For some Florida readers, the Ponzi scheme perpetrated by former NASDAQ Chairman Bernard Madoff may be old news. For the investors who were defrauded, however, their wounds may still be fresh. According to a recent report, a liquidation of the assets from the scheme produced additional funds to repay the victims. To date, however, only about 53% of the investors have been repaid.
Several defrauded South Florida investors recently tried to recoup some of their losses in a federal lawsuit brought against the U.S. Securities and Exchange Commission. The Florida investors claimed that the SEC ignored numerous complaints about the scheme and failed to investigate contradictory or disputed facts. In fact, Madoff made several false filings with the SEC over a 16-year period -- a charge to which he pled guilty, along with other felony charges. The investors claimed that SEC officials should have discovered the Ponzi scheme.
However, the federal court disagreed in a recently-issued ruling. Although SEC officials might be held accountable for non-compliance with a law or regulation, the court explained that government officials have immunity from lawsuits challenging their discretionary decision-making. Although the court characterized the federal agency's inaction as regrettable, it concluded that the SEC could not be sued for negligence. Notably, an appeals court in San Francisco reached the same conclusion in a similar lawsuit brought a few months ago.
Florida readers may rest assured that similar immunity doctrines do not apply to stockbrokers and brokerage firms. Investors have a right to expect their financial advisers to understand the securities they are selling. A failure to disclose all material facts about a security to potential investors because of ignorance is not an excuse, and will not shield such professionals from potential liability in a securities fraud lawsuit.
Source: miami.cbslocal.com, "SEC Suit Ruling Jilts Justice For South Florida Madoff Investors," April 13, 2013