Victims of the Bernie Madoff Ponzi scheme cannot use the Federal Tort Claims Act to sue the U.S. government and the Securities and Exchange Commission for failing to uncover Madoff’s massive fraud, the 9th U.S. Circuit Court of Appeals ruled Monday.
The Dichter-Mad family Partners, a Florida partnership that invested with Madoff, argued the SEC had a duty of reasonable care for the public and investors and thus should be held to account under the FTCA.
The appeals court upheld dismissal of the suit on the grounds that the court lacks jurisdiction because the actions of the SEC and government “fall within the ‘discretionary function’ exception to the act.
The suit was brought by a group of investors in Madoff’s Ponzi scheme, including Florida partnership, which includes Philip Dichter, a lawyer representing himself and Richard M. Gordon, an other lawyer representing himself.
Madoff ran what became the largest Ponzi scheme in history. The former chairman of NASDAQ and highly regarded investment advisory pleaded guilty to 11 federal felonies in 2009 and bilking thousands of investors of $18 billion. The clients not only lost their original investments but many thought they had far more money in fabricated gains, roughly $65 billion.
His sons went to authorities in December 2008 saying their father confessed that his asset management unit was a Ponzi scheme. He was arrested the next day.
Although a financial analyst Harry Markopolos told the SEC in 1999 he suspected that Madoff’s investment returns were mathematically impossible, the SEC did little to investigate.
In June 2009 he was sentenced to 150 years in prison.
The appeals court’s three-page decision also attaches the 79-page dismissal by U.S. District Judge Stephen V. Wilson in Los Angeles.
Wilson concluded back in 2010 that, despite a 450-page decision by the SEC’s inspector general pointing out the failure of the SEC to uncover Madoff, that the agency acted within its descretion when it set the level of inquiry.
Joining in the decision were Judges Stephen Reinhardt, Kim Wardlaw and Richard Paez.
Case: Dichter-Mad Family Partners v. USA, No. 11-55577