Appeals Court Denies Lawsuit Pursuant to the Federal Tort Claims Act.

[ by Howard Haykin ]

Investors who claim to have lost money in Bernie Madoff's Ponzi scheme may not pursue a lawsuit against the U.S. Securities and Exchange Commission for having messed up and missed Bernie's swindle.  That decision was handed down by a federal appeals court on Monday - the 9th U.S. Circuit Court of Appeals in Pasadena, CA - which agreed with a federal district judge who dismissed their lawsuit seeking to hold the SEC responsible under the Federal Tort Claims Act.

Monday's order upheld an April 2010 ruling by U.S. District Judge Stephen Wilson in Los Angeles.  In April 2011, a Manhattan federal judge dismissed a similar lawsuit by 2 other Madoff investors.

Citing a 2009 report by the SEC Inspector General ... investors led by Dichter-Mad Family Partners LLP in Florida said they would not have invested with Madoff had the regulator availed itself of "multiple opportunities" to stop the fraud.  Instead, they relied on the SEC's "implied stamp of approval" prior to investing, and for that reason they now sought to recover losses they attributed to SEC negligence.

The exhaustive August 2009 report issued by SEC Inspector General H. David Kotz outlined how the regulator failed to uncover Madoff's fraud by missing many red flags, disregarding tips, and failing to follow up properly on leads.

The SEC's "discretionary functions" ...  served as the basis for the unsigned order by the 9th Circuit - i.e., the plaintiffs' claims fell within the regulator's "discretionary functions," depriving courts of jurisdiction to hear the appeal.

Responses to the Order.     Richard Gordon,  a lawyer who is one of the plaintiffs, said:  "I respectfully disagree with the decision, and intend to seek further appellate review."   SEC spokesman John Nester said in an email: "The decision speaks for itself."

The case is Dichter-Mad Family Partners LLP et al v. U.S., 9th U.S. Circuit Court of Appeals, No. 11-55577.

For further details, go to:  [ Reuters, 1/28/13 ].