Federal Court Cites the Securities And Exchange Commission Dithering
April 6, 2015
Page 2 -3 of the 11th Circuit OpinionThe plaintiffs in this case, Carlos Zelaya and George Glantz, are victims of one of the largest Ponzi schemes in American history: the much-publicized Ponzi scheme orchestrated by R. Allen Stanford. All Ponzi operations eventually unravel, and when the scheme that had victimized Plaintiffs was publicly revealed to have been a fraud, Plaintiffs were taken by surprise. Yet, according to Plaintiffs, the federal agency entrusted with the duty of trying to prevent, or at least reveal, Ponzi schemes was not all that surprised. To the contrary, this agency, the United States Securities and Exchange Commission ("SEC"), had been alerted over a decade before that Stanford was likely running a Ponzi operation. According to Plaintiffs, notwithstanding its knowledge of Stanford's likely nefarious dealings, the SEC dithered for twelve years, content not to call out Stanford and protect future investors from his fraud. And even though the SEC eventually roused itself to take action in 2009, by then, of course, the money was long gone, and many people lost most of their investmentsPursuant to the Federal Tort Claims Act, Plaintiffs sued the United States in federal court, alleging that the SEC had acted negligently. The federal government moved to dismiss, arguing that it enjoyed sovereign immunity from the lawsuit. The district court agreed, and dismissed Plaintiffs' case. Plaintiffs now appeal that dismissal to this Court. In reviewing the district court's dismissal, we reach no conclusions as to the SEC's conduct, or whether the latter's actions deserve Plaintiffs' condemnation. We do, however, conclude that the United States is shielded from liability for the SEC's alleged negligence in this case. We therefore affirm the district court's dismissal of the Plaintiffs' complaint.
dithered for twelve years, content not to call out Stanford and protect future investors from his fraud.
Plaintiffs-Appellants Phyllis Molchatsky, et al. ("Plaintiffs") appeal from an April 19, 2011 Opinion and Order by the United States District Court for the Southern District of New York (Swain, J.) granting Defendant-Appellee the United States' motion to dismiss Plaintiffs' complaints against the United States Securities and Exchange Commission (the "SEC") for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). Plaintiffs also appeal from the district court's January 24, 2011 Memorandum Order denying Plaintiffs' motion for relief from a judgment under Federal Rule of Civil Procedure 60(b). Plaintiffs seek to hold the United States liable for SEC employees' failure to detect Bernard Madoff's Ponzi scheme and for the financial losses that Plaintiffs claim they suffered as a result. Because we find that the SEC's actions, along with its regrettable inaction, are shielded by the Discretionary Function Exception, we affirm the district court's dismissal of Plaintiffs' claims for lack of subject matter jurisdiction.
Plaintiffs' harm ultimately stems from the SEC's failure to investigate Madoff and uncover his Ponzi scheme. As a result, the conduct Plaintiffs seek to challenge is "too intertwined with purely discretionary decisions" made by SEC personnel. Gray v. Bell, 712 F.2d 490, 515 (D.C. Cir. 1983); see generally id. at 515-16. Despite our sympathy for Plaintiffs' predicament (and our antipathy for the SEC's conduct), Congress's intent to shield regulatory agencies' discretionary use of specific investigative powers via the DFE is fatal to Plaintiffs' claims. . .