California Federal Court Dismisses Investors' Lawsuit Against SEC for Madoff Losses

Judge Stephen Victor Wilson, U.S. District Judge in the Central District of California, on April 20, 2010, dismissed a complaint filed by persons who claim they were defrauded by Bernard Madoff’s pyramid scheme.
The investors’ complaint alleges that the Securities and Exchange Commission (SEC) woefully failed to discover Madoff’s scheme long before Madoff confessed that he was running a pyramid scheme and had defrauded investors of amounts totaling billions of dollars.
Readers will recall that I previously wrote about the SECs inaction, incompetence and inexperience in its failure to discover Madoff’s illegal investment scheme.
Judge Wilson, in effect, says that the SECs manner of investigation, even assuming “sheer incompetence,” was permissible and protected, given that its actions and failure to act were protected by the “discretionary exception” to the Federal Tort Claims Act. In other words, if the statutes creating and controlling the SEC require discretionary (may act) as opposed to mandatory (must act) powers, those acts or failure to act do not expose the SEC to any liability.
It is expected that the decision will be appealed by the plaintiffs to the U.S. Court of Appeals for the Ninth District.
I will follow this case in the event of an appeal.

What is a Colorado Auditor’s “Due Diligence” Responsibility?, Business Litigation Blog, April 22, 2009


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