriate follow-up at any time beginning in June of 1992 until December 2008, the SEC could have uncovered the Ponzi scheme well before Madoff confessed.

Plaintiff Phyllis Molchatsky seeks a minimum of $1.7 million, and plaintiff Steven Schneider a minimum of $752,000, from the government, in addition to fees and costs. No timetable has been set for the trial, and there has been no official statement on the suit by either the SEC or the Justice Department.

This suit against the SEC comes just over a month after the SEC inspector general released a report [JURIST report] detailing the agency's missteps in investigating allegations of wrongdoing in the Madoff investment plan. In July, SEC chair Mary Schapiro pledged more thorough enforcement of security policies in the wake of Madoff's sentencing [JURIST reports]. Several former Madoff employees have been implicated in the Ponzi scheme, including former financial chief Frank DiPascali and accountant David Friehling [JURIST reports].