The U.S. Securities and Exchange Commission and the
Financial Industry Regulatory Authority were accused of being liable for losses in a Luxembourg fund tied to New York money manager Bernard Madoff.
The Luxembourg suit, which says the SEC and Finra failed to stop Madoff's fraud after repeated warnings, seeks an order holding the U.S. regulators liable for losses in Access International Advisors LLC's defunct LuxAlpha Sicav-American Selection Fund. Irving Picard was also sued for damages, in his role as the trustee tasked with liquidating Madoff's business.
“The SEC and Finra are liable for their extreme misconduct and failures” to prevent Madoff's “monumental fraud with disastrous effect on the global investment community, particularly on investors within Luxembourg,” according to the suit filed April 13 by lawyers for Access. “Thanks to their poor functioning they enabled a fraud that lasted many years.”
The SEC has been faulted by U.S. lawmakers for failing to detect that Madoff was operating a $65 billion Ponzi scheme. The SEC said last year it would conduct a “top-to-bottom” review of its regulation. Employees at Finra, the U.S. brokerage industry's main regulator, failed to fully probe transactions at Madoff's firm, a report found in October.
SEC spokesman John Heine and Finra spokesman Brendan Intindola, didn't immediately respond to voice messages left before normal U.S. business hours.
‘Held Accountable'
Fernand Entringer, the Luxembourg lawyer for Access, Patrick Littaye, co-founder of Access, and Pierre Delandmeter, a board member of LuxAlpha, said in the court filing the SEC and Finra “should be held accountable” for investor losses.
Access, Littaye and Delandmeter made the claims as part of their defense to a lawsuit by the Luxembourg fund's liquidators that claims they are jointly liable for losses with
UBS AG, the fund's custodian, and auditor Ernst & Young LLP.
LuxAlpha had $1.4 billion in net assets a month before the former Nasdaq Stock Market chairman's December 2008 arrest, according to Bloomberg data.
The Commission de Surveillance du Secteur Financier, the Luxembourg regulator, was accused of hiding that it knew since 2004 of links between
UBS and Madoff. While the regulator may not have approved of the connection, it “tacitly tolerated it for a long time,” according to the 35-page court filing.
Investors who lost millions of dollars through LuxAlpha may have lost the chance to pursue more than 100 pending lawsuits against
UBS and Ernst & Young for “seriously neglecting” their supervisory duties after a March 4 ruling by Luxembourg's commercial court.
Madoff, 71, last year pleaded guilty to running a Ponzi scheme in federal court in Manhattan and was sentenced to 150 years in prison.
