By Jonathan Stempel
Jan 28 (Reuters) - Investors who said they lost money in
Bernard Madoff's fraud may not pursue a lawsuit against the U.S.
Securities and Exchange Commission for missing the swindler's
Ponzi scheme, a federal appeals court said on Monday.
The 9th U.S. Circuit Court of Appeals in Pasadena,
California said a federal district judge correctly dismissed
their lawsuit seeking to hold the SEC responsible under the
Federal Tort Claims Act.
Citing a 2009 report by the regulator's inspector general,
investors led by Dichter-Mad Family Partners LLP in Florida said
they would not have invested with Madoff had the regulator
availed itself of "multiple opportunities" to stop the fraud.
They said they instead relied on the regulator's "implied
stamp of approval" prior to investing, and sought to recover
losses they attributed to SEC negligence.
But the 9th Circuit in an unsigned order said the
plaintiffs' claims fell within the regulator's "discretionary
functions," depriving courts of jurisdiction to hear the appeal.
"I respectfully disagree with the decision, and intend to
seek further appellate review," Richard Gordon, a lawyer who is
one of the plaintiffs and argued the appeal, said in a telephone
interview.
SEC spokesman John Nester said in an email: "The decision
speaks for itself."
Monday's order upheld an April 2010 ruling by U.S. District
Judge Stephen Wilson in Los Angeles.
In April 2011, a Manhattan federal judge dismissed a similar
lawsuit by two other Madoff investors.
An exhaustive August 2009 report by SEC Inspector General
David Kotz outlined how the regulator failed to uncover Madoff's
fraud by missing many red flags, disregarding tips, and failing
to follow up properly on leads.
Madoff, 74, pleaded guilty in March 2009 and is serving a
150-year prison sentence.
The case is Dichter-Mad Family Partners LLP et al v. U.S.,
9th U.S. Circuit Court of Appeals, No. 11-55577.
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