Not so long ago, I was consulted by a colleague at another firm, as to what I thought of their claims against the SEC in the Madoff case. I stated that it is difficult not in some way to hold the SEC responsible for the mess and tragedy that has resulted in the Madoff case but that I would wait to see what the SEC IG's Report held in terms of evidence. I think now that I have reviewed the complaint of my esteemed colleague that I was misunderstood.
Can the SEC be held accountable? Maybe. The current complaint is one that has a very steep uphill to climb. Perhaps there are arguments held in sleeve to surprise the formidable adversary. I will certainly be waiting to see what these may be. But as far as I can make it out, the issues of discretion and negligence pervade the case-law, most of which appears well-settled. The most difficult aspect is the tying up of lack of discretion and judgment to the kinds of duties exercised and the ways in which these duties are exercised in the performance of functions at the SEC. The problem is that the very discretion of staffers is what opens them to assaults of negligence and incompetence. The legal web of sovereign immunity is fairly tight on these issues. I am sure those more knowledgeable than myself would find many other situations in which the SEC has been negligent if not downright captive, including one of my clients. It is at best unclear that the SEC/US Government would be held liable in all these instances.
This being said, the question of holding one's government 'accountable' and 'liable' may be two different things. It is one that requires careful thinking about the policy behind statutes created to except the SEC like other government agencies from liability that other ordinary citizens and entities are open to sustaining.
As many of you know, I propose to hold the SEC (certainly past incarnations and administrations of the SEC) 'accountable' for the immense tragedy, domestic and cross-border caused in the wake of the Madoff fraud. The reason I make this distinction is that liability will take a decade to parse out, and the investors and customers of Madoff from as far away as Japan, many of whom did not even know that their money was being funneled to this one mastermind, are older citizens of the world who were trying to put their hard earned money into a safe investment and now find it lost. From my many discussions with investors close and far, it is clear, not one of them wants to wait to get their money back. Could a lawsuit against the SEC, especially one with some real teeth win? Maybe, but who wants to wait? All I hear is that investors and customers alike want to hold the government accountable... it is the meaning of accountability and expedited investor recovery that really interests me and I believe, most investors!
Why is that? It is because of a belief I hold dear. The law is a vehicle to assist and serve those in society come to a quick resolution of their claims. It is not for some of us who have had the privilege and opportunity to go to law school to stroke our egos or perfect our philosophies at the expense of our elders who have been traumatized and shocked by the betrayal of the financial system generally and by the immense impact of this specific fraud. In a situation such as this, where a government agency could have facilitated an earlier discovery and potentially prevented the tragedy (not unlike Katrina) some 16 years ago, the agency must be held accountable and do the right thing! And I for one, will give it every opportunity to do so.