Finra, SEC sued over Bernie Madoff losses

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.
JUN 21, 2010
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.

Latest News

DOJ's fraud sweep bags over $1B in convictions, guilty pleas and indictments in a single week
DOJ's fraud sweep bags over $1B in convictions, guilty pleas and indictments in a single week

Medicare scam, pandemic benefit theft, offshore tax evasion — federal prosecutors are casting a wide net.

Retirement without guaranteed income streams may mean near-total asset wipeout
Retirement without guaranteed income streams may mean near-total asset wipeout

Report finds that pension income acts as a financial lifeline for retirees facing late-life shocks and raises urgent questions about the DC-only future.

Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney
Federal judge dismisses Eltek manipulation lawsuit against Morgan Stanley Smith Barney

Nine-month electronic trading freeze and share lending program at the center of dismissed claim.

RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone
RIA wrap: Dynamic strikes South Carolina deal to reach $7B AUM milestone

Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.

Rethinking diversification amid a concentrated S&P 500
Rethinking diversification amid a concentrated S&P 500

With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.

SPONSORED Beyond wealth management: Why the future of advice is becoming more human

As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management

SPONSORED Durability over scale: What actually defines a great advisory firm

Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline