(CN) – A charitable foundation says the Securities and Exchange Commission should reimburse it for the $2.5 million it lost to Bernie Madoff, because the SEC ignored “innumerable smoking guns” and failed to detect the largest Ponzi scheme in history despite 15 years of credible warnings.
“Had the SEC carried out its duties with even a minimum of due care, many, if not most, of Madoff’s victims would have been spared the financial ruin they face today,” according to two complaints in Manhattan Federal Court.
The Michael & Ruth Slade Foundation invested with Madoff in 2007, just a year before his $65 billion Ponzi scheme came tumbling down. The Foundation accuses the SEC of negligence. It claims the lion’s share of its endowment would not have been sucked into Madoff’s black hole had the SEC done its job, rather than developed an “agency culture of deference to powerful industry figures.”
The Foundation cites a 2009 internal SEC investigation that reached similar conclusions. It stated that between 1992 and 2008 the SEC received a “steady stream of at least eight complaints or submissions indicating Madoff was operating a Ponzi scheme,” according to the complaint.
The Slades say that the SEC assigned junior staff to investigate Madoff and “actively discouraged them from pursuing leads,” because Madoff was a powerful player on Wall Street.
“Clouding every step of the SEC’s various investigations was a perception of Madoff’s power and influence that cowed staff members into giving him the benefit of the doubt, despite their suspicions – or even knowledge – that he had lied to them,” according to the complaint.
The foundation is represented by Howard Elisofa with Herrick Feinstein.
Elisofa filed a nearly identical lawsuit for investors Alan Goldman and Blayne Goldman, who invested about $2 million with Madoff.
The Foundation and the Goldmans want the SEC to reimburse them.
Madoff is serving an effective life sentence in federal prison.