Tuesday, December 23, 2008

Suing The SEC Over Madoff

In my Madoff post of one-week ago, I concluded with the following:

As for the regulators, they clearly and spectacularly failed -- again. Unfortunately, this will lead to calls for broader and deeper regulation. Regulation fails? Then we must need more! I imagine a number of Madoff investors took some comfort in knowing that the SEC had investigated Madoff and signed off. Perhaps if the SEC didn't exist, investors would have spent a little more effort themselves looking into his operation. Alas, the SEC is likely to benefit from its amazing failure by being given even greater funding. Perhaps the defrauded investors will sue the SEC for negligence.
Perhaps Phyllis Molchatsky is a Rubbernecker reader. From the WSJ:

A New York woman who lost nearly $2 million investing with Bernard Madoff has filed a claim against the Securities and Exchange Commission alleging the agency was negligent in failing to detect an alleged decades-long fraud.

The administrative claim for relief was filed with the SEC on Monday and is believed to be the first attempt by an investor to recover lost money from regulators. Phyllis Molchatsky, a 61-year-old retiree from Valley Cottage, N.Y., is seeking $1.7 million in damages from the agency.

The SEC's "statutory purpose is to protect the public interest. We feel they fell down on the job in this instance," said Howard Elisofon, the lawyer representing Ms. Molchatsky and a former SEC enforcement attorney.

The SEC declined to comment.

What a wonderful deal for the U.S. taxpayer. We pay $1 billion a year to fund the SEC which somehow manages to miss a $50 billion fraud that it was warned about. Then we're potentially on the hook for the losses from said fraud. We'll probably be rewarding this SEC incompetence with a doubling of its budget - another $1 billion of taxpayer money down the drain. It's hard to figure out just who the biggest crook is these days.

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