Two investors who lost $2.4 million investing with failed financier Bernard Madoff have sued the U.S. Securities and Exchange Commission for their losses.
Investors Phyllis Molchatsky, a disabled retiree, and Dr. Steven Schneider, filed the lawsuit Wednesday in federal court in Manhattan.
The lawsuit said the SEC had "countless opportunities to stop the Ponzi scheme Madoff operated over 16 years, and botched all of them." The lawsuit said the SEC directly caused the investors to
lose their investment.
A report released this summer by the agency's watchdog said the SEC failed at least five times to uncover Madoff's massive fraud, despite ample warnings that he was operating a Ponzi scheme.
SEC inspector general David Kotz's report called the probes "incompetent."
But he said he found no evidence of any improper ties between the regulatory agency and Madoff, and it also dismissed speculation that senior SEC officials may have tried to influence the probes. But, three agency exams and two investigations of Madoff's investment strategy resulted in no action.
The SEC "never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme," Kotz concluded.
Revelations in December of the agency's failure to uncover Madoff's decade-long Ponzi scheme touched off one of the most painful scandals in the agency's 75-year history.
Since Madoff was sentenced to 150 years in prison for his crimes, an audiotape has been released of Madoff schooling an employee on how to trick the SEC during their probes into the company.