By: Zach Lungo
On Wednesday, two victims of ponzi schemer Bernard Madoff filed a lawsuit in the U.S District Court in New York claiming the SEC (Securities and Exchange Commission) failed to detect Madoff's long-running scam, which stole billions of dollars from thousands of investors. Phyllis Molchatsky and Steven Schneider released a statement through their lawyers office Herrick, Feinstein LLP. They claim, "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 that $2.4 million." The lawsuit goes on to claim that SEC regulators had "countless opportunities" to stop Madoff's scheme from becoming more volatile and damaging. They feel the SEC is held accountable in some respect for its negligence in not protecting investors. Furthermore, that from 1992 to 2008 the SEC received at least eight complaints or submissions indicating that Madoff was operating a ponzi scheme.
Could this scheme have been foiled in its infancy? Or was its investors blind trust and high yield returns ultimately where the responsibility lies? It is fair to note that as the market stabilized before the recession that these investors were still making double digit returns on investments when others were appreciating relatively average gains from investments. When asked about the suit, SEC spokesman John Heine said, "Based on our initial understanding of the matter, we believe there is no merit to the complaint."
The court filing, filed in the same court where Madoff plead guilty to 11 federal counts, including fraud, and was sentenced in July to 150 years in federal prison. The ponzi scheme he operated, portrayed his investment firm as legitimate when it was nothing more than a front where funds from new investors were used to payoff mature investors that were passed of as legitimate capital gains. Madoff claimed to have $65 billion, however it was later revealed that even this figure was fraudulent and the court appointed trustee, Irving Picard, is still tying to determine how much was actually stolen.
It is all too early to evaluate weather this lawsuit will hold up or if the SEC will be found accountable. Madoff has been forced to forfeit the fruits of his former lifestyle to comply with a $170 billion legal judgment. Many of Madoff's family and relatives including his wife have had separate lawsuits filed against them. It is evident that the Madoff schemers and proceedings are far from over, however pulling in government regulators and other agencies will be an interesting twist in this unfolding tale.
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