The Securities and Exchange Commission (”SEC”) decided to investigate Bernard Madoff’s multi-billion dollar Ponzi scheme at least six times over two decades. The SEC unquestionably had discretion as to whether or not to initiate those investigations, and would be immune to any claim that it should have—or should not have—investigated Madoff on those or other occasions. Once the SEC undertook those investigations, however, it had an obligation to obey the law and its own internal policies,’ and to competently perform routine investigative tasks unrelated to policy considerations. Here, by its own admission, the SEC fell spectacularly short in all respects, resulting in its failure to expose the lurking danger Madoff represented—
and the consequent total loss of Plaintiffs’ investments. Although the Government has admitted its negligence, it seeks to evade responsibility by undercutting the Federal Tort Claims Act, 28 U.S.C. 1346, et seq. (”FTCA”). Through the FTCA, Congress sharply restricted the Government’s sovereign immunity from negligence claims, intending to rectify the injustice of barring victims like Plaintiffs from recovery because they were harmed by the government, rather than private parties. Here, the Government’s lawyers seek to reduce Congress’s deliberate waiver of immunity to an empty promise, arguing that everything the SEC did during its investigations was discretionary. But the two-part test set out by the Supreme Court in Berkovitz v. United States for the discretionary-function exception to the FTCA does not apply to the SEC’s unauthorized, non-policy-related conduct in this case, and the Government’s motion to dismiss must therefore be denied.
Throughout this brief, Plaintiffs’ references to the SEC’s internal “policies” refers to any policy, practice, or procedure, whether written or not, whether formal or informal, that imposed a mandatory duty on SEC staffers to act or refrain from acting in a particular manner. Click here to read full Memorandum filed by Herrick, Feinstein LLP
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