![Federal appeals court affirms dismissal of Madoff victim lawsuit against SEC](https://www.jurist.org/wp-content/uploads/2021/12/jurist-white-text.png)
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[JURIST] The US Court of Appeals for the Ninth Circuit [official website] on Monday refused to reinstate [opinion, PDF] a lawsuit against the US Securities and Exchange Commission (SEC) [official website] by investment fraud victims of disgraced financier Bernard Madoff [JURIST news archive]. The investors had sued the SEC under the waiver of sovereign immunity in the Federal Tort Claims Act [28 USC § 2680] that allows a claim based on the performance of or failure to perform a discretionary function of a federal agency. The three-judge panel affirmed the April 2010 decision of the US District Court for the Central District of California [official website], which dismissed the lawsuit for lack of subject matter jurisdiction [Cornell LII backgrounder]. The original complaint contained more than 50 pages of allegations summarizing the SEC’s failure to uncover Madoff’s Ponzi scheme, many of them based on the SEC Office of Inspector General’s 450-page report [text, PDF] entitled “Investigation of Failure of the SEC to Uncover Bernard Madoff’s Ponzi Scheme – Public Version” and released [JURIST report] in August 2009. The court rejected claims that negligence on the part of the SEC “caused Madoff’s scheme to continue, perpetuate, and expand” because the SEC retains discretion to decide how to conduct its investigations, meaning there are no mandatory obligations requiring the SEC to bring an enforcement action in any particular situation:
Many of Plaintiffs’ allegations (including the factual averments contained in the Report) identify decisions that, in hindsight, could have and should have been made differently. Other allegations reveal the SEC’s sheer incompetence in regulating Madoff’s broker-dealer, market-making, and investment-management operations. What is lacking in the present Complaint, however, is any plausible allegation revealing that the SEC violated its clear, non-discretionary duties, or otherwise undertook a course of action that is not potentially susceptible to policy analysis.
The Ninth Circuit’s three-paragraph opinion affirmed the district court’s “reasoned finding” in brief fashion, disposing of the appeal by adopting verbatim nearly 80 pages of the lower court’s original order.
Madoff’s scheme is believed to have defrauded investors of over $65 billion. Last July the US District Court for the Southern District of New York (SDNY) [official website] approved the first payouts [JURIST report] to Madoff’s victims. Madoff trustee Irving Picard filed almost 60 lawsuits [JURIST report] for victims of Madoff’s fraud in December 2010, including suits against large banks like JPMorgan Chase and HSBC. Judge Louis Stanton made Picard the trustee of Bernard L Madoff Securities, LLC in December 2008. Madoff was sentenced [JURIST report] in June 2009 to 150 years in prison for securities fraud stemming from his Ponzi scheme. He pleaded guilty [JURIST report] to 11 counts of securities fraud in March 2009.