Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

A class action filed against the SEC in the Southern District of New York alleges that during a 16 year period the federal agency "serially disregarding" complaints and allegations about Bernard Madoff's $65 billion Ponzi scheme.   The complaint asserts that the SEC "did not adequately review the facts nor reasonably understand the Ponzi scheme allegations presented in the numerous complaints provided to the SEC over the course of sixteen years."  The suit is filed on behalf of persons who invested in Madoff Investment Securities, LLC, directly or indirectly, between November 1992 and December 2008, and who have filed administrative claims with the SEC seeking to recover damages for the agency's alleged negligence.

(Click here to access the Class Action Complaint.)

In 2009, the SEC's Inspector General issued a 457-page report that included details of the agency's failure to detect Madoff's Ponzi scheme despite numerous clues about the fraud.   (The SEC's IG Madoff Report is available here.)

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The New York Times reports that  Bernard. Madoff’s longtime accountant pleaded guilty to three counts of obstructing the administration of the federal tax laws carrying a prison sentence of up to 114 years .  The accountant, David G. Friehling, admitted that for nearly 20 years he had "rubber-stamped" audits that allowed Madoff to conceal his  Ponzi scheme from regulators.  Friehling essentially conceded that he had never properly conducted an independent audit of the Madoff operation. Despite this lack of independence, he produced the purported independent audits that helped to enable the Madoff scheme for several years.  Friehling also acknowledged that he had prepared tax returns for Madoff and "others," who remained unnamed.  Legal experts suggest that the "others"  are Madoff family members, who may be the next targets of the government's continuing investigation.

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The Wall Street Journal reports that FairfieldGreenwich Group, one of the largest funds to invest in Barnard Madoff's Ponzi scheme, has agreed to pay  Massachusetts $8 million to settle civil fraud charges filed by the state's chief securities regulator.  The April 2009 complaint alleged that FairfieldGreenwich invested its clients' money with Madoff, but neglected to conduct its promised due diligence.   According to the settlement, FairfieldGreenwich will pay a $500,000 fine to Massachusetts, with the remaining settlement funds used for restitution for Massachusetts investors who lost money in the Madoff scheme.  Following the filing of the complaint in April, the hedge fund initially denied the allegations, claiming that "[t]he complaint here was rushed into existence and is so filled with errors and factual distortions as to completely misstate the conduct of the companies that make up the Fairfield Greenwich Group."

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